Case Law Details
Confederation of Indian Industry Vs Commissioner of Central Excise and Service Tax (CESTAT Chandigarh)
The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal examined an appeal against an order passed by the Commissioner of Central Excise and Service Tax, Chandigarh-I, which had confirmed Service Tax demands for the period from 1 October 2010 to 31 March 2012. The confirmed demands related to two heads: Service Tax on reimbursement of expenses under Convention Services amounting to ₹39,034 and Service Tax on income from the Modular Employment Scheme amounting to ₹1,25,818. These amounts were confirmed under the category of Business Auxiliary Service.
The appellant is an organisation registered with the Service Tax department and primarily engaged in serving industry. During audit, objections were raised leading to issuance of a show cause notice proposing Service Tax demands on four counts: reimbursement of expenses under Convention Service, income from Modular Employment Scheme, contributions or grants received from Government under Business Exhibition, and sponsorship amounts received. After adjudication, the Commissioner dropped the demands on contributions under Business Exhibition and sponsorship income but confirmed the demands on reimbursement of Convention expenses and income from the Modular Employment Scheme, giving rise to the present appeal.
The appellant contended that the impugned order was legally unsustainable and that the issues involved were no longer res integra. Reliance was placed on a prior decision of the Tribunal in the appellant’s own case for an earlier period, where identical issues had been examined and decided in favour of the appellant. It was submitted that the two categories of services on which tax had been confirmed in the present proceedings had already been held to be non-taxable.
The Tribunal examined the submissions and records and noted that the controversy had already been settled by its earlier decision in the appellant’s own case. In that decision, the Tribunal had considered Service Tax demands on differential amounts under Convention Services and held that figures reflected in the balance sheet merely showed income and expenditure of the organisation and could not form the basis for Service Tax liability. It was observed that Service Tax is payable on specific taxable services based on invoices and not on gross figures taken from financial statements. The earlier demand had been found vague as it was based solely on gross figures without supporting evidence.
With respect to reimbursement of expenses, particularly electricity charges recovered in relation to Business Exhibition Services, the Tribunal had earlier held that once Service Tax was paid on the main taxable service, reimbursement of expenses without nexus to the service could not be separately taxed. It was further noted that levy of Service Tax on reimbursement of expenses had been held ultra vires, and therefore such demands were unsustainable.
On the issue of income from the Modular Employment Scheme, the Tribunal had earlier found that the scheme was a vocational training programme administered by the Ministry of Labour, Government of India. The appellant acted as an approved assessing body, conducting examination and assessment of students enrolled in the scheme as per government mandate. This activity was held to be an integral part of vocational training. Since vocational training activities were outside the ambit of Service Tax and were specifically exempted under applicable notifications during the relevant period, the assessing activity undertaken under the Modular Employment Scheme was also held to be non-taxable.
Additionally, the Tribunal had observed in the earlier decision that the show cause notices relating to the Modular Employment Scheme failed to specify the exact taxable category under which Service Tax was sought to be demanded. In the absence of a clear classification, the demand was held to be vague and unsustainable, following settled judicial principles that a show cause notice must clearly inform the assessee of the allegations to enable effective defence.
Applying the ratio of its earlier decision, the Tribunal concluded that the issues in the present appeal were squarely covered in favour of the appellant. It held that the impugned order confirming Service Tax on reimbursement of Convention expenses and income from the Modular Employment Scheme was not sustainable in law. Consequently, the impugned order was set aside and the appeal was allowed.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The present appeal is directed against impugned order dated 15.05.2014 passed by the Commissioner of Central Excise & Service Tax, Chandigarh-I, whereby the learned Commissioner has confirmed the demand of service tax under two categories namely ‘Reimbursement of Expenses under Convention Services’ amounting to Rs.39,034/- and ‘Income from Modular Employment Scheme’ amounting to Rs.1,25,818/- for the period 01.10.2010 to 31.03.2012.
2. Briefly stated facts of the present case are that the Appellant is an organization primarily serving the industry and is registered with the Service Tax department. During the course of audit of the Appellant’s records, certain objections were raised, on the basis of which, a show cause notice dated 15.10.2012 was issued to the Appellant demanding service tax under the following categories:
A. Reimbursement of Expenses under Convention Service,
B. Income from Modular Employment Scheme,
C. Contributions/grant received from Government under Business Exhibition
D. Sponsorship amount received.
After following the due process, the learned Commissioner vide the impugned Order-in-Original, has dropped the demand made in the show cause notice, but confirmed the demand on ‘Reimbursement of Expenses under Convention Services’ and ‘Income from Modular Employment Scheme’ under the head Business Auxiliary Service. Hence, the present appeal.
3. Heard both sides and perused the material on record.
4. The learned Counsel for the Appellant submits that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. She further submits that the issue involved in the present case is no more res integra and has been settled by this Tribunal in the Appellant’s own case for the previous period, reported as (2024) 20 Centax 239 (Tri. Chan.), wherein these two impugned services, on which service tax has been demanded, have been considered by this Tribunal and have been held to be non-taxable.
5. On the other hand, the learned Authorized Representative for the Revenue reiterates the findings of the impugned order.
6. After considering the submissions made by both the parties and perusal of the material on record, we find that the issue involved in the present case is no more res integra and has been settled by the Tribunal in favour of the Appellant in their own case as cited above, whereby the Tribunal has considered these two services in details and held that the Appellant is not liable to pay the service tax under these two categories. The relevant findings of the Tribunal are reproduced herein below:
“25. As far as demand of service tax of Rs.22,70,068/-based on differential amount under convention service is concerned, we are of the opinion that this demand is also not sustainable as the figures in the balance sheet reflects the income and expenditure of the organization and has nothing to do with the liability or payment of service tax. Service tax is paid on specific heading, based on invoices and not on the gross amount. The demand of department is solely based on the gross figures available without any supporting evidence and hence is vague and liable to be dropped and we do so accordingly.
26. Further, as far as demand of service tax of Rs.2,64,582/- on reimbursement of electricity consumption related to business exhibition service is concerned, we find that the appellant provides business exhibition service and admittedly appropriate amount of service tax is paid on that activity. The appellant also charges reimbursement of electricity charges from the exhibitor which is sought to be taxed by the department. In this regard, it is to be noted that the demand of service tax on reimbursement of expenses has been held ultra virus by the Hon’ble High Court of Delhi in the case of Inter-Continental v. UOI 2013 (29) S.T.R. 9 (Del.).
In view of this, the demand of service tax on reimbursement of electricity charges are set-aside as there is no nexus between electricity reimbursement and service provided.
27. As far as demand of service tax of Rs.90,36,316/- on Modular Employment Scheme under ‘Business Auxiliary Service’ pertaining to the period 2009-10 & 2010-2011, we find that the modular employment scheme is a vocational training programme, administered by Ministry of Labour, Government of India. The appellant is approved assessing body of the programme and as per the mandate of the Government, the appellant examine and assess the students enrolled in the scheme.
It is observed that the activity is integral part of vocational training and vocational training activity is outside the ambit of service tax. The assessing activity done by the appellant is part of the vocational training activity exempted vide Notification No. 24/2004-ST dated 10-9-2004 and later exempted from service tax vide Notification No. 23/2010-ST dated 29-4-2010.
28. Further, we find that the show cause notices in this regard clearly failed to provide under which category service tax is demanded on receipt under Modular Employment Scheme. In the absence of any specific category, the demand of service tax is vague and liable to be dropped as observed by the Hon’ble Apex Court in the case of CCE Brindavan Beverages (P) Ltd. 2007 (213) E.L.T. 487 (S.C.) which is reproduced herein below:-
“The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice”.
The same view was taken in M/s Mahindra and Mahindra v. CCE 2001 (129) E.L.T. 188 .
29. Similarly, the Hon’ble High Court of Delhi in the case of Commissioner of Service Tax v. ITC Ltd. 2014 (36) S.T.R. 481 (Del.) has observed as under:-
“14. The object and purpose of issue of show cause notice is to inform the assessee so that reply or submissions can be made and relevant facts which are in the knowledge of the assessee can be brought on record. After examining and consideration of the show cause notices, we feel that the assessee was informed and made aware of the contention of the revenue and their stand and stance. The specific agreement(s) which were sought to be brought and charged to Service Tax under the head ‘Business Auxiliary Services’ were stated. No doubt, Tribunal has permitted the appellant-revenue to act in accordance with the law, but, they would not able to proceed in terms of and for the periods specified in the show cause notices, which were the subject matter of the order-in-original dated 29-5-2012.
17. When we examine the Show Cause Notice, we have to take into consideration that the object and purpose is to inform the recipient of the allegations against him so that he can meet them effectively and is not prejudiced by manifestly vague notice which leaves him confused and unable to answer/reply. The assessee must be given a reasonable and real opportunity and made aware as to what he has to meet. But, the notice cannot be read as a legislative enactment which is to the point, precise and required to show exceptional lucidity. What is required to be seen is whether the allegations made have been conveyed and set forth, to enable the recipient/assessee to get an opportunity to defend himself against the charges. Notice should not suffer from obscurity and unintelligibility as to deny a fair and adequate chance to the recipient/assessee to get himself fully exonerated and avoid incidence of tax. What transpired after the notice was served, conduct of the parties thereafter, hearing given, are all factors that have to be examined to ascertain as to any prejudice was caused resulting in an arbitrary and unjust decision. Principle of prejudice resulting from vagueness and uncertainty has to be examined in pragmatic and a reasonable manner.”
7. By following the ratio of the above cited decision, we are of the considered opinion that the impugned order is not sustainable in law, therefore, we set aside the same and allow the appeal of the Appellant.
(Operative part of the order pronounced in the open court)
Author Bio
