Case Law Details
Micro Chip Office Solutions Vs Commissioner of Central Excise (CESTAT Chennai)
CESTAT Chennai held that demand for extended period sustained as appellant collected service tax without registration and without filing of ST-3 returns and also failed to credit the amount collected into the Government account.
Facts- M/s. Micro Chip Office Solutions, Tiruchirapalli, who are the appellants herein, are engaged in the sale of computers, printers and peripherals and other related accessories apart from undertaking maintenance of computers, printers and “RICOH” brand “Photo copier machines” on annual contract as well as on call basis.
They were issued with a Show cause notice No. 37/2011 dated 18.10.2011 for non-payment of service tax under the category of “Management, Maintenance or Repair Service” for the period from 01.04.2006 to 30.09.2011, proposing to demand service tax of Rs.5,30,181/- along with applicable interest and also for imposition of penalties under Section 76, 77 & 78 of Chapter V of the Finance Act, 1994.
The demand of service tax and interest thereon was confirmed and also imposed a penalty of Rs. 2,74,400/- calculated at the rate of Rs. 200/- per day from 06.07.2005 to 07.04.2009 for failure to take service tax registration in terms of Section 77(1)(a) of the Finance Act, 1994. Further, a penalty of Rs.5,000/- u/s. 77(2) and a penalty of Rs. 5,30,181/- u/s. 78 of the Finance Act, 1994 were imposed. The Commissioner of Customs & Central Excise (Appeals), Trichy has upheld the above Order-in-Original dated 11.02.2013 and rejected the appeal filed by the appellant. Hence, the appellant came before this forum.
Conclusion- Under the Notification No. 12/2003-ST dated 20.06.2003, the appellant is required to provide documentary proof specifically indicating the value of the said goods and materials used in providing the service. The appellant is engaged not only in providing AMC services but also in selling computers, printers and peripherals In the absence of any documentary evidence of value of consumables and other materials used co-relating to AMC services, we have to hold that the benefit of notification is rightly denied to the appellant.
They were also found collecting service tax on the consideration received for the AMC of photo copiers from their customers. The appellants have shown in their P&L Account for the year 2007-08, an amount of Rs. 94,180/- as service tax payable. Even though they have obtained service tax registration on 08.04.2009, for the year 2009- 10 and 2010-11 the appellants have paid service tax of only Rs. 7,225/- and also not filed ST-3 returns. The conduct of the appellant indicates utter disregard for compliance to the provisions of service tax law. We find that the appellant’s reliance placed on the case laws cited at paragraph No. 2.3 above and also in the grounds of appeal, is not at all applicable to the facts of this case and distinguishable as the appellant has collected service tax without registration and without filing ST-3 returns and failed to credit the same into the Government account. As such, we find that the extended period is rightly invoked for demand of service tax and also for imposition of penalties in this case.
FULL TEXT OF THE CESTAT CHENNAI ORDER
M/s. Micro Chip Office Solutions, Tiruchirapalli, who are the appellants herein, are engaged in the sale of computers, printers and peripherals and other related accessories apart from undertaking maintenance of computers, printers and “RICOH” brand “Photo copier machines” on annual contract as well as on call basis. They were issued with a Show cause notice No. 37/2011 dated 18.10.2011 for non-payment of service tax under the category of “Management, Maintenance or Repair Service” for the period from 01.04.2006 to 30.09.2011, proposing to demand service tax of Rs.5,30,181/- along with applicable interest and also for imposition of penalties under Section 76, 77 & 78 of Chapter V of the Finance Act, 1994. On adjudication, the Joint Commissioner of Central Excise & Service Tax, Trichy, vide Order-in-Original No.01/2013-ST dated 11.02.2013, has confirmed the above demand of service tax and interest thereon and also imposed a penalty of Rs. 2,74,400/- calculated at the rate of Rs. 200/- per day from 06.07.2005 to 07.04.2009 for failure to take service tax registration in terms of Section 77(1) (a) of the Finance Act, 1994. Further, a penalty of Rs.5,000/- under Section 77 (2) and a penalty of Rs. 5,30,181/- under Section 78 of the Finance Act, 1994 were imposed. The Commissioner of Customs & Central Excise (Appeals), Trichy has upheld the above Order-in-Original dated 11.02.2013 and rejected the appeal filed by the appellant. Hence, the appellant came before this forum.
2.1 The allegations against the appellant are that they were involved in providing maintenance and repair services to customers of RICOH brand photo copier machines and also found collecting service charges without obtaining any service tax registration and without filing ST-3 returns. The appellant provided two kinds of maintenance services viz. Annual Maintenance Contract (AMC in short) and Comprehensive Customer Care Contract (4C in short). In case of AMC they undertake the repair and service of the copier machines for consideration fixed on annual basis and in the case of 4C contract, they provide consumables and spare parts as part of maintenance and maintenance charges are collected monthly basis, at rate per copy based on the number of copies taken. Sale bills are raised for pure sale of copier machines, spare parts and other consumables on which VAT is charged on the sale value and as regards the bills raised for collection of service charges under AMC, they charged and collected service tax on the service amount collected from the customers. The appellant has admitted that service tax was collected in respect of AMC on the gross consideration received from their customers upto 19.04.2009 and with effect from 20.04.2009, the maintenance charge was split up into supply portion at 75% and service portion at 25% and VAT was charged on the supply portion, and service tax was collected on the service portion. It was also noted that the appellant had collected Rs. 94,180/- towards service tax from their customers without obtaining service tax registration and without filing ST-3 returns as revealed by the P & L account for the year 2007-08 and that the appellant though collected the service tax from the customers has failed to deposit the same into the Government account. The appellant has registered under the category of “Management, Maintenance or Repair Services” only on 08.04.2009, though had collected service tax from 2006-07 onwards in all the service bills raised on their customers.
2.2 In the grounds of appeal, the appellant has submitted that the lower appellate authority had wrongly denied the benefit of Notification No. 12/2003-ST dated 20.06.2003, which provides exemption from service tax in respect of the value of goods and materials sold by the service provider to the recipient of service subject to the condition that there is documentary evidence specifically indicating the value of the said goods and materials. In terms of the above notification, the service provider is eligible to avail exemption in respect of the amount charged by them purely on “sale of consumables” used during the service. Materials like toner, cartridge are consumed during the course of use of the photocopier machines.
2.3 The lower adjudicating authority has denied the benefit of the Notification cited supra as:
1) The appellants failed to produce any evidence in the form of invoices or bills raised by them that there was sale of materials or goods while providing the service.
2) There was no evidence or details produced by the appellant to show sale of such consumables so as to co-relate with the VAT/sales tax.
3. The contract with the customers did not provide any breakup of goods, materials and consumables.
4. No description of goods sold was given in the invoices and
5. There were no sale invoices produced for supply of consumables forming part of the service.
Whereas, the appellants argued that the essential condition required to be satisfied under Notification No. 12/2003-ST dated 20.06.2003, is that there should be sale of goods by the service provider to the recipient of service, the exemption will be equivalent to the value of goods and materials sold and there is documentary proof specifically indicating the value of such goods and services, the notification does not spell out what documents will be considered as proof of goods sold; that there is no requirement in the notification that the description of goods and materials sold must be specified in the documentary proof; it only specifies that the value of goods and materials sold must be supported by the documentary proof.
Further, it has been put forth that the appellants have not randomly split up the supply and service portion in the ratio of 75:25 and the ratio adopted for splitting up is based on the past experiences and is according to the accepted Trade practice.
2.3 The appellant has pleaded that the penalty imposed at the maximum under Section 77 (1) (a) is not warranted in the facts of this case, as non-registration was due to bonafide belief that they are not subjected to service tax. It is submitted that the Government has thought it fit to amend this provision to restrict the maximum penalty to Rs.10,000/-, vide Finance Act, 2013 as under:-
“F) In section 77, in sub-section (1), for clause (a), the following clause shall be substituted namely:-
“a) who is liable to pay service tax or required to take registration, fails to take registration in accordance with the provisions of Section 69 or rules made under this Chapter shall be liable to a penalty which may extend to ten thousand rupees,”
The appellant has also pleaded that invoking extended period for imposition of penalty under Section 78 is not legal and proper when the department has got the knowledge of the services rendered by the assessee, and suppression, mis-statement with an intent to evade could not have been alleged by relying on the decisions rendered in the following cases:
1. Garodia Commercial Corporation Vs. CCE,Goa 2011 (263) ELT 713 (Tri.-Mum.)
Entire facts in the knowledge of the Department.
2. Halcyon Labs Pvt. Ltd. Vs. CCE, Ahmedabad 2010 (262) ELT 1113 (Tri.-Ahmd.)
ER1 returns mentioned clearance of exempted goods.
3. CCE, Aurangabad Vs. Trans Delta Electricals 2010 (261) ELT 394.
Facts are in the knowledge of the Department
4. Learned DR Shri S. Balakumar has reiterated the findings of the lower appellate authority. He has stated that the assesse has collected the service tax from the customers but failed to deposit the same in the Government account though rendered services of
maintenance and repair to various customers of “RICOH”” brand photo copier machines since 2006 onwards. The appellant has obtained registration only in 2009. As such, demand of service tax and imposition of penalties as a result of investigation carried out by the Anti-evasion Unit of the Central Excise & Service Tax Commissionerate, Trichy, are justified.
5.1 We have heard both sides. The main issues involved in this appeal are:-
a) whether the appellant has been rightly denied the benefit of Notification No. 12/2003-ST dated 20.06.2003, which provide for exemption from service tax in respect of value of goods and materials sold by the service provider while providing the service?
b) whether the penaly imposed at the maximum of Rs. 200/- for every day during which the failure to take registration continued amounting to Rs. 2,74,400/- is justified in the facts of this case? and
c) whether the extended period is rightly invoked in the background of the facts obtained in this appeal?
5.2 On the issue of the appellant’s eligibility for the benefit of Notification No. 12/2003-ST dated 20.06.2003, the lower adjudicating authority has held that the appellant has not produced any evidence regarding consumables or spare parts used while providing the AMC service to its customers and the service provider has charged service tax on the gross amount received for the AMC and 4C Bills raised upto April, 2009 and adopted the method of artificially splitting the AMC charges from 20.04.2009 onwards in the ratio of 75% to supply portion and 25% of AMC charges to service portion to avail the benefit of exemption from service tax in respect of value of goods and material sold by the service provider to the recipient of service. Under the Notification No. 12/2003-ST dated 20.06.2003, the appellant is required to provide documentary proof specifically indicating the value of the said goods and materials used in providing the service. The appellant is engaged not only in providing AMC services but also in selling computers, printers and peripherals In the absence of any documentary evidence of value of consumables and other materials used co-relating to AMC services, we have to hold that the benefit of notification is rightly denied to the appellant.
5.3 On the second issue of imposition of maximum penalty of Rs.2,74,400/- in terms of Section 77 (1) (a) of the Finance Act, 1994, for failure to take registration, we are of the opinion that though imposition of penalty and the amount computed is absolutely legal, a lenient view can be taken in view of the amendments carried out to this Section in Finance Act, 2013, providing for imposition of penalty of Rs.10,000/- at the maximum. We find that the ends of justice will be adequately met considering all the facts in this appeal if the penalty imposed under 77(1) (a) of the Finance Act, 1994 is limited to Rs. 10,000/-. So, we order for modification of the penalty to Rs. 10,000/- (Rupees Ten Thousand Only) considering the fact that the appellant has obtained necessary service tax registration on 08.04.2009.
5.4 We find that the appellant is engaged in the sale of computers, printers, peripherals and consumables and also in providing services of annual maintenance contract of “RICOH” brand photo copier machines to various customers since 2006 onwards but failed to obtain service tax registration and also to file ST-3 returns. They were also found collecting service tax on the consideration received for the AMC of photo copiers from their customers. The appellants have shown in their P&L Account for the year 2007-08, an amount of Rs. 94,180/- as service tax payable. Even though they have obtained service tax registration on 08.04.2009, for the year 2009- 10 and 2010-11 the appellants have paid service tax of only Rs. 7,225/- and also not filed ST-3 returns. The conduct of the appellant indicates utter disregard for compliance to the provisions of service tax law. We find that the appellant’s reliance placed on the case laws cited at paragraph No. 2.3 above and also in the grounds of appeal, is not at all applicable to the facts of this case and distinguishable as the appellant has collected service tax without registration and without filing ST-3 returns and failed to credit the same into the Government account. As such, we find that the extended period is rightly invoked for demand of service tax and also for imposition of penalties in this case.
6. In view of the above findings, we hold that the impugned order does not call for any interference and so the appeal is rejected but for modification of the penalty imposed under Section 77 (1) (a) of Chapter I of the Finance Act, 1994 to Rs. 10,000/- (Rupees Ten Thousand only).
(Order pronounced in the Open Court on______)
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