Case Law Details
Commr. of CGST & Central Excise Vs Calcutta Springs Ltd. (CESTAT Kolkata)
Introduction: The case of Commr. of CGST & Central Excise vs. Calcutta Springs Ltd., adjudicated by CESTAT Kolkata, revolves around a service tax demand on fabrication works provided to the Indian Railways. The central issue pertains to whether the demand for service tax is justifiable when no corroborative evidence supports it. This article provides a detailed analysis of the case and its implications.
Detailed Analysis:
1. Background: Calcutta Springs Ltd. has been engaged in providing fabrication work services to the Indian Railways since 2000. Initially, they considered this job work as a manufacturing activity and paid excise duty accordingly. However, the Tribunal’s decision in 2000 clarified that this activity did not qualify as manufacturing, eliminating the need for excise duty payments.
2. Department’s Shifting Stance: Over the years, the Department’s perspective on the nature of these services shifted. They vacillated between considering it manufacturing, resulting in excise duty demands, and labeling it as a service, prompting service tax claims. This inconsistency caused confusion for the taxpayer.
3. Timeline of Audit and Notices: In 2006, the Audit Superintendent pointed out that the items involved in the fabrication work were subject to excise duty. Calcutta Springs Ltd. promptly referred to the Tribunal’s 2000 decision, asserting that no excise duty was applicable. The Audit in the year 2007 designated the fabrication work as a service, instructing the payment of service tax under the ‘BAS’ category. The taxpayer, convinced that no service tax applied to these activities, refrained from imposing any service tax on Indian Railways.
4. Issuance of Show Cause Notice: Despite the shifting perspectives and the earlier Tribunal decision, a Show Cause Notice was issued in 2009, demanding service tax payment for the period from 2004-05 to 2006-07.
5. Interpretation vs. Suppression: Calcutta Springs Ltd. contended that the issue at hand was an interpretation of the nature of their services. They argued that the Department had changed its stance multiple times, indicating that there was no intention to evade taxes, and therefore, the demand for an extended period was unwarranted.
6. Eligibility for Cenvat Credit: The taxpayer also asserted that they used inputs and consumables on which they had already paid excise duty or service tax while procuring them. As a result, they believed they were eligible for Cenvat Credit.
7. CESTAT’s Ruling: After considering both sides’ arguments, CESTAT reached several significant conclusions:
- The Show Cause Notice should have been issued by 11/07/2008 at the latest, based on the Audit’s 12/07/2007 awareness of the service tax requirement. However, the notice was only issued on 20/07/2009, leading to a revised normal period from 01/04/2008 to 31/12/2008.
- The case involved a lack of clarity and shifting perspectives, making it an issue of interpretation rather than evasion.
- Penalties were set aside since there was no evidence of deliberate evasion.
8. Re-Quantification of Demand: CESTAT remanded the matter to the Adjudicating Authority to re-quantify the demand for the period from 01/04/2008 to 31/12/2008. They also instructed the Authority to assess the taxpayer’s eligibility for Cenvat Credit on inputs, consumables, and input services. After allowing any eligible Cenvat Credit, the net service tax payable should be determined, and interest should be paid accordingly.
Conclusion: The case of Commr. of CGST & Central Excise vs. Calcutta Springs Ltd. highlights the importance of consistency in the Department’s interpretation of service tax liability. The ruling by CESTAT Kolkata underscores that issues of interpretation, especially when supported by evidence of shifting perspectives, may not warrant penalties. It also emphasizes the need for accurate issuance of Show Cause Notices based on the Department’s awareness of potential tax liabilities.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The Appellant has been carrying on the fabrication work for Indian Railways since the year 2000. They were treating the job work as manufacturing activity and paying Excise Duty on the same. Subsequently, on identical issue, the Tribunal vide its Order dated 16/03/2000 held that such activity does not amount to manufacture and hence no Excise Duty is required to be paid. Thereafter, the Appellant sought clarification from the Department vide their letters dated 23/10/2000, 10/11/2000 and 27/02/2001. Vide letter dated 06/02/2006, the Audit Superintendent pointed out that the items in question were exigible to Excise Duty. The Appellant submitted that in terms of Tribunal’s decision dated 16/03/2000, no Excise Duty is required to be paid. After this, EA 2000 Audit was conducted and this Audit Team vide letter dated 12/07/2007 took the view that the fabrication work amounts to service and accordingly, directed that the Service Tax under the category of ‘BAS’ is required to be paid. The Appellant submitted that they have not charged any Service Tax on the Indian Railways in view of their belief that no Service tax is payable on such activities. Thereafter, Show Cause Notice was issued on 20/07/2009 demanding the Service Tax for the period from the Year 2004-05 to 2006-07. The Appellant submitted that the issue is that of interpretation and the Department itself has taken different view from time to time. Initially, the Department has taken the view that the activity amounted to manufacture and directed the Appellant to pay the Excise Duty which was being done by the Appellant. Subsequently, they have changed their view and demanded the Service Tax on the same activity. They contended that in such a case, there is no suppression on their part and accordingly, the demand for the extended period cannot be invoked.
2. Apart from that they also submitted that in all such services provided to the Indian Railways, they have utilized the materials on which Excise Duty has been paid by their vendors. They submitted that they would be eligible for the Cenvat Credit of inputs and input services used by them. The Adjudicating Authority, dropped the demand for the period September 2004 to 15/05/2005. He has held that since Audit has pointed out the error of non-payment of Service Tax on 12/07/2007, the extended period cannot be invoked prior to this date. The Adjudicating Authority has confirmed the demand along with interest and penalty for the period 12/07/2007 to 31/12/2008. Being aggrieved, the Appellant is before the Tribunal.
2. The Learned Consultant submits that admittedly the Audit Team pointed out that Service Tax is required to be paid on 12/07/2007. The Show Cause Notice should have been issued latest by 11/07/2008 i.e. within one year from the date of such knowledge by the Audit Team. However, the Show Cause Notice was issued only on 20/07/2009. Therefore, He submits that the normal period is required to be taken as 01/04/2008 to 31/12/2008 only. Apart from this, they have utilized goods and services for which the Appellant would be eligible for Cenvat Credit.
3. The Learned AR reiterates the findings of the lower Authority.
4. Heard both sides and perused the Appeal Papers and other
5 Admittedly, there was lot of confusion about the activities undertaken by the Appellant. Initially, they were treating the activity as manufacturer and paying Excise Duty. Subsequently, the Tribunal vide their Order dated 01/03/2000 held that this activity does not amount to manufacture. The Department even in 2006, has demanded the Excise Duty payment on this activity. After this when Tribunal decision was cited by the Appellant, no further action was taken by the Department. The EA 2000 Audit on 12/07/2007 took the stand that the activity amounts to Service and the Appellant was directed to pay the Service Tax. Therefore, it is on record that on 12/07/2007, the Department was fully aware of activity undertaken by the Appellant holding that it requires Service Tax to be paid.
Accordingly, the Show Cause Notice should have been issued on or before 11/07/2008. In this case, the Show Cause Notice was issued only on 20/07/2009. We agree with the Appellant that normal period in this case would be for the period 01/04/2008 to 3 1/12/2008 only.
6. The Appellant claims that they have used their own inputs and consumables in the course of providing the output services. On such inputs and consumables, they claimed to have paid Excise Duty/Service Tax while procuring the same.
7. We remand the matter to the Adjudicating Authority to re-quantify the demand for the period 01/04/2008 to 31/12/2008. The claim of the Appellant with regard to eligibility of Cenvat Credit on various inputs/consumables/input services used by them is to be If it is found to be in order, the same is required to be allowed. After allowing the benefit of Cenvat Credit, if any, the Adjudicating Authority should arrive at the net Service tax payable during the period 01/04/2008 to 31/12/2008. On such net Service Tax payable, the Appellant is required to pay the interest in terms of Section 75 of the Finance Act, 1994.
8. Since the entire issue is that of interpretation and no evidence is brought in to the effect that the Appellant has acted deliberately to evade payment of Service Tax, all the penalties are set aside. Cross Objection also stands disposed off.
9. The Appeal is disposed of thus.
(operative part of the order was pronounced in the open court.)
