Bharat Electronics Limited Vs Commissioner of G.S.T. and Central Excise (CESTAT Chennai)
CESTAT Chennai held that invocation of extended period of limitation unjustified as issue was mired in litigation and interpretation of law. Further, appellant is public sector undertaking and hence there is no scope of suppression with an intention to evade tax.
Facts- During the audit of accounts of the assessee, it appeared to the Revenue that the appellant had received service charges from Heavy Vehicle Factory (HVF), Avadi for overhauling of parts of gun control stabilizer, for which appropriate Service Tax under Repair and Maintenance service carried out by them had not been paid.
Accordingly, a show cause notice was issued proposing demand of Service tax on the amounts received towards Repair and Maintenance service for the period from 2010-11 to 2014-15 and on the amounts received towards liquidated damages for the period from 2012-13 to 2014-15, apart from appropriate interest u/s. 75 of the Finance Act, 1994 and penalty u/s. 76, 77 and 78.
Conclusion- Here, admittedly, the alleged services of the appellant are provided to the Government, by way of repair / maintenance or alteration of of original works, but the same are definitely not consumed in a commerce, industry or any other business or profession, but exclusively for the Ministry of Defence and hence, we are prima facie satisfied that the scope of the alleged services gets covered under Sl. No. 12(a) ibid. itself.
Held that the repair and maintenance service, as provided by the appellant in the case on hand, to HVF, Avadi is not amenable to Service Tax under the said category and consequently, the demand to this extent cannot sustain.
Held that the issue was mired in litigation and interpretation of law; the undisputed fact is also that the appellant is a public sector undertaking and hence, there is no scope to allege suppression with an intention to evade tax. Therefore, we hold that the invoking of extended period of limitation is without any justification.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Facts, as available in the impugned order, are that during the audit of accounts of the assessee, it appeared to the Revenue that the appellant had received service charges from Heavy Vehicle Factory (HVF), Avadi for overhauling of parts of gun control stabilizer, for which appropriate Service Tax under Repair and Maintenance service carried out by them had not been paid.
2.1 This prompted the Revenue to assume that the assessee had contravened provisions of the Finance Act, 1994 and the Service Tax Rules, 1994, which resulted in the issuance of Show Cause Notice dated 05.10.2015, inter alia, proposing to demand Service tax on the amounts received towards Repair and Maintenance service for the period from 2010-11 to 2014-15 and on the amounts received towards liquidated damages for the period from 2012-13 to 2014-15, apart from appropriate interest under Section 75 of the Finance Act, 1994 and penalty under Sections 76, 77 and 78 ibid.
2.2 For the subsequent period between April 2015 to March 2016, it appears that the assessee was issued with a Statement of Demand dated 17.05.2017 for the alleged non-payment of Service Tax on Repair and Maintenance service and liquidated damages.
3. It appears that the assessee filed its detailed replies dated 18.07.2016 and 12.02.2018 explaining its activities in detail and thereby explaining that their services were exempted since they are only rendering services to the Ministry of Defence, Government of India and that they are also exempted by Notification No. 25/2012-S.T. dated 20.06.2012, read with Section 102 of the Finance Act, 2016.
4.1 The Ld. Commissioner, having considered the explanation of the assessee, during adjudication proceedings, has, inter alia observed as under: –
(i) In terms of the service order between HVF and the assessee, the order has been mentioned to be a service order and income tax at the rate of 2% shall be deducted from the bills.
(ii) There is a separate clause in the agreement with regard to payment of excise duty and sales tax on the supplies effected by the assessee.
(iii) The assessee has thus not ascertained the true nature of the contract and discharged VAT on the service portion also.
(iv) Apart from overhauling of individual component / sub-assembly, which is carried out by the assessee, the assessee would perform a substantial service as reflected in the contract and hence, it has not ascertained the proper nature of the contract to discharge the applicable taxes and consequently, they have not paid the applicable Service Tax.
(v) With regard to the claim of exemption under Notification No. 25/2012-S.T. dated 20.06.2012, the assessee only performs a minuscule portion of re-engineering a sub-assembly of the battle tanks, which cannot be considered under the category mentioned in the exemption Notification. Further, it was also held that the same could in no way be considered as in the nature of erection / commissioning / installation of plant / machinery / equipment, as mentioned in the above exemption Notification. Hence, the argument that the sub-assembly of stabilizer is an equipment cannot be entertained.
(vi) It is also for the reason that the ‘equipment’ cited in the exemption Notification is a standalone equipment and not a sub-assembly component. The assessee only performs re-engineering of the stabilizer unit of the battle tank and clears it as exciseable / saleable product, by paying VAT.
(vii) Further, refurbishing of ‘original work’ is not the essence of the Notification and therefore the case of the assessee is not covered by the exemption Notification (supra). Moreover, in the instant case no new product emerges since what is done is just re-engineering which by no stretch of imagination could be considered as an activity of manufacture. The re-engineering of the stabilizer does not give rise to an article which is distinct from the source material in the name / character / use.
4.2 Insofar as valuation of the demand under Service Tax is concerned, the authority has held as under: –
(i) From the perusal of the Annexure to the Show Cause Notice, the amount has been quantified as Service Tax payable towards amount received for repair and maintenance which has been quantified. Hence, the same is required to be construed as service which is rendered under repair and maintenance.
(ii) Further, it is claimed that prior to 01.07.2012, it was performing manufacture and subsequent to that date, they were performing an exempted service, which clearly indicates that they are performing some sort of service similar to works contract, but now it has been claimed that they are doing erection / commissioning / installation of original works. But however, it is found that refurbished equipment of an original work cannot be an activity of manufacture.
(iii) The assessee has arrived at the apportionment of supply and service values and started paying Service Tax from September 2014 onwards and the apportionment adopted is 22% for the service portion and the rest for the supply portion; that the apportionment has a strong persuasive value. Their contract value admittedly has suffered VAT and hence this 22%, being service portion, is also VAT paid; but however, since the same comes under the domain of the Central Government being a service value, service portion cannot be left without levy of Service Tax as the service portion is leviable to a higher rate of tax. This also would fulfil the requirement of Explanation (c) to Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
4.3 With regard to the demand of Service Tax on the liquidated damages, the Ld. Commissioner has, after analysing the agreement between HVF, Avadi and the appellant, referred to a clause relating to liquidated damages for delays in supply of stabilizer by them (per clause 6 C (b) of the terms and conditions appended to the supply order). In this regard, the lower authority has not accepted the contentions of the appellant that the liquidated damages collected were by way of compensation as per Section 73 of the Indian Contract Act for the damages suffered by them and that the same could not be considered as ‘consideration’ for the services and hence the same was not amenable to Service Tax. He has further proceeded to apply Sections 73 and 74 of the Indian Contract Act to hold that the liquidated damages were amenable to Service Tax, but however, vide paragraph 19.10 of the impugned order, has re-worked the tax liability.
4.4 With regard to invoking the extended period of limitation, the Ld. Commissioner has held that the proviso to Section 73(1) ibid. was correctly invoked, to demand Service Tax for the period 2012-13 to 2015-16. He has further elaborated that in the scheme of self-assessment, the Department would only come to know about the bare facts of service rendered and payment made during the scrutiny of the return and hence, the responsibility is more on the taxpayer. According to the Ld. Commissioner, the appellant had wilfully mis-stated the material facts by failing to disclose the service portion of the supply order with HVF, Avadi, with an intent to evade payment of tax. He has also held that going by the fact that from July 2014 onwards the appellant itself bifurcated the supply order into material and service portions, the appellant was aware of the service component in the supply order. Further, that the appellant had also not disclosed the recovery of liquidated damages from their suppliers during the period 2012-13 to 2015-16; these facts could not have been ascertained without the scrutiny of records during departmental investigation.
5. Hence, vide impugned Order-in-Original Nos. 9 & 10 / 2018 dated 27.02.2018, the lower authority has confirmed the demands as proposed in Show Cause Notice No. 03/2015-16 dated 05.10.2015 along with applicable interest and penalty but however, has chosen to drop further proceedings initiated in the above Show Cause Notice on demand of Service Tax on the repair and maintenance service for the period from September 2014 to March 2015. He also dropped the demand of Service Tax on repair and maintenance service for the period 2015-16 initiated vide Statement of Demand No. BEL/GLT1/Commr./ST/04/2017 dated 17.05.2017 dated 17.05.2017, but has confirmed the demand on the liquidated damages apart from confirming appropriate interest and penalty, as proposed.
6. It is against this order and the demands therein that the present appeals have been preferred before this forum.
7. Heard Shri Raghavan Ramabadran, Ld. Advocate and Shri Harendra Singh Pal, Ld. Assistant Commissioner.
8.1 The contentions of the Ld. Advocate are summarized below: –
