Britt Worldwide India Pvt. Ltd. Vs Commissioner of Service Tax-VII (CESTAT Mumbai)
Conclusion: While quashing an order for compounding of offence, the Revenue held that the amount for the compounding of offence under the GST Act should not exceed the maximum penalty specified in the Act for such offence. Since the demand itself failed on merit and limitation there could not be demand for interest and penalties imposed could not be sustained.
Held: Assessee-comapny were conducting Educational Colloquiums (seminar) for the distributors and prospective distributors of Amway India Enterprises (P) Ltd. (hereinafter referred as ‘Amway’) and in the sale of audio CDs, Video CDs, tapes etc, in connection therein. Based on intelligence, the officers of Director General of Central Excise Intelligence (DGCEI) conducted investigations against assessee. Intelligence suggested that assessee was earning income by holding Educational Colloquiums for the distributors of M/s. Amway. They were selling tickets for entry to such educational colloquiums to distributors of Amway and prospective distributors. However, no Service Tax was being paid by M/s. Britt on the income generated from sale of tickets. Prima facie it appeared that the Noticee was providing “Commercial Training and Coaching Services” to distributors. On the basis of this intelligence investigations were undertaken by the DGCEI. Service Tax amounting to Rs.7,61,89,514/- towards the taxable services rendered from 16.06.2005 to 26.02.2010 under the category of “Commercial Training and Coaching Services” was demanded and recovered from them by invoking extended period, under as per proviso to Section 73(1) of the Finance Act, 1994. It was held that no coaching or training service was provided by assessee. The educational colloquiums were only conducted with a view to inspire distributors as well as prospective distributors to work for promotion of Amway product and to earn commission by selling the Amway products. The scheme of sale had been outlined in various literature such as code of ethics, the Amway sales and marketing plan and other literature kept in distributors kit. No training was provided by appellant, except for making the arrangements for the colloquiums. The case made out in the show cause notice was that assessee was not entitled for the exemption granted to vocational training as per the Notification No 24/2004-ST. . Once it was admitted that assessee imparted skill and knowledge which increased the sale of Amway products could it be said that by way of the said knowledge/skill the participants could not seek employment or undertake self-employment. Commissioner could have allowed the opportunity to assessee to produce the documents against which they intended to claim the CENVAT Credit and then decide upon the eligibility to the same. With regard to limitation, the issue was throughout in the knowledge of the department and investigated by various agencies from time to time. In such a case in our opinion the extended period of limitation could not be invoked. Since the demand itself failed on merit and limitation there could not be demand for interest and penalties imposed could not be sustained.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal is directed against order in original No dated of the Commissioner Central Excise and Service Tax Pune. By the impugned order following has been held.
“ORDER
30.1. I confirm the Service Tax demand of Rs.7,61,89,514/- (Rs. Seven Crores Sixty One Lakhs Eighty Nine Thousand Five Hundred and Fourteen Only (Service Tax Rs. 7,42,85,318/- + Ed. Cess Rs. 14,85,706/- + Higher Ed. Cess Rs. 4,18,490/-) and determine the same as payable by M/s. Britt Worldwide India Pvt. Ltd., Navi Mumbai, under the provisions of Section 73(2) of the Finance Act, 1994;
30.2. I order recovery of statutory interest at appropriate rate on the amount of Service Tax demand confirmed at para 30.1, from M/s. Britt Worldwide India Pvt. Ltd., Navi Mumbai, under the provisions of Section 75 of the Finance Act, 1994;
30.3. I impose penalty of Rs.7,61,89,514/- Rs. Seven Crores Sixty One Lakhs Eighty Nine Thousand Five Hundred and Fourteen Only] on M/s. Britt Worldwide India Pvt. Ltd., Navi Mumbai, under the provisions of Section 78 of the Finance Act, 1994, as amended.
34.4. I impose penalty of Rs. 10,000/- (Rupees Ten thousand only) under the provisions of Section 77 of the Finance Act, 1994, on M/s. Britt Worldwide India Pvt. Ltd., Navi Mumbai.”
2.1. Appellant is engaged for providing taxable services, viz., (i) Management Consultant, (ii) Commercial Training & Coaching, (iii) Intellectual Property Service other than Copyright, (iv) Transport of Goods by Road, (v) Business Auxiliary Service, (vi) Business Support Service, (vii) Sound Recording Service, (viii) Video Tape Production service and (ix) Event Management Service. They were conducting Educational Colloquiums (seminar) for the distributors and prospective distributors of Amway India Enterprises (P) Ltd. (hereinafter referred as ‘Amway’) and in the sale of audio CDs, Video CDs, tapes etc, in connection therein.
2.2. Based on intelligence, the officers of Director General of Central Excise Intelligence (DGCEI), Regional Unit, Indore conducted investigations against Appellant. The intelligence suggested that the appellant was earning income by holding Educational Colloquiums for the distributors of M/s. Amway. They were selling tickets for entry to such educational colloquiums to distributors of Amway and prospective distributors. However, no Service Tax was being paid by M/s. Britt on the income generated from sale of tickets. Prima facie it appeared that the Noticee was providing “Commercial Training and Coaching Services” to distributors. On the basis of this intelligence investigations were undertaken by the DGCEI.
2.3 On completion of investigations a Show Cause Notice dated 12.10.2010, was issued to the appellant asking them as to why :
(i) Service Tax amounting to Rs.7,61,89,514/- (Rs. Seven Crores Sixty One Lakhs Eighty Nine Thousand Five Hundred and Fourteen Only] (Service Tax Rs.7,42,85,318/-, Ed. Cess Rs.14,85,706/-, and Higher Ed. Cess Rs.4,18,490/-) towards the taxable services rendered from 16.06.2005 to 26.02.2010 under the category of “Commercial Training and Coaching Services”, should not be demanded and recovered from them by invoking extended period, under as per proviso to Section 73(1) of the Finance Act, 1994;
(ii) Interest at the appropriate rate should not be demanded and recovered from them as per section 75 of the Finance Act, 1994;
(iii) Penalty should not be imposed on them under Section 76, 77 and Section 78 of the Finance Act, 1994.
2.4 The show cause notice was adjudicated as per the order in original No 01/ST-II/RS/2014 dated 23.01.2014. This order was challenged by the appellant before Hon’ble Bombay High Court in writ petition No 6941 of 2014. Hon’ble High Court vide its order dated 11.01.2016 quashed the order as the same was passed after 17 months from the date of personal hearing and remitted the matter to original authority for fresh decision.
2.5 The show cause notice was adjudicated in remand proceedings as per the impugned order. Aggrieved appellants have filed this appeal
3.1 We have heard Shri Bharat Raichandani, Advocate for the appellants and Shri Nitin Ranjan, Deputy Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the appellant learned counsel submits
> On perusal of the show cause notice, it becomes evident that the Department has also accepted that the appellant is not providing “coaching” or “training” service.
> The only case made out in the show cause notice is that the appellant is not entitled for the exemption granted to vocational training. However, the same proceeds on the assumption that the appellant is liable to pay service tax under commercial coaching or training service. This is clearly incorrect and impermissible in law.
> At Para 21 of the impugned order, the Commissioner has held that the appellants did not pay tax/claimed the benefit of exemption under Notification No. 24/2004-ST knowing their output service is liable to tax which is nothing but an deliberate act with intent to evade payment of service tax. According to the Ld. Commissioner there was no scope to interpret the meaning of vocational training institute in any other manner than the one provided in the said Notification No. 24/2004-ST
> The said notification is prospective in nature and not retrospective. The said notification is dated 27.02.2010. The notification itself states that the amendment would come into effect from the date of publication of the notification in the official gazette. It is well settled that all laws are presumed to be prospective, unless stated otherwise by express words or necessary implication. No such situation exists here. There is neither such allegation in the show cause notice nor any finding in the impugned order. Hence, as such, no reliance can be placed on the said notification.
> It is well settled that no decision can be read ignoring the facts of that case and the points which arise for determination in that case. All the observations made in a judgment are to be understood with reference to the context in which they are made. The essence of a decision is to be carved out from the conjoint reading of the facts, the scheme of the Act under consideration, points for consideration and the decision arrived thereon. The concept of a ratio decidendi has been elaborately explained by the Supreme Court in the case of Union of India and Others v. Dhanwanti Devi and Others (1996) 6 SCC 44.
> The decision of Sadhana Educational was explained and distinguished in Ashu Exports cited supra and considered by the Hon’ble Delhi High Court.
> The decision in case of Prof. Ulhas Bapat 2015 (37) STR 1034 and Balaji Society 2015 (38) STR 139 will not be applicable in the facts of the present case.
> If assuming the demand of service tax was to be sustained, the appellant would be entitled to utilize credit of service tax paid on input services. The demand of service tax has been confirmed on the gross value, without taking into consideration the cenvat credit available with the appellants. The appellants state and submit that they would be eligible to avail credit of duty paid on inputs, credit of duty paid on capital goods as well as credit of service tax paid on input services used for providing the alleged ‘commercial training or coaching service’. This view is supported by the decision in the case of Eminence Equipments Pvt Ltd v/s CCE 2015 (330) ELT 344. The relevant portion of the said decision is extracted below for ready reference:
11. Coming to the appellants’ request of permitting Cenvat credit, we are not in agreement with the reasoning given by the Commissioner in the impugned order. It is true that the Cenvat credit can be taken as per Rule 3 of the Cenvat Credit Rules. However, the peculiar facts in the present case are that the appellants did not pay the duty treating their goods as non-dutiable and hence they were not eligible for availment of Cenvat credit. Now since the goods are held to be dutiable, they are eligible for taking the Cenvat credit. The appellants, therefore, must be given a chance to provide the copies of various documents like invoices, etc, and other records as required to prove that the said inputs or input services were used in the manufacture of the goods and if the appellants are able to satisfy from the documentary evidence then the Cenvat credit should be extended to the appellants and the net duty should thereafter be worked out. Penalty will also change accordingly. We, therefore, remand the matter to the Commissioner for the limited purpose of examining the documents to be submitted by the appellants (within a period of three months from the date of receipt of this order) and the Commissioner would thereafter examine the said documents and in case he needs any other documents as per law, he may inform the appellants about the same and the appellants will submit those documents and, after examination of the said documents, take a view about the quantum of Cenvat credit available to the appellants.
> In the impugned order, it has been held that the appellants did not pay tax knowing their output service is liable to tax which is nothing but an deliberate act with intent to evade payment of service tax. Relying on the decision in the case Neminath Fabrics Pvt. Ltd. – 2010 (256) ELT 369 (Guj) it has been held that larger period of limitation is invokable in the instant case The question is one of, admittedly, interpretation of the section and the notification. The period involved in the appeal is one of nascent stage of the levy. If two views are possible, the appellant cannot be held to be guilty of suppression.
> This decision of Hon’ble Gujarat High Court has been explained and distinguished recently by the jurisdictional Bombay High Court in the case of Mahindra and Mahindra Limited 2018 (11) GSTL 126 (Bom),
> A change of opinion by the officers of the Revenue or newly dawned wisdom cannot be a ground to allege suppression of facts against the appellant. Hence, the extended period of limitation cannot be invoked in the facts of the present case.
> The appellant has maintained regular books of accounts. The appellant has shown the same in the income tax returns. The appellants had bonafide belief that they are not liable to pay service tax. Moreover, there being no positive act on part of the appellants to suppress any fact from the department and there being no evidence for such allegation, the appellant submits that the proposal to invoke extended period is not correct. Reliance is placed on decision of the Hon’ble Supreme Court in the case of Continental Foundation Vs. CCE – 2007 (216) ELT 177 (SC), wherein the Hon’ble Apex Court has held as under:
10. The expression “suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong words as ‘fraud’ or “collusion” and, therefore, has to be construed strictly, Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct. …(emphasis supplied)
> Furthermore, the Appellant submits that omission to inform the department cannot be equated with suppression of facts. The above finding of the Ld. Commissioner in the impugned order was indeed the reason
3.3 Arguing for the revenue learned authorized representaive while re-iterating the findings recorded in the impugned order submits
> The Appellant are engaged in providing commercial coaching services exclusively to Amway business owners/ABOs. These ABOs are engaged in the marketing and distribution of FMCG (fast moving consumer goods) on behalf of M/s Amway. The Appellant chargers the participants for attending these seminars/colloquiums and this amount is sought to taxed under the Commercial Training and Coaching Services category.
> The meetings are only for imparting education training about product information and their application to their business systems and culture, including motivational lectures for growth of their business with M/s Amway, the source of income is through the sales is such tickets of seminars and meeting the revenue is shown as selling entry tickets bracket meeting admission revenue in accounts.
> They are also engaged in sales business sales material BSM through the distributors for which they get Commission. They are registered under commercial training and coaching services and have paid service tax from July 2004 to September 2004 till the issue of Notification Number 24/2004-Service Tax.
> They also conducts such training Institutions for their corporate in corporate employees counterparts and have been charging and discharging the service tax liabilities on the same. They show this revenue as ‘Meeting Admissions Revenue in their books of account.
> Post 26th February, 2010 they are now discharging service tax in view of the amendment Notification Number 03/2010/-Service Tax dated 27.02.2010, which had amended the earlier definition ‘vocational training”.
> The allegations made in the Show Cause Notice Dated 12.10.2010, show that the appellants were providing Commercial Training and Coaching Services (CTCS).
> The Appellant are conducting educational course for distributors and prospective distributors and they were charged in entry fee for the seminar there is no fixed curriculum and no certificate provided. It is purely a motivational inspirational lecture for existing distributors for the experience is to increase the sales and help them get increased Commission on the sales of a product of Business Support Material is produced by third party vendors like Britt Worldwide, Flash Winners dream and Network 2i India
> The distributor start getting Commission when his/her sales reach 5.5 lacs . As a statement recorded of the CEO and other officials there is no specialized training of marketing for the no entry of employment to the person attending such seminars .We can see from the Code of Ethics that there is no employer employee relationship.
> As per Department,
