Case Law Details

Case Name : Tripura State Co-Operative Bank Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)
Appeal Number : Service Tax Appeal No. 77107 of 2018
Date of Judgement/Order : 18/05/2023
Related Assessment Year :

Tripura State Co-Operative Bank Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)

CESTAT Kolkata held that in absence of service receiver and service provider relationship, there is no service tax liability under reverse charge mechanism (RCM) for payment of service tax, vide notification 30/2012 ST (Sr. No. 9 of the table) dated 20.06. 2012 as amended.

Facts- The Tripura State Cooperative Bank Ltd, Agartala (TSCBL), registered under banking and financial services awarded contract for construction of a multi-storied building for the bank purpose to Tripura Housing and Construction Board, Agartala (THCB) for an amount of rupees 4,56,00,000/-.

THCB further awarded and has subcontracted the construction of the building to Shri Dipak Paul, for a value of Rs.4,06,16,850. 00/-. The service tax liability on this amount received by Shri Dipak Paul comes to Rs.19,13,494.00/- . By virtue of reverse charge mechanism for payment of service tax, vide notification 30/2012 ST (Sr. No. 9 of the table) dated 20.06. 2012 as amended, the service provider, is liable to pay 50% of the tax that is an amount of Rs.9,56,747.00/-, while the balance 50% is required to be paid by the service receiver.

M/s Dipak Paul have discharged service tax liability along with interest and have paid an amount of Rs.10,21,525/- to the department, as share of their liability.

Accordingly, show cause notice was issued in the matter. Commissioner (Appeals) vide his order has fastened the balance liability on the appellants. Aggrieved by the aforesaid decision of the Commissioner (Appeals) the appellants have filed the present appeal.

Conclusion- No show cause notice therefore merits issuance to the appellant herein as they are not recipient of service directly from M/s Dipak Paul. As there exist, no relationship between TSCBL and M/s Dipak Paul as a service receiver and a service provider for the impugned works order. No liability accrues upon the noticee to pay Service Tax. Therefore the order of the Learned Commissioner (Appeals) cannot be sustained and is therefore set aside.

The appeal filed by TSCBL is allowed.

FULL TEXT OF THE CESTAT KOLKATA ORDER

Brief facts of the case are that the Tripura State Cooperative Bank Ltd, Agartala(TSCBL), registered under banking and financial services awarded contract for construction of a multi-storied building for the bank purpose to Tripura Housing and Construction Board, Agartala (THCB) for an amount of rupees 4,56,00,000/-. The appellant submits that THCB further awarded and has subcontracted the construction of the building to Shri Dipak Paul, for a value of Rs.4,06,16,850. 00/-. That the service tax liability on this amount received by Shri Dipak Paul comes to Rs.19,13,494.00/- . By virtue of reverse  charge mechanism for payment of service tax, vide notification 30/2012 ST (Sr. No. 9 of the table) dated 20.06. 2012 as amended, the service provider, is liable to pay 50% of the tax that is an amount of Rs.9,56,747.00/-, while the balance 50% is required to be paid by the service receiver. M/s Dipak Paul have discharged service tax liability along with interest and have paid an amount of Rs.10,21,525/- to the department, as share of their liability.

2. Vide show cause notice issued in the matter, the appellant have now been called upon to pay the balance service tax amounting to Rs.8,91,969/- under Section 73(1) of the Finance Act. Commissioner (Appeals) vide his order has fastened the balance liability on the appellants, on the plea that upon completion of the construction of the building M/s THCB had handed over the building to the appellants who upon getting possession of the said building released all funds due as per contract to THCB, towards the construction of their office building and the fact that the appellants are using the said office building, evidence that the appellant fell into the bracket of being the end user/beneficiary/ultimate recipient of the service, and therefore are required to pay the balance 50% of service tax as recipient of service in terms of notification 30/2012 ST The same having not been discharged from their end, hence the impugned show cause

3. Aggrieved by the aforesaid decision of the Commissioner (Appeals) the appellants have filed the present appeal.

4. Heard both sides and perused the records.

5. It is seen that the contract for construction of multistoried building of TSCBL has been awarded by TSCBL for a consideration of Rs 4,56,000.00 only. It is not disputed by revenue that THCB engaged the services of M/s Dipak Paul, for construction of the said building for a beneficial consideration of Rs.4,06,16,850.00/-. It is also not disputed that M/s Dipak Paul have discharged, the 50% component of the service tax required to be paid by them under the RC mechanism. As each person involved in the chain enjoys a distinct legal and separate independent liability for payment of tax the relationship amongst each of these three independent legal entities needs to be ascertained, for determining the liability to pay tax/the balance tax liability.

6. It is observed that M/s Dipak Paul have provided services to THCB As per law, the credit of tax paid by the works contractor M/s Dipak Paul can be discharged towards payment of tax liabilities by the recipient of the service who in this case happens to be THCB, who awarded them the contract and also made requisite payments towards the work order undertaken. It is an admitted position that M/s Dipak Paul has been engaged by THCB and they alone can therefore derive the benefit of the tax paid by their service provider. The appellants have not engaged M/s Dipak Paul and therefore there is no relationship between the two, as regards that of a service receiver and a service provider.

7. The simple test of a service receiver and service provider would be borne out of the fact, as to who is paying as a client and who is getting paid as a provider of service. The obvious answer to this, as borne out of the facts of the case is that M/s Dipak Paul gets paid for (hence a service provider) by THCB (hence a service recipient). Thus it is undoubtedly clear that M/s Dipak Paul have rendered services to THCB and not to the appellants herein. Thus in terms of RCM it was between both THCB & M/s Dipak Paul to pay equally the service tax as leviable. It is seen that no show cause notice has been issued to THCB for the differential payment of tax. For liability under RCM in relation to service rendered by M/s Dipak Paul , no liability can accrue to the appellants, for want of receipt of any service by them from M/s Dipak Paul directly.

7.1 Agenda item number 06 of the Board Note – 06/15/2010 dated 06.10.2010 and 07 Board Note No 07.08.2011 dated 30/03/2011 of TSCBL makes it evident that the contractors as far as the construction of the building is concerned were THCB. It is observed that all correspondence by TSCBL (the appellant) is with THCB and not with M/s Dipak Paul. For greater appreciation the two agenda items are reproduced hereunder :

TRIPURA STATE COOPERATIVE BANK LTD

HEAD OFFICE : AGARTALA.

AGENDA NO. -06
BOARD NOTE NO.-06/15/2010
BOARD OF DIRECTORS

DATED:- 06.10.2010

RE :- Construction of Multistoreled building on Bank’s own land at Post Office Chowmuhani, Agartala.

Tripura State Cooperative Bank Ltd owns and possesses a plot of land measuring 0.644 acres at Post Office Chowmuhani Which is located at the backside of Congress Bhavan, Agartala. The bank has taken a policy decision to construct its multistoried building on the said plot of land. The land is at a prime location within the Agartala Municipal Corporation area where office and market complex may be simultaneously thought of.

The Board of directors of the Bank desired that a building with all modern outlook and maximum utiisation of the land can be designed and constructed, if necessary, in phases. The Board of Directors of the bank in its 7th meeting held on 14.05.2009 decided to explore the feasibility of such construction of building through the “Tripura Housing and Construction Board”.

Accordingly, the bank took up the matter with the Tripura Housing and Construction Board to initiate steps for survey of the land and to undertake other initial works for acceptable design of the building and plan and Estimate thereof vide our letter no. C-2/Building Construction/TSCB/Estt dt.09.10.09 as per annexure -1.

The bank has also paid Rs. 2.5 lac to CEO, THCB vide bank’s letter no C­2/Building construction/TSCB/Estt/677/09 dt. 14.11.09 for conducting survey as well as Geotechnical Investigation of Soil, Preparation of Plan, Drawing, Estimate etc as per letter no. F.8(237)/30/THCB/09/3549-51 dt. 30.10.2009 of CEO of THECB as per Annexure – 2.

The bank has intimated initially to have a foundation of ten storied building with initial construction of 3 storeys  and  the   other  required provisions vide  our  letter  no.C-2/ Building construction/TSC /Estt/ 2010/1716/10 dt. 06.07.2010 as per annexure – 3.

Subsequently the bank has intimated the CEO of THCB to have a foundation of seven storied building with initial construction of 3 storeys vide our letter no. C-2/807(2)/TSCB/Part-iii/28895/10 dt. 02.09.2010 as per annexure – 4

The CEO of THCB vide his letter no. F.8(237)/30/THCB/09/9429 dt 15.09.2010 submitted Plan & Estimate alone with drawing for construction of the proposed Multi storied building of Tripura State Cooperative Bank, Agartala with a request to accord necessary administrative approval and sanction expenditure thereof by the bank to them for taking further course of action.

The Hon’ble Finance Minister, Govt. of Tripura and Chairman of Tripura Housing & Construction Board was kind enough to get the aforesaid plan of TSCB Ltd re-examined by the members of the Board of Directors of THCB which includes the Engineers of PWD, RD and THCB on 01.10.2010 in the office chamber of the Hon’ble Finance Minister. After threadbare discussions the CEO , THCB has been requested to recast the Plan & Estimate as decided after discussion and to submit the same to the bank.

The revised Plan & Estimate of the proposed building of the bank is placed to the Board of Directors of the bank for examination and according administrative approval and sanction of the required expenditure to THCB for taking further course of action.

MANAGING DIRECTOR.

The Board of Director of the bank in its 15th meeting held on 11.10.2010 approved the revised plan & Estimate of the proposed building of the bank a prepared by the Tripura Housing & Construction Board with a project cost of Rs. 4.56 crores.

Accordingly, Bank has accorded administrative approval and sanction of the expenditure of Rs. 4.56 crores to the CEO, THCB vide bank’s letter no.  C-2/807(2)/TSCB/Part-1 11/30893/10 dt. 11.10.2010.

Subsequently, Bank has submitted the revised plan of the proposed building of the bank to the Chairperson, Agartala Municipal Council vide bank’s letter no. C-2/DEV/GEN/AMC/92 dt. 03.11.2010 for approval.

The Managing Director discussed with the CEO, THCB for the construction works of the bank’s building on 28.12.2010. The CEO, THCB assured that they are likely to float the tenders for the construction works of the bank’s building by the 2nd week of January after completing all the formalities.

As required by the THCB the revised plan of the proposed multistoried building of the bank was counter signed by the President & Managing Director of the bank.

The CEO, THCB vide his letter no. F.8(237)/THB/09/500-02 dt. 23.02.2011 informed us that the tender for the above work has already been received by them and they have requested to place fund for and amount of Rs. 1.00 crore to finalize the tender. The matter is placed to the Board of Directors for discussion and decision.

In the meantime the construction of Boundary Wall of the land of the bank at Post Chowmuhani, Agartala is completed through a Contractor one Sri Manik Deb, Agartala as per the approval of the Board of Director. In this connection all the issues relating the construction of the Boundary Wall with the written consent of the Hon’ble President, Tripural Pradesh Congress, destruction of the newly constructed Boundary Wall by a group of person and filing of FIR etc. were placed and also got the approval of 13th meeting of the Board of Directors held on 17.08.2010 for the action taken by the bank.

Sri Manik Deb had to re-construct the Boundary Wall on the northern side of the bank’s land (back side of Congress Bhavan, Agartala) twice since that Boundary Wall was destroyed. Bank has already made advance payment of Rs. 5.50 lac from time to time with the approval of the President to Sri Manik Deb, Contractor for construction of the Boundary Wall Sri Manik Deb submitted a bill of Rs. 6.09 lac with Cash Memo, bills etc, being the cost of construction of the Boundary Wall of the bank.

It may be recalled that it would not be possible for the bank to evict the encroacher on the bank’s land and construction the Boundary Wall without the active participation of Sri Manik Deb place to the Board of Directors for kind discussion and decision for payment of the balance amount to Sri Manik Deb.

Bank has its own Land at Kailashahar, Dharmanagar, Udaipur, Mohanpur & Khayerpur. The particulars of the bank’s lands are given in Annexure. The bank has received representation from one Sri Nishith RN Bhattacharjee and another Sri Apu Nath Bhowmik of Mohanpur showing their interest for purchase of the land of the bank at Mohanpur.

Placed to the Board of Directors for kind perusal and decision.

MANAGING DIRECTOR

TRIPURA STATE COOPERATIVE BANK LTD
HEAD OFFICE : AGARTALA.

DATED:-30.03.2011 

AGENDA NO. -7
BOARD NOTE NO. -7/18/2011
BOARD OF DIRECTORS

RE:- Construction of Multistoried Building on bank’s own land at Post Office Chowmuhani Agartal Vis-à-vis the disposal of bank’s land at Mohanpur.

Tripura State Cooperative Bank Ltd Owns and possesses at plot of land measuring 0.644 acres at Post Office Chowmuhani which is located at the back side of Congress Bhavan, Agartala. The bank has taken a policy decision to construct its Multistoried building on the said plot of land. The land is at a prime location within the Agartala Municipal Corporation area.

The Board the directors of the Bank desired that a building with all modern outlook and maximum utilization of the land can be designed and constructed, if necessary, in phases. The Board of Directors of the bank in its 7th meeting held on 14.05.2009 decided to explore the feasibility of such construction of building through the “Tripura Housing and Construction Board”.

Accordingly, the bank took up the matter with the Tripura Housing and Construction Board to initiate steps for survey of the land and undertake other initial works for acceptable design of the building and Plan and Estimate thereof vide bank’s letter no. C-2/Building construction/TSCB/Estt dt. 09.10.09.

The bank has also paid Rs. 2.5 lac to CEO, THCB vide bank’s letter no. C-2/Building construction/TSCB / Estt/ 6770/09 dt. 14.11.09 for conducting survey as well as Geotechnical Investigation of Soil, Preparation of Plan, Drawing, Estimate etc as per letter no. F.8(237)/30/THCB/09/3549-51 dt. 30.10.2009 of CEO of THCB.

The bank has intimated initially to have a foundation of ten storied building with initial construction of 3 store and the other required provisions vide our letter no. C-2/Building construction /TSCB /Estt /2010 /1716/10 dt. 06.0 7.2010.

Subsequently the bank has intimated the CEO of THCB to have a foundation of seven storied building with initial construction of 3 storeyd vide bank’s letter no. C-2/807(2)/TSCB/Part-iii/ 28895/1 0 dt. 02.09.2010.

The CEO THCB vide his letter no. F.8(237)/30/THCB/09/9429 dt. 15.09.2010 submitted Plan & Estimate along with drawing for construction of the proposed Multi storied building of Tripura State Cooperative Bank, Agartala With a request to accord necessary administrative approval and sanction expenditure thereof by the bank to them for taking further course of action.

The Hon’ble Finance Minister, Govt. of Tripura and Chairman of Tripura Housing & Construction Board was kind enough to get the aforesaid plan of TSCB Ltd. re-examined by the Members of the Board of Directors of the THCB which includes the Engineers of PWD, RD and THCB on 01.10.2010 in the office chamber of the Hon’ble Finance Minister. After threadbare discussions the CEO, THCB has been requested to recast the Plan & Estimate as decided after discussion and to submit the same to the bank.

7.2 The following communication which is a work order from THCB to M/s Dipak Paul would clearly indicate that the actual contractor is M/s Dipak Paul, and its is their tender against which it is for the construction of the said building is THCB who have issued the said work order.

TRIPURA HOUSING AND CONSTRUCTION BOARD
AGARTALA : TRIPURA

F.No. 7 (350)/THCB/DEO(W)/2011/792-809

Date- 13/05/2011

To
Sri Dipak Paul
S/O – Sri Nityananda Paul 140 Motor Stand Road
Service Tax Appeal No. 77107 of 2018
Agartala, West Tripura

Subject : Work order.

Name of Work :- Construction of Multi-storied Building of Tripura State Co-Operative Bank at Agartala.

DNIT No. 15/THCB/PD-I/2010-11.

Sir,

Your Tender for the above mentioned work has been accepted on behalf of the Tripura Housing and Construction Board @ 10.00% (Ten percent) only above the estimated cost put to tender i.e. Rs.2,73,27,732.00 (Rupees Two Crores Seventy Three Lacs Twenty Seven Thousand Seven Hundred & Thirty Two) only and the tendered amount comes to Rs.3,00,60,505.00 (Rupees Three Crores Sixty Thousand Five Hundred & Five) only.

No deviation beyond the permissible limit will be entertained without approval of Competent Authority.

Now you are requested to attend this office within 7(seven) days from the date of issue of this work ordr to complete the formal agreement.

You are also requested to start the swork at once as per direction of Assistant Executive Officer, Sub-Division No.II under this Division Deo(W), Tripura Housing and Construction Board, Agartala. Please note that the time allowed for – of the work as entered into the tender is 15(fifteen) months which shall be reckoned from the 15th (Fifteen) day after the date of issue of this work order.

Yours faithfully

(Er.D.Choudhuyry)
Dy.Executive Officer(W)
Tripura Housing and Construction Board

7.3. Furthermore, TSCBL vide their communication dated 14.02.2011, addressed to the Registrar of Co-Operative Societies Government of Tripura, Agartala, in para 3 have addressed as under :

TRIPURA STATE CO-OPERATIVE BANK LIMITED
HEAD OFFICE : AGARTALA : TRIPURA
1st Floor of Amulya Market,
P.O. – Agartala, P.O. Box No.- 27,
Tripura (West), PIN-799001.

Ref. No:- C-2/807(2)/TSCB/Part-III

Dated :- 14.02.201 1

The Registrar of Cooperative Societies,
Govt. of Tripura,
Agartala.

Sub :- Construction of Bank building at Post Office Chowmuhani, Agartala.

Sir,

Further to our letter no. C-2/TS CB/House Building/2010/1716/10 dt. 18.08.2010—————- ) we
would like to inform you that the following initiatives has already been taken by the bank for construction of bank’s won building.

1) ——————- .

2)—————– .

3) The undersigned discussed this issue with the official of THCB on 14.02.2011 and it was confirmed that the Housing Board is evaluating the tenders received against the tender floated for construction of the bank’s building. They are expecting to complete this exercise by the end of this month.

This is for your kind information & necessary action.

Yours faithfully,

(Sri Swapan Kr. Saha)
MANAGING DIRECTOR.

This is to clearly indicate, that it is the THCB who are undertaking the construction of the building for TSCBL, through M/s Dipak Paul to whom the aforesaid work order was sanctioned.

8. The finding of the Ld. Commissioner (Appeals) that the appellant released funds to THCB for construction of the office building and subsequently THCB in their turn engaged the contractor for such work though is factually correct but the Ld. Commissioner (Appeals) has failed to appreciate its true purport. The mere fact that the appellant are making use of the said building and have moved their office into the same is not the test for the delivery of the service. The end user status/ultimate recipient of service test cannot therefore be interpreted to fix TSCBL as the service recipient directly from M/s Dipak Paul . It is undisputed that M/s Dipak Paul has been engaged at the behest of There is no contract evidencing engagement of Dipak Paul by TSCBL.

9. As per section 68(1) the Service Tax liability dwells upon the person, providing the taxable service. However, in terms of notification 30/2012 ST, this liability is divided equally between the service provider and the service recipient – each sharing 50% tax payable. The following facts distinctly emerge in the matter :

1. TSCBL awards contract for construction of a multi-storeyed building to THCB for a consideration of Rs.45600000. The service recipient is TSCBL from THCB.

2. THCB engages M/s Dipak Paul, for the construction of the said building for a consideration of Rs.4,0616850.00.- herein the service provider is M/s Dipak Paul, while the service recipient is THCB

3. M/s Dipak Paul upon completion of the building hands it over to – thus M/s Dipak Paul provider of works contract service to THCB.

4.TSCBL releases entire funds and takes over the possession of the building from THCB.

10. Under the circumstances no liability by way of RCM is accruable upon TSCBL, the appellant with regard to the aforesaid services rendered by M/s Dipak Paul. M/s Dipak Paul has provided the services to THCB who as per law can avail credit of tax paid by M/s Dipak Paul, as input service credit-who and was required to discharge the service tax

11. No show cause notice therefore merits issuance to the appellant herein as they are not recipient of service directly from M/s Dipak Paul. As there exist, no relationship between TSCBL and M/s Dipak Paul as a service receiver and a service provider for the impugned works order. No liability accrues upon the noticee to pay Service Tax. Therefore the order of the Learned Commissioner (Appeals) cannot be sustained and is therefore set aside.

12. The appeal filed by TSCBL is allowed.

(Dictated and pronounced in the open court on 18.05.2023)

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