Commissioner of Central Excise & ST Vs Jalaram Security Services (CESTAT Ahmedabad)
The appellant provided security services during the period 2001 to 2005-06 and paid service tax only on the commission, after excluding amounts towards salary of security guards, PF and ESI. The Revenue contended that service tax was payable on the gross amount charged for the security services, including salary, PF and ESI, and raised a demand of differential service tax invoking the extended period.
The appellant contended that the amounts towards salary, PF and ESI represented actual expenses reimbursed by the service recipient and were therefore not liable to service tax. It was also submitted that the appellant had regularly paid service tax on the commission portion and filed periodical returns, and hence there was no suppression of facts warranting invocation of the extended period.
CESTAT Ahmedabad examined the provisions of Section 67 and held that the gross amount charged towards providing the security service was liable to service tax. The Tribunal observed that the salary of security guards, PF and ESI were not expenditures incurred by the appellant on behalf of the service recipient. The service recipient was concerned with the overall provision of security service, irrespective of the bifurcation of payment. Accordingly, the Tribunal held that these amounts could not be treated as reimbursable expenditures deductible from the gross value of the security service.
On limitation, the Tribunal noted that the appellant had, from the beginning, paid service tax only on the commission portion and had declared to the department the value on which tax was being paid. It held that there was no ambiguity regarding the value on which service tax was chargeable and that the appellant could not claim a bona fide belief that only the commission was taxable. The extended period was therefore upheld.
The Tribunal also maintained the penalty imposed under Section 78, holding that the appellant had not established bona fide belief despite the clear provisions relating to the value of security services.
Regarding the Revenue’s appeal against the benefit of reduced penalty, the Tribunal relied upon the decision in R.A. Shaikh Paper Mills Pvt. Limited vs. CCE & Cus, Daman – 2010 (259) ELT 53 (Guj.), holding that the option of 25% penalty should be given explicitly in writing by the Adjudicating Authority. Since such benefit had not been given in writing in the adjudication order, the Commissioner (Appeals) was legally correct in extending the benefit of 25% penalty.
Consequently, the Tribunal dismissed both the assessee’s appeal and the Revenue’s appeal. The miscellaneous applications also stood disposed of accordingly.
Cases Discussed
- Industrial Security Associates vs. CCE, Kanpur – 2013 (31) STR 489 (Tri. Del.)
- Young Brothers Transporters & Contractors vs. CCE, Meerut – 2017 (6) GSTL 513 (Tri. Del.)
- H.M. Singh and Company vs. CC, CE & ST – 2015 (37) STR 172 (All.)
- Doon Security Services vs. Union of India – 2014 (304) ELT 342 (Uttarakhand)
- Rajasthan Ex-Servicemen Limited vs. CCE, Jaipur-I – 2017 (52) STR 42 (Tri-Del)
- Rajasthan Ex-Servicemen Welfare Cooperative Society Limited vs. CCE, (Appeals), Jaipur-I – 2018 (15) GSTL 328 (Raj)
- CCE, Pune-II vs. Commander Security Services – 2015 (39) STR 494 (Tri-Mum)
- New Industrial Security Force vs. CCE, Kanpur – 2006 (3) STR 197 (Tri-Del)
- Panther Detective Services vs. CCE, Kanpur – 2006 (4) STR 116 (Tri-Del)
- Bombay Intelligence Security Limited vs. CCE, Mumbai-II – 2015 (38) STR 588 (Tri-Mum)
- Security Agencies Association vs. Union of India – 2012 (28) STR 3 (Ker)
- Premier Security Enterprises vs. CCE, Patna – 2009 (15) STR 735 (Tri-Kol)
- Sudharson Security Bureau vs. CCE, Madurai – 2008 (10) STR 304 (Tri-Chennai)
- Punjab Ex-Servicemen Corpn. vs. CCE, Chandigarh – 2007 (5) STR 214 (Tri-Del)
- R.A. Shaikh Paper Mills Pvt. Limited vs. CCE & Cus, Daman – 2010 (259) ELT 53 (Guj.)
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the appellant during the period 2001 to 2005-06 provided the security services. They were paying service tax on the value of service i.e. only on the commission (gross value minus salary, PF ESI etc.). The case of the department is that the appellant are required to pay service tax on the gross amount including salary of the security guards, PF, ESI etc. Therefore, the demand of differential service tax was raised invoking the extended period. In the impugned order the Commissioner (Appeals) has extended the benefit of reduced penalty of 25% under Section 78. Aggrieved with the said relaxation, the Revenue has also filed the appeal.
2. Shri Naveen Gheewala, Learned Consultant along with Shri Amal Dave, Learned Advocate appeared on behalf of the appellant and submits that the appellant have rightly paid service tax on the service charges. The value on which demand was raised is receipt of reimbursements towards Salary of Security Guards, PF and ESI, which are actual expenses and the same was reimbursed by the service recipient. Therefore, the same is not chargeable to the service tax. He further submits that appellant, after taking registration, were regularly paying service tax on the net of salary, PF, ESI, i.e. on the actual service charges. They were filing periodical returns to the department therefore, there is no suppression of facts on their part. Hence, the demand for the extended period was wrongly invoked. He placed reliance on the following judgments:-
(a) Industrial Security Associates vs. CCE, Kanpur – 2013 (31) STR 489 (Tri. Del.)
(b) Young Brothers Transporters & Contractors vs. CCE, Meerut – 2017 (6) GSTL 513 (Tri. Del.)
(c) H.M. Singh and Company vs. CC, CE & ST – 2015 (37) STR 172 (All.)
3. As regards the Revenue’s appeal, he submits that no option of 25% reduced penalty as per proviso to Section 78 is given by the Adjudicating Authority therefore, the said benefit was extended by the Commissioner (Appeals) is in accordance with law. Hence, Revenue’s appeal is not sustainable.
4. On behalf of the Revenue, Shri T.K. Sikdar, Learned Assistant Commissioner (AR) appeared and submits that for providing security service, the gross amount charged by the appellant for their services, including the Salary, PF and ESI is liable to be taxed and no deduction is permissible on this count as the payment of salary, PF and ESI is by the appellant themselves and not on behalf of the service recipient. Therefore, the salary of the guards, PF, ESI etc cannot be deducted from the gross value, for the purpose of charging service tax.
5. He submits that the appellant had the liberty to pay service tax demand, interest and 25% of penalty within one month from the date of adjudication order which they have failed to do so. Therefore, the Commissioner (Appeals) was wrong in extending the benefit of reduced25% penalty. Therefore, the Revenue’s appeal may be allowed. He placed reliance on the following judgments:-
(a) 2014 (304) ELT 342 (Uttarakhand) — Doon Security Services vs. Union of India
(b) 2017 (52) STR 42 (Tri-Del) — Rajasthan Ex-Servicemen Limited vs. CCE, Jaipur-I
(c) 2018 (15) GSTL 328 (Raj) — Rajasthan Ex-Servicemen Welfare Cooperative Society Limited vs. CCE, (Appeals), Jaipur-l
(d) 2015 (39) STR 494 (Tri -Mum) – CCE, Pune-II vs. Commander Security Services
(e) 2006 (3) STR 197 (Tri-Del — New Industrial Security Force vs. CCE, Kanpur
(f) 2006 (4) STR 116 (Tri-Del) — Panther Detective Services vs. CCE, Kanpur
(g) 2015 (38) STR 588 (Tri -Mum) — Bombay Intelligence Security
(I) Limited vs. CCE, Mumbai-II
(h) 2012(28) STR 3 (Ker) — Security Agencies Association vs. Union of India
(i) 2009 (15) STR 735 (Tri-Kol) — Premier Security Enterprises vs. CCE, Patna
(j) 2008 (10) STR 304 (Tri-Chennai) — Sudharson Security Bureau vs. CCE, Madurai
(k) 2007 (5) STR 214 (Tri -Del) – Punjab Ex-Servicemen Corpn. vs. CCE, Chandigarh
6. We have carefully considered the submissions made by both sides and perused the record. We find that appellant have strongly submitted that only the commission amount received by them is chargeable to service tax and remaining amount such as salary of the security guards, PF, ESI etc. is not liable to service tax. We find that as per Section 67, the gross amount charged towards providing service shall be liable to service tax. As regards the salary of security guards, PF and ESI, the same is not an expenditure incurred by the appellant on behalf of the service recipient. The service recipient is concerned about the overall provision of security service irrespective of bifurcation of payment of service paid by the service recipient to the appellant. Therefore, it cannot be said that salary of guards, PF, ESI etc. are reimbursable expenditures to be deducted from the gross value of security service. Therefore, we do not agree with the appellant (assessee) that only the commission portion is liable to tax and not the gross value.
7. As regards the submissions made by the appellant on limitation, we find that right from the beginning the appellant were paying service tax only on the commission portion without adding the value towards salary of guards, PF, ESI etc. They have declared to the department on the said value on which the service tax is paid which is representing only commission. Therefore, the department is of the belief that the appellant is paying service tax on the gross value of security service provided by them to their recipient of service. We find that as per provisions of security service, there is absolutely no ambiguity that on which value the service tax will be chargeable. Therefore, it cannot be said that the appellant was under bonafide belief that only commission is chargeable to service and not the total gross value of service provided by them. Even in case of judgments cited by the appellant, the relief was given from the penalty by invoking Section 80 whereas the demand of service tax on the gross amount was maintained. In these facts, we are of the view that the show cause notice has rightly invoked extended period and therefore, the demand for the extended period is sustained.
8. As regards the penalty imposed under Section 78, we find that since the appellant despite clear provisions for value of security service, paid service tax on commission only, the bonafide is not proved. Hence, the penalty imposed under Section 78 is maintained.
9. As regards the Revenue’s appeal against the benefit of 25% penalty, extended by Learned Commissioner (Appeals), we find that in terms of Hon’ble Supreme Court decision in the case R.A. Shaikh Paper Mills Pvt. Limited vs. CCE & Cus, Daman – 2010 (259) ELT 53 (Guj.), the option of 25% penalty should be given explicitly in writing by the Adjudicating
Authority in the order. On perusal of the adjudication order, it is clear that the Adjudicating Authority has not given the benefit of 25% penalty in writing in the adjudication order. Therefore, the Commissioner (Appeals) is legally correct in extending the benefit of 25% penalty.
10. On the above settled position, the Revenue’s appeal is not sustainable. As a result, the Assessee’s appeal as well as Revenue’s appeal are dismissed. MA (Ors) also stand disposed of accordingly.
(Pronounced in the open court on 30.10.2019)
