Case Law Details
M D Engineers Vs C.C.E. & S.T.-Vadodara (CESTAT Ahmedabad)
Introduction: In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) of Ahmedabad passed a judgment in the case of M D Engineers Vs C.C.E. & S.T.-Vadodara. The decision clarifies the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994. This article provides a detailed analysis of the ruling, its implications, and the key takeaways for businesses and tax professionals.
The Case Background and Core Issues: The Learned Commissioner (Appeals) upheld a service tax demand of Rs. 36,00,875 for the period from April 2006 to March 2011. The appellant was also subject to several penalties. The core issues in the case were:
- Service tax on loading and unloading charges
- Service tax on house rent charges reimbursed by customers
- Incorrect calculation of service tax
Loading and Unloading Charges: The appellant contended that they provided ancillary services of loading and unloading, which should be exempt. The CESTAT, however, sided with the Learned Commissioner (Appeals) stating that the activity qualified as Manpower Recruitment and Supply Agency Service, thereby making the tax demand sustainable.
House Rent Charges Reimbursed by Customers: The appellant claimed that house rent charges reimbursed by their customers should not be taxable. The tribunal, however, found that the demand was sustainable, as the appellant was supposed to incur the expenditure for all items, including accommodation.
Incorrect Calculation of Service Tax: The appellant disputed the tax amount of Rs. 73,053 due to a calculation error but failed to produce any supporting documents. The CESTAT, hence, found the demand to be sustainable.
Penalties under Section 76 and 78: The most pivotal part of the judgment was regarding the imposition of penalties under Sections 76 and 78 of the Finance Act. CESTAT ruled that penalties under both sections cannot be imposed simultaneously. This decision was in line with the settled legal position by the Gujarat High Court in the case of Raval Trading Company.
Conclusion: The CESTAT’s ruling in M D Engineers Vs C.C.E. & S.T.-Vadodara serves as an important guideline for the imposition of penalties under the Finance Act, particularly Sections 76 and 78. While the tribunal upheld the service tax demands on various counts, it clarified that dual penalties under Section 76 and 78 are not permissible. The ruling is expected to set a precedent for similar cases and provide a clearer understanding of the complexities involved in service tax penalties.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
As per the impugned order the Learned Commissioner (Appeals) upheld the service tax demand of Rs.36,00,875 for the period April, 2006 to March, 2011 and admitted amount of Rs.33,62,186 paid by the appellant was appropriated and the interest amount of Rs. 4,23,451 paid by the appellant was also appropriated . The appellant in the present appeal challenging the following demand and also penalties imposed:
I. Service tax of Rs. 1,14,509/- on loading and unloading charges isclaimed by the appellant
II. Service tax of Rs. 51,126/- on house rent charges reimbursed by its
III. Service tax of Rs. 73,053/- due to incorrect working of service tax.
2. None appeared on behalf of the appellant however, through e-mail dated 13th March, 2023, the Learned Chartered Accountant on record requested to decide the appeal on merit.
3. We have heard Shri Ajay Kumar Samota, Learned Superintendent (AR) appearing on behalf of the Revenue who reiterated the finding of the impugned order.
4. We have carefully considered the submission made by Learned AR and the grounds of appeal and perused the record of the appeal. As per the ground of the appeal regarding demand of Rs. 1,14,509/- it is submitted that the actual movement of goods was done by the service recipient by using their own Hydra equipment and appellant have provided ancillary service of loading and unloading the material which is exempted as per the various decision. The appellant submits that the Learned Commissioner (Appeals) erred by levying the tax under Manpower Supply Service and not under cargo handling service therefore, the same is not sustainable.
4.1 As regard the demand of service tax of Rs. 51,126/- it is the submission of the appellant that this is towards house rent charges which was reimbursed by their customers. It is his submission that the Assistant Commissioner as well as the Commissioner (Appeals) have failed to recognize that the facility of residence was provided to the workers at the remote site by the contractors which was the responsibility of the contractee and thereby will not be liable to levy of tax. These charges is nothing but the reimbursement during the provision of service therefore, the same is not taxable.
4.2 As regard the service tax amount of Rs. 73,053/- it is the submission of the appellant that this is not payable as due to incorrect working of tax in the show cause notice. They submit that they have in their letter dated 06.02.2011, written to the superintendent explaining difference year wise, however, the same was not considered. Therefore, this demand is also not sustainable.
4.3 As regard the penalties imposed, it is the submission of the appellant that since the major amount was already paid and remaining amount was on debatable issue, the penalties are not sustainable invoking Section 80 of the Finance Act, 1994.
4.4 We find that the major demand was admittedly paid by the appellant only a small amount was disputed in the present appeal. As regard the service tax demand of Rs. 1, 14,509/-, the appellant’s claim is that it is on account of loading and unloading charges. As per the order of the Commissioner (Appeals), We find that by referring the work order it was contended that the appellant were to supply labour required for the shifting, loading and unloading of material, therefore, there is no doubt that the appellant have provided man power. As per the contract dated 30.07.2010 irrespective that the fact whether the labour provided by the appellant have carried out the loading and unloading or any other work but when as per contract the appellant were supposed to provide the manpower service, the activity clearly qualified as Manpower Recruitment and Supply Agency Service and therefore on this count the demand is clearly sustainable.
4.5 As regard the demand of service tax of RS. 51,126/-, we find that as per the contract the service recipient M/s. Punj Lloyds undertook to provide residence to the worker at the site since the appellant could not provide such accommodation at site. The recipient have arranged such accommodation on behalf of the company and on receiving the sum as reimbursement, As per contract dated 30.07.2010 the appellant were to pay salary/ food/ accommodation to the worker engaged in the work. As per these terms, the appellant themselves have to incur the expenditure for all these items including accommodation of the workers and on the turn key working the appellant is supposed to receive the service charges. Therefore, it cannot be said that the appellant have incurred the expenses on behalf of the service recipient as buyer/agent. Accordingly, the amount of house rent charges cannot be termed as reimbursement of expenses over and above the service charges. Therefore, the demand on this count is also sustainable.
4.6 As regard the demand of Rs. 73,053/- it was claimed by the appellant that this amount is in excess due to calculation error. The appellant have referred the letter dated 07.06.2011, though the appellant have given the reconciliation in the said letter. However, both the lower authorities have rejected the same on the ground that no documents were produced in support of their claim of incorrect calculation of service tax liability. We find that in appeal also the appellant have not submitted any documents therefore, demand of service tax of amount of Rs. 73,053/- is also sustainable.
4.7 As regard the penalty imposed under Section 76, 77 and 78, We find that the appellant have recorded the entire transaction in the books of account. They have worked under the contract, they have admittedly paid the major amount of Rs. 36, 00,875/- along with interest of Rs. 4,23,451/- and the remaining amount involved is on debatable issue, therefore, malafide intention cannot be attributed to the appellant. In these circumstances by invoking Section 80, the penalties under section 76, 77 and 78 are not imposable.
5. Without prejudice, we also find that the appellant have been imposed penalty under section 76 and 78 simultaneously. It is settled legal position by the Hon’ble Gujarat High Court in the case of Raval Trading Company – 2016 (42) STR 210 (Guj) that the penalty under Section 76 and 78 cannot be imposed simultaneously. Accordingly, the penalty under section 78 is not imposable also on this principle.
6. As per our above discussion and finding the impugned order is modified to the above extent. The appeal is partly allowed in the above terms.
(Pronounced in the open court on 18.08.2023)
