Chairman Sebi v. Shriram Mutual Fund Another

Per: P.R. Chandrasekharan: There are two appeals filed against Order-in-Original No. 14-15/ST/2012/C dated 28/03/2012 passed by the Commissioner of Central Excise, Nagpur.

2. The appellant in these appeals is M/s Sunil Hi-tech Engineers Ltd., Nagpur. Appeal No. ST/422/2012 involves two issues, namely: (a) Inclusion of value of materials sold on payment of VAT in the taxable value of services rendered to M/s National Thermal Power Corporation by denying the benefit of exemption under Notification No. 12/2003-ST. The service tax demand in this case is `16,26,300/-. (b) Non-payment of service tax to the extent of ` 52,59,773/- for the period from 1-3-2006 to 31-12-2006 for the works done as a sub-contractor to the main contractor M/s Punj Lloyd Limited who was awarded the contract by M/s Jindal Power Ltd. where M/s Punj Lloyd was paying service tax as the main contractor. Appeal No. ST/423/2012 involves non-payment of service tax by the appellant as a sub-contractor in respect of various main contractors such as M/s Tata Projects Ltd., M/s Hindustan Steelworks Construction Ltd. wherein service tax demand of ` 3,05,45,211/- was demanded for the period March 2006 to December 2007, which is similar to the issue at (b) above.

3. This is the second time these appeals are coming up before this Tribunal. In the first round, both the above issues were held in favour of the appellant by this Tribunal vide Final Order No. A/262/09/ CSTB/C.II dated 28/08/2009 wherein it was held that if the main contractor has paid service tax on the full value of the contract, then the sub-contractor need not pay service tax on the value of services rendered by him, provided the appellant proves the payment of service tax by the main contractor. As regards the inclusion of value of materials sold, it was held that the appellants claim for abatement under notification No.1/2006-ST should be considered. Therefore, the matter was remanded back to the adjudicating authority for de novo consideration. The said decision of the Tribunal was challenged by the Revenue before the honble High Court of Bombay in Central Excise Appeal Nos. 10 and 11 of 2010 and the honble High Court set aside the order of the Tribunal and remanded the matter back to the Tribunal for fresh consideration. On such remand, this Tribunal remitted the matter back to the adjudicating authority for fresh decision as per the High Courts directions vide order A/136/11/CSTB/C.I dated 23/03/2011.

4. In pursuance of the said directions, the Adjudicating authority has passed the impugned order. The adjudicating has held that as per the provisions of Notification No. 12/2003-ST dated 20/06/2003, exemption from tax on the value of goods and materials sold by the service provider to the recipient of service is available subject to the condition that there is documentary proof indicating the value of the said goods and materials and the appellant has not furnished any documentary evidence in support of their claim for abatement of value of materials sold. Therefore, he has denied the benefit of exemption under Notification 12/2003. As regards the second issue, he has held that sub-contractor is independently liable to pay service tax on the services rendered by him irrespective of whether the main contractor is discharging service tax liability or not relying on the Circular dated 23/08/2007 issued by the Board in this regard. As regards invocation of larger period of time, the adjudicating has held that the appellant has suppressed and mis-stated the facts resulting in evasion of service tax and therefore, extended period of time is invokable. Accordingly he has confirmed a demand of ` 63,28,217/- in respect of the contracts pertaining to NTPC and Punj Lloyd along with interest thereon and also imposing penalties under sections 76,77 and 78 of the Finance Act, 1994. Further he has confirmed the demand of ` 3,05,45,211/- in respect of contracts executed for other parties along with interest and imposing penalties under sections 76,77 and 78 of the Finance Act, 1994. Aggrieved of this decision, the appellant is before us.

5. The submissions made by the ld. Consultant for the appellant can be summarized as follows:- 5.1. As regards the non-submission of documents in support of the claim for benefit under Notification No. 12/2003-ST, this was due to certain communication gap between the counsel and the chartered accountant who represented the issue before the adjudicating authority. Though the documents were not produced for verification, all the documents were available with the department. This is evident from para 4 of the show cause notice dated 23/03/2007 wherein it is stated that the appellant had vide letters dated 29/09/2006 had submitted the letter of award for the NTPC contract along with details of bills raised and amounts received and other particulars. The notice further states that vide letter dated 22/09/2006, the appellant had submitted copies of bills raised for the period 31/03/2005 to 31/03/2006 in respect of structural work and from 30/09/2004 to 31/03/2006 in respect of civil works along with other documents in respect of NTPC work. Similarly in respect of the works carried out for Punj Lloyd, the relevant details were submitted vide letters dated 17/11/2006 and 09/03/2007. Thus all the information required for determination of eligibility to exemption under Notification No. 12/2003-ST was available with the department which the adjudicating authority has failed to take into account. If required, the appellant can once again submit the details before the adjudicating authority if opportunity is given. 5.2. As regards the non-payment of service tax as a sub-contractor, the CBEC had issued circulars from time to time with respect to various other services that there is no requirement for payment of service tax by the sub-contractors and the Tribunal also in a number of decisions, namely, BBR India Ltd. [2006 (4) STR 269], Semac (P) Ltd. [2006 (4)STR 475], Rana Udyog (P) Ltd. [2007 (7) STR 526], Oikos [2007 (5) STR 229 (Tri.-Bang)], Foto Flash 2008 (9) STR 462 and Evergreen Suppliers [2008 (9) STR 467] had held that sub-contractor need not pay service tax in case the main contractor had paid the tax. Therefore, the appellant was under the bona fide belief that they were not required to pay service tax. Only vide Master Circular dated 23/08/2007, the CBEC clarified that every service provider, whether be a sub-contractor or contractor, should discharge service tax liability on the services provided by him. This circular can have only prospective effect and therefore cannot be applied retrospectively. 5.3. Back-to-back subcontracting is a prevalent trade practice, particularly in construction services. In such a back-to-back sub-contract, the bar cast under Notification No. 1/2006-ST for the availment of CENVAT credit on the input services would lead to double taxation. 5.4. Notwithstanding the above, the adjudicating authority has not granted the benefit of abatement of 67% under Notification No. 1/2006-ST and the appellant has also not claimed the benefit of CENVAT credit on inputs, capital goods or input services and hence they are eligible for the benefit of abatement. 5.5. Invocation of larger period is not invokable as the issues involved are highly interpretative in nature and therefore, there is no reason for the imposition of various penalties imposed on the appellants. Accordingly it is prayed that the appeals be allowed.

6. The ld. Addl. Commissioner (AR) appearing for the Revenue made the following submissions:- 6.1. As regards the eligibility to Notification No. 12/2003-ST, when the matter was remanded by the Tribunal, it was specifically directed to examine this issue in the light of the documentary evidences submitted by the appellant in this regard. In as much the appellant has failed to produce the documentary evidences before the adjudicating authority, the benefit has been rightly denied. 6.2. Regarding the liability of the sub-contractor to pay service tax when the main contractor has paid the service tax, the CBEC circular dated 23/08/2007 has clarified that service tax is leviable on any taxable service provided whether or not the services are provided by a person in the capacity of sub-contractor and whether or not such services are used as input services. As regards the reliance placed by the appellant on the circulars issued in 1997, the said circulars pertained to specific services of CHA, Consulting Engineer, Rent-a-cab and Architects services. The appellant was not providing any of those services but was providing the service of commercial or industrial construction in respect of which there was no such clarification. Further, the circulars lost relevance after 16/08/2002 when CENVAT credit was extended to service tax whereby it became possible to take CENVAT credit of service tax paid on input services. Therefore, the issue of sub-contractor not paying service tax lost its relevance as main contractor could take CENVAT credit of the same. 6.3. As regards the contention of the appellant that extended period of time could not be invoked in respect of show cause notice dated 29/12/2010 when the first show cause notice on the same issue was issued on 23/03/2007, it is submitted that the first notice dealt with work orders relating to NTPC and Punj Lloyd whereas the second show cause notice dealt with contracts awarded by Hindusthan Steel Works Construction Ltd., Bhola Singh Jaiprakash Construction Ltd., Tata Projects Ltd., and Shankar Narayan Construction Ltd. Thus the two show cause notices were issued in respect of contracts awarded to different parties as and when the same was detected by the department. The appellant had in fact suppressed the information of contracts given by other parties from the department at the time of investigation in the case of first show cause notice. Therefore, the extended period of time has been rightly invoked for suppression with an intention to evade payment of service tax. Consequently, imposition of penalties are also justified. Accordingly it is prayed that the impugned order be sustained.

7. We have carefully considered the submissions made by both the sides. 7.1. There are three issues which need consideration in these appeals, namely:- (a) whether the appellant is eligible for the benefit of notification No. 12/2003-ST which provides for exclusion of cost of materials sold from the taxable value of the services rendered? (b) whether sub-contractor is exempt from payment of service tax when the main contractor has discharged the service tax liability on the value inclusive of the value of services rendered by the sub-contractor? (c) whether extended period of time could have been invoked for confirmation of service tax demand and whether the imposition of penalties is justified ? 7.2. As regards the first issue, that is, eligibility to benefit of Notification No. 12/03-ST, the claim of the appellant has been rejected only on the ground that the appellant did not submit documentary evidence in support of their claim for sale of goods during the rendering of the service. However, as pointed out by the appellant. Para 4 of the show cause notice indicates that the appellant had submitted to the investigating agency vide letters dated 22nd and 29th September, 2006m 17th September,2006 and 9th March, 2007, details of the contracts awarded to the appellant, the bills raised by the appellant, payment of service tax made and other details. Therefore, the adjudicating authority should have examined these documents and given a finding thereon. The appellant has also submitted that they have all the requisite documents and if given an opportunity, they can submit all these documents for consideration by the adjudicating authority. Thus we are of the view that in the interest of justice, the matter needs to go back to the adjudicating authority for considering this issue afresh. 7.3. With regard to the question of the liability of sub-contractor to pay service tax when the main contractor has discharged the tax liability, this very same issue was considered by a larger bench of this Tribunal in the case Vijay Sharma & Co. [2010(20)STR 309(Tri.-LB)]. In the said case, it was held that- The scheme of service tax law suggests that it is a single point tax law without being a multiple taxation legislation. In the absence of any statutory provision to the contrary, providing of service being event of levy, self same service provided shall not be doubly taxable. If service tax is paid by a sub-broker in respect of same taxable service provided by the stock broker, the stock broker is entitled to the credit of the tax so paid on such service if entire chain of identity of sub-broker and stock broker is established and transactions are provided to be one and the same. . This decision was followed by another co-ordinate bench of this Tribunal in Sew Construction Ltd. case [2011(22) STR 666 (Tri. Del)] wherein it was held that we do not find any provision in the Finance Act, 1994 to grant immunity to the sub-contractor from levy of service tax when undisputedly taxable services were provided by them. . Therefore, the argument that since the main contractor has discharged the service tax and therefore, the sub-contractor need not pay service tax is without any legal basis and is quite contrary to the concept and practice of CENVAT Credit Scheme. The Larger Bench prevails over the other decisions of the Tribunal in this regard. Accordingly, we reject this contention raised by the appellant in toto. 7.4. The contention of the appellant that vide circulars dated 6/6/97, 2/7/97, 11/7/97 and 7/10/98, the Board had clarified that if the main service provider is discharging the service tax liability, the subsidiary service provider need not pay service tax and therefore, the demand of service tax from the appellant is not sustainable in law, the arguments is not convincing or acceptable for the following reasons. These circulars dealt with individual taxable services, namely, CHA services, Rent-a-cab operators services, consulting engineers services and interior decorator/ architects services and were specific to those services. No general proposition has been laid or clarification issued that if the main service provider pays the service tax, the subsidiary service provider need not pay service tax. In respect of commercial or industrial construction service which the appellant herein was involved, no such clarification had been issued. Further, these clarifications were issued when there was no CENVAT credit scheme providing for tax credit of the input services was in force. However, the legal position changed substantially when in 2002, the CENVAT Credit Scheme was extended within the services sector and in 2004, the scheme was further extended to provide for inter-sectoral credit between the services sector and the manufacturing sector. In any case, the liability to pay service tax arises not from the Boards circulars but from the provisions of Chapter V of the Finance Act, 1994, namely, section 65(105) which defines the taxable service, section 66 which provides for charge of service tax and section 68 which defines the person liable to pay service tax. Therefore, whomsoever provides the taxable service is the person liable to pay service tax, irrespective of the capacity in which he renders the service. Thus the argument adopted by the appellant is one of convenience and has no legal basis and therefore, merits to be rejected outright. 7.5. As regards the decisions of the Tribunal relied upon by the appellant cited in para 5(2), these decisions pertained to consulting engineers service, interior decorator service and photography services. In respect of these services, there were specific circulars of the board clarifying that if the main service provider pays the tax, the subsidiary service provider need not pay tax. Further all these services were brought under the tax net prior to introduction of CENVAT credit scheme to the services sector and the demand for service tax pertained to the period prior to extension of CENVAT credit scheme to the services sector. It was in that context, this Tribunal in the various decisions cited held that the sub-contractor need not pay service tax, if the main contractor has discharged service tax liability in full. In these decisions, this Tribunal did not lay down any general proposition that if the main contractor discharges service tax liability, the sub-contractor need not pay service tax. That is the fact obtaining in the present appeals before us. The demand for service tax in the present case pertains to the period after April, 2004. By that time CENVAT credit scheme had already been extended to the services sector. Further, the service involved in the present case is commercial or industrial construction service and in respect of this service, no instruction had been issued by the Board that sub-contractor need not pay service tax if the main contractor discharges service tax. As decided by the honble Apex Court in the case of Ambica Quarry Works v. State of Gujarat & others 1987 (1) SCC 213 The ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is only an authority for what it actually decides, and not what logically follows from it. In Bhavnagar University v. Palitana Sugar Mills Pvt. Ltd - 2003(2) SCC 111, the honble Apex Court observed that- It is well settled that a little difference in facts or additional facts may make a lot of difference in the precedential value of a decision. In Bharat Petroleum Corporation Ltd. & another v. N.R. Vairamani & another - AIR 2004 SC 4778, it was held that a decision cannot be relied on without disclosing the factual situation. In the same judgment this Court held as under: Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of courts are neither to be read as Euclids theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgment of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgment. They interpret words of statutes; their words are not to be interpreted as statutes. If one follows these judicial dictums, it becomes obvious that the ratio of the decisions relied upon by the appellant cannot be applied to the facts of the appeals before us as they are substantially different and distinguishable. Thus there was no reason for the appellant to entertain any belief that he need not discharge service on the services rendered by him. The Cenvat Credit Scheme applicable to the services sector envisages discharge of tax liability at each and every stage of rendering of a taxable service and taking credit of the tax so paid if such services are input services for rendering any taxable output service. The concept and procedure of such a scheme cannot be rendered otiose or ineffective by wrong or incorrect judicial interpretation. 7.6. The appellant has also raised a point that while confirming the demand in the impugned order, the adjudicating authority has not extended the abatement in value under Notification No.1/2006-ST in as much as the appellant has not availed any CENVAT credit on inputs, capital goods and input services consumed in the rendering of the service. This claim of the appellant needs to be examined and if found admissible, abatement needs to be allowed. If abatement is not permissible, then the appellant would be eligible for CENVAT credit of the excise duty paid on inputs and capital goods and service tax paid on input services in accordance with law. 7.7. The next question for consideration is whether extended period of time could be invoked for confirmation of service tax demand. The argument adduced is that the appellant was under the bona fide belief that they were not liable to pay service tax since the main contractor was discharging service tax. This claim of the appellant is quite hollow and mis-leading. The appellant had been discharging service tax on the services rendered by them prior to 1-3-06 as a sub-contractor. In their reply to the show cause notice dated 29/12/2010 vide reply dated 19th September, 2011, in para 4.1, the appellant has stated as follows:- 4.1 But, with effect from 1-3-2006, the said notification 15/2004 has been replaced by Notification 1/2006, which also prohibited availment of Cenvat credit on input services. Hence with effect from 1.03.2006, we have stopped paying service tax and sought the benefit of various circulars and judicial pronouncements to the effect that no service tax is payable by the sub-contractors, if the main contractor pays service tax. This averment of the appellant clearly shows that the reason for non-payment of service tax was not because of any bona fide belief but because notification 1/2006-ST which provided for abatement in value of taxable service stipulated a condition that no CENVAT credit of excise duty paid on inputs and capital goods and service tax paid on input services shall be availed. Since the main contractor was prohibited from availing input service tax credit, the appellant stopped paying service tax on input services. Under the previous notification 15/2004-ST, the restriction on non-availment of credit applied only on inputs and capital goods and not on input services. With the change in the tax regime, the appellant resorted to non-payment of service tax on input services. Thus the non-payment was a deliberate ploy on the part of the appellant to minimize tax liability. Consequently, the appellant also stopped filing service tax returns and did not furnish any information to the department in respect of the taxable services rendered by them as a sub-contractor. This action on the part of the appellant was deliberate and is a clear admitted position. After the case was made out against the appellant on the basis of investigation conducted, in order to wriggle out of the tax liability, the appellant feigned bona fide belief by placing reliance on non-applicable circulars and decisions. In the light of these glaring evidences available on record and the clear admission on the part of the appellant, we reject the contention of the appellant that extended period of time cannot be invoked. The appellant has taken a weak plea that their records were audited in March, 2008 by the department and therefore, the department had knowledge of the appellants transactions since 27-3-08, this plea cannot be accepted for the following reason. In Neminath Fabrics case [2010 (256) ELT 369 (Guj)], the honble High Court of Gujarat held that if any of the ingredients for invoking extended period of limitation is present, then extended period of limitation can be invoked for confirmation of demand and knowledge of the department is not relevant. A larger bench of this Tribunal in Union Quality Plastics Ltd. case [2013-TIOL-1072-CESTAT-AHM-LB] also held the same view. The relevant extracts from the Neminath fabrics case is reproduced below:- 17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation.

18. The Proviso comes into play only when suppression etc. is established or stands admitted. It would differ from a case where fraud, etc. are merely alleged and are disputed by an assessee. Hence, by no stretch of imagination the concept of knowledge can be read into the provisions because that would tantamount to rendering the defined term relevant date nugatory and such an interpretation is not permissible.

19. The language employed in the proviso to sub-section (1) of section 11a, is clear and unambiguous and makes it abundantly clear that moment there is non-levy or short levy etc. of central excise duty with intention to evade payment of duty for any of the reasons specified thereunder , the proviso would come into operation and the period of limitation would stand extended from one year to five years. This is the only requirement of the provision. Once it is found that the ingredients of the proviso are satisfied, all that has to be seen as to what is the relevant date and as to whether the show cause notice has been served within a period of five years therefrom. Section 73 of the Finance Act, 1994 is pari materia to Section 11A of the Central Excise Act and therefore, the ratio of the above decision applies squarely to the facts of the present case. Thus we are of the considered view that extended period of time has been correctly invoked to demand and confirm service tax in the present case. 7.8. The next issue is with regard to imposition of penalties under sections 76, 77 and 78 of the Finance Act, 1994. Penalty under Section 76 is imposable whenever there is a default /delay in payment of service tax. On the occurrence of the default or delay, the provisions are attracted. There is no mens rea required to be proved for imposition of penalty under Section 76 as held by the Honble High Court of Kerala in the case of Krishna Poduval 2006 (1) STR 185 (Ker). Further, the honble Apex Court in the case of Chairman SEBI vs. Shriram Mutual Fund & another [2006-TIOL-72-SC-SEBI] held that- In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulation is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. Therefore, we uphold the penalties imposed under Section 76 of the Finance Act, 1994 on the appellant. Similarly, penalty under Section 77 is for non-compliance of the statutory provisions of filing of returns. In as much as there is non-compliance, the same is also liable to be upheld. As regards the penalty under section 78, we have already held that the appellant has suppressed facts and therefore, extended period of time has been rightly invoked. If that be so, penalty under section 78 is imposable since it is mandatory. Apex Court decision in Rajasthan Spinning and Weaving Mills [ 2009(238) ELT 3 (SC)] refer. However, for the period w.e.f 10-5-2008, only penalty under section 78 is imposable and not that under section 76 in view of the express provisions provided in that respect in the said section 78. However, we observe that penalty under section 78 is imposable equal to the unpaid quantum of service tax and any service tax paid and appropriated has to be excluded while determining the penalty under section 78.

8. To sum up, the appellant is liable to pay service tax on the taxable services rendered by him in the capacity of a sub-contractor. The appellants eligibility to the benefits of Notification No.12/2003-ST and 1/2006-ST shall be examined by the adjudicating authority in the light of the evidences already available on record or on the basis of documentary evidence which the appellant shall submit forthwith to the adjudicating authority. The service tax demands shall be re-computed thereafter in accordance with law. Extended period of time is invokable in the present case as the appellant has suppressed facts and consequently, the appellant is also liable to penalties under sections 76, 77 & 78 of the Finance Act, 1994, as discussed in para 7.8 above. The quantum of penalties will have to be re-determined after re-computing the service tax demand. Thus the matter is remanded back to the adjudicating authority for denovo consideration as discussed above. (Operative part of the order pronounced in Court on 12/11/2013) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as