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HIREGANGE & ASSOCIATES
Indirect Tax- Latest Judicial
Precedents
November 2015
This material and the information contained herein prepared by Hiregange & Associates intended for
clients and other chartered accountants to provide legal updates on indirect tax and is not an
exhaustive treatment of such subject. We are not, by means of this material, rendering any
professional advice or services. It should not be relied upon as the sole basis for any decision which
may affect you or your business.
Hiregange& Associates Indirect Tax
Chartered Accountants Judicial Precedents
November 2015 2
By CA Ashish Chaudhary
vetted by: CA Rajesh Kumar T R
SUPREME COURT
1. Both inputs and final products are entitled for rebate under Rule 18 of
Central Excise Rules (M/s Spentex Industries Ltd 2015-TIOL-239-SC-CX)
 Background: Assessee filed claim of rebate on finished goods as well as material
used in manufacture of final products. Department denied rebate claim stating that
only one of the claim is admissible as Rule 18 of Central Excise Rules uses the word
“OR” between two type of rebates.
 Issue: Whether rebate claim can be claimed simultaneously for duty paid on raw
material/intermediate product and final product exported out of India?
 Decision: It has always been intention of government to grant benefit of rebate
both on input and on final product. If only one of the rebates is allowed, it would
defeat the very purpose of grant of remission from payment of excise duty in
respect of the goods which are exported out of India. It may also lead to invidious
discrimination and arbitrary results. Hence, it is necessary to read the word “OR” as
“AND” to carry out the objectives of the Rule 18 and also to bring it at par with
Rule 19. Simultaneous claim of both rebates permitted.
Comment: The judgment will put to rest frivolous litigation on the issue since years.
This would assist in bringing certainty in the rebate claim process. Also, many
exporters who were not claiming both the rebates simultaneously till now to avoid
litigation from department would be beneficiary by way of reduction in final cost of
products.
HIGH COURT
2. No Service tax on laying of pipes for water supply: (Indian Hume Pipes Co.
Ltd.(2015 (40) S.T.R. 214 (Mad.)
 Background: Assessee engaged in laying long distance pipelines to enable State
Water Supply and Drainage Board to supply water.
 Issue: Whether laying of pipeline is liable to service tax?
 Decision: The activity of laying pipeline was undertaken in public interest to take
care of the civic amenities liable to be provided by state. It is not commercial in
nature, hence not covered in the “erection, commissioning or installation service”.
Comment: Service of laying of pipeline provided to government, local authority or
governmental authority is exempted vide entry no. 12 (e) of Notification No. 25/2012
under negative list regime also. If service recipient is other than these specified
authorities, liable to service tax.
3. No service tax on commission by BSNL to SIM card and recharge coupon
distributors (Bharat Cell 2015 (40) STR 221 (Mad)
Hiregange& Associates Indirect Tax
Chartered Accountants Judicial Precedents
November 2015 3
 Background: BSNL has been distributing following commission to franchisee:
(i) Fixed commission for post paid and pre paid cards
(ii) Commission on recharge coupons
(iii) Target achievement bonus
(iv) Retention Bonus
 Issue: Whether service tax is leviable on commission under BAS category?
 Decision: The tax has been paid on full value of SIM cards by BSNL. Commission
given to distributor is part of that consideration only. Relied upon the judgment in
case of G.R.Movers (2013 (30) STR 634). Not liable to service tax.
Comment: Services of selling agent or distributor of SIM cards or recharge coupon
vouchers specifically exempted vide entry no. 29 of Notification No. 25/2012-ST. No
service tax post negative also.
4. Demand not to be confirmed merely based on letter of superintendent
without SCN (Vijaya Consultants, Engineers & consultants 2015 (40) STR 232 (AP)
 Background: Adjudication proceeding initiated by department based on letter of
superintendent without issuance of SCN. Assessee given opportunity of detailed
submission of reply and personal hearing.
 Issue: Whether demand can be confirmed merely on the technical breach of non-
issuance of show cause notice when ample opportunities given to assessee?
 Decision: Issuance of notice under section 73 mentioning the specific clause of that
section and specifying the amount of tax payable is indispensible. Tribunal was
right in setting aside order of revenue. Proceeding cannot be initiated.
Comment: Mere issuance of letter by department should not be construed as SCN.
Further, SCN should be examined in-depth to verify whether all technical requirements
complied with. This could be a strong argument in favour of assessee as many times
notices may contain technical errors.
5. Refund of cenvat credit allowed for services exported even if payment not
recd in foreign currency (Quintiles Technologies Pvt Ltd. 2015 (40) STR 237 (Guj)
 Background: Assessee is 100% export unit. Refund of accumulated cenvat credit
denied on the input services used in export of service for which payment not
received in foreign exchange.
 Issue: Whether refund is permissible on the services where consideration not
received in foreign exchange?
 Decision: There is nothing in the formula provided under Rule 5 of CCR that
services for which payment received in foreign currency should only be included in
export turnover of services. Assessee is 100% export unit and all services have
been used for export business. Hence, refund is admissible.
Comment: W.e.f. 1.7.2012, it has been specifically provided that export service means
the services which have been exported in terms of Rule 6A of Service Tax Rules, 1994.
Hiregange& Associates Indirect Tax
Chartered Accountants Judicial Precedents
November 2015 4
One of the conditions in Rule 6A is to realisation of proceeds in convertible foreign
currency. Hence, now refund may not be allowed for services unless consideration not
rreceived in foreign currency. One can refer judgment of Sun-Area Real Estate Pvt Ltd
2015-TIOL-956-CESTAT-MUM in cases where payment received in INR supported by
FIRC as per FEMA guidelines.
6. Exemption to stem cell banks is prospective w.e.f. 17.2.2014 not prior to that
(Life Cell International (P) Ltd 2015 (40) STR 77 (Mad.)
 Background: Services provided by cord blood bank by way of preservation of stem
cells has been exempted vide Notification No. 4/2014-ST dated 17.2.2014. It is
claim of assessee that the services provided by them are health care service and
the notification is merely in clarificatory nature having retrospective application.
 Issue: Whether exemption notification may have retrospective effect when nothing
specifically mentioned in the notification as such?
 Decision: In the absence of any specific mention in the amendment notification that
it is applicable retrospective, it will be applicable from the date of its publication i.e.
17.2.2014. Hence, service tax is applicable prior to this date.
However, the court has not expressed any view on the question whether services
could be considered “health care services” and left the same for deciding by
adjudicating authority.
Comment: The court has not discussed whether the activity falls within definition of
health care service. Hence, there is still possibility to examine if the same may be
covered within health care service to claim exemption during earlier period.
7. Service availed for construction of manufacturing plant is eligible for credit
(Bellsonica Auto Components India P Ltd 2015 (40) STR 41 (P & H)
 Background: Credit has been taken on construction services availed for
construction of manufacturing plant and rental of immovable property leased by
assessee. Department denied the credit alleging that services have been availed for
bringing into existence an immovable property
 Issue: Whether construction service falls within the definition of input service?
 Decision: Held that without factory, final products could not have been
manufactured. Services direct or indirectly used in the manufacture of final product
is eligible for input service. As the land and building were used indirectly in relation
to manufacture of final products, credit is eligible within means part of the
definition. Also, inclusive part of the definition specifically covers set up related
activities. Hence, credit is admissible.
Comment: The definition of input service w.e.f. 1.4.2011 has specifically excluded
works contract and construction services. Also, word set up has been excluded from the
inclusive part of the definition. Hence, it may be difficult to take the credit.
However, one can always take a stand that the services are covered within “means”
part of the definition and hence eligible for credit.
Hiregange& Associates Indirect Tax
Chartered Accountants Judicial Precedents
November 2015 5
8. No service tax on selling and distribution agents of lottery tickets: (Future
Gaming And Hotel Services (Pvt) Ltd 2015-TIOL-2398-HC-SIKKIM -ST)
 Background: The petitioners have been engaged in buying and selling of lottery
tickets. It was earlier held by Sikkim High Court that no service tax is leviable on
this activity. Government amended definition of service vide FA 2015 to specifically
include lottery within the scope. The petitioner has challenged the amendment
before HC.
 Issue: Whether amendment carried out by FA 2015 is valid and service tax is
leviable on activity of buying and selling of lottery tickets?
 Decision: Lottery is an actionable claim which has been kept out of definition of
service. The explanation provided in the Finance Act cannot enlarge the scope of
main section wherein actionable claim has already been excluded. The Petitioners
in buying and selling the lottery tickets is not rendering service to the State and,
therefore, their activity does not fall within the meaning of 'service’.
Comment: The judgment is set back to government where they had tried to overcome
earlier judgment of HC by amending the Act.
9. Recovery proceeding not to be initiated against debtors of assessee before
adjudication of SCN: (Gopala Builders 2015-TIOL-2451-HC-AHM-ST)
 Background: Appellant engaged in providing works contract and construction
service. Notice/Garnishee order issued under section 87 to debtors of the assessee
to deposit the amount payable to assessee with the department.
 Issue: Whether recovery proceedings can be initiated against debtors before
conclusion of adjudication proceedings?
 Decision: Recovery proceedings under section 87 can be initiated when show cause
notice has been adjudicated and the amount payable has been determined. Issue
of Garnishee order to debtors of the assessee without issuing SCN is not proper and
set aside.
Comment: In a zeal to meet revenue target, department may sometimes initiate
proceedings directly against third party. The judgment of HC has correctly laid down
that first amount payable should be confirmed thereafter only recovery proceedings
can be initiated.
10. Refund claims filed beyond statutory time limit is not tenable even if paid
under mistake of law (Natraj & Venkat Associates 2015 (40) STR 31 (Mad)
 Background: Architectural service provided for construction of building in Sri Lanka.
Refund claim filed beyond time period of one year contending that the amount paid
is only a deposit as no tax was required to be deposited.
 Issue: Whether refund is allowed after expiry of one year time period as provided
under section 11B of Central Excise Act?
 Decision: Held that amount paid under head service tax through TR-6 challan
meant for payment of service tax only and hence cannot be considered as deposit.
Taxes are collected for common good of state and having spent the taxes, it would
Hiregange& Associates Indirect Tax
Chartered Accountants Judicial Precedents
November 2015 6
be unjust for states to require its repayment. Claim not admissible beyond
statutory time limit of one year even in case of deposit also.
Comment: There are divergent views among various high courts on this issue.
Recently it has been held in case of Geojit BNP Paribas Financial Services Ltd by Kerala
High Court that time limit of one year is not applicable when service tax paid by
mistake. Assessee has to be very careful wherever refund claim is filed beyond one
year time limit.
TRIBUNAL
11. Excess payment of service tax in one period can be adjusted against future
liability: Rule 6 (1A) of STR: (Garima Associates 2015 (40) STR 247(Mum-Tri)
 Background: Assessee paid excess tax of Rs. 2,57,205/- in one quarter and
adjusted the same against liability in next quarter. Disclosure made in ST-3 under
Rule 6 (4A) of STR. Department allowed adjustment only upto Rs. 1 lac as
provided under Rule 6 (4A). Adjustment not permitted under Rule 6 (1A) as
assessee did not intimate about extra payment to department.
 Issue: Whether self adjustment deniable merely when assessee failed to file
intimation letter with the department.
 Decision: Admittedly, adjustment can be made under Rule 6 (4A) only upto 1 lac.
But there is another provision under Rule 6 (1A) which allows adjustment of
advance tax paid without any monetary limit. The requirement to intimate to
department could be considered as fulfilled when advance payment and its
adjustment has been specifically shown in ST-3. Disallowance to amounts to
unjustly enrich the government with excess amount which is not intention of law.
Comment: The judgment has laid down that the procedural non compliance cannot
deny substantial rights. It has also highlighted the importance of making appropriate
disclosure in the ST-3 Return.
12. Credit eligible on services used in development and manufacture of prototype
of vehicles (Dy. GM, Tata Motors Ltd. 2015 (40) STR 269 (Mum-Tri)
 Background: Appellant availed consulting engineer services for research and
development of prototype of vehicles. Department disallowed the credit of apprx.
137 crore alleging that credit not admissible as not used in manufacture of final
products (i.e. vehicles)
 Issue: Whether credit admissible on input service used in developing prototype?
 Decision: Development of prototype is in relation to manufacture of final product
only. Such prototype only being primary version before commencement of
commercial production. The definition of input service includes services indirectly
used in manufacture of final products. Hence, credit admissible.
13. No service tax on commission paid to overseas agent by manufacturer
exporter of textile: (Texyard International . 2015 (40) STR 322 (Tri-Chennai)
 Background: Assessee availing services of overseas commission agents for export
Hiregange& Associates Indirect Tax
Chartered Accountants Judicial Precedents
November 2015 7
of finished goods and claiming benefit of exemption notification no. 14/2014-ST
provided in relation to textile processing. Department denied benefit of notification
and issued notice demanding service tax under reverse charge mechanism.
 Issue: Whether activity of procuring order from overseas could be considered as
“textile processing” to claim benefit of exemption notification?
 Decision: Services provided by overseas commission agent are for export of goods
of appellant and could be said to be an activity incidental or auxiliary to processing
of textiles goods and benefit of exemption notification is allowed. Even if liability is
upheld under reverse charge, tax so paid would be eligible for refund under
Notification No. 41/2007 making entire exercise revenue neutral. Hence, no service
tax leviable on export commission.
Comment: Presently, place of provision of services provided by intermediary located
abroad is outside India (non taxable territory) and hence not liable to service tax under
RCM. In relation to service provided domestically, exemption not allowed in view of the
language of Notification No. 25/2012-ST which covers intermediate production process
as job work in relation to textile processing only and commission is not job work
process.
14. Coaching to CA students for preparing for exam is not vocational training and
is liable to tax: (Shri Jay Ajit Charia 2015-TIOL-2284-CESTAT-AHM)
 Background: Assessee imparting coaching to CA students. Exemption claimed on
the premise that the services provided are vocational training. Also questioned
clubbing of income of other family members with the assessee income.
 Issue: Whether coaching of CA students is vocational training entitled for
exemption benefit?
 Decision: Held that it cannot be considered that institute is providing any coaching
to seek employment. After coaching, students are not seeking employment but
appearing in the exam. Hence, the institute cannot be said vocational training
institute but services provided taxable as commercial training or coaching service.
Clubbing also permitted when ITR clearly establishes that the income of relative is
from coaching only.
Comment: The service is taxable in the negative list regime also.
15. Lease rent equalization shown in Balance Sheet is not “payment” or
“consideration” towards any service. No ST. (Reliance Infratel Ltd 2015-TIOL-
2160-CESTAT-MUM)
 Background: Entry has been made in the Balance Sheet towards lease rent
equalization (writing off operating lease amount on straight line basis) as per AS-
19. Department demanded service tax as the entry made was towards associated
enterprise and as per Rule 6, in case of associated enterprises, service tax is
payable at the time of debit/credit entry made in the books of account.
 Issue: Whether service tax can be levied on lease rent equalization which is merely
a book entry to comply with requirement of Accounting Standard?
Hiregange& Associates Indirect Tax
Chartered Accountants Judicial Precedents
November 2015 8
 Decision: Rule 6 of Service Tax Rules in case of associated enterprises is subject to
section 67. Mere entry in the books to comply with requirement of Accounting
Standard is not a 'payment' actually received or receivable, and therefore neither
'consideration' nor the 'gross amount charged' in terms of clauses (a) and (c)
respectively of the explanation to Section 67 of the Act. Hence, service tax is not
applicable on lease rent equalization.
NCR Office: 509, Vipul Trade Centre, Sohna Road, Sector 48, Gurgaon
Tel: 8510950400; ashish@hiregange.com
Head Office:
1010, II Floor, 26th Main,
4th T Block, Jayanagar,
Bangalore - 560041. Tel:
080-26536405
Branch Office:
Basheer Villa”, House No.8-
2-268/1/16/B, II Floor,
Sriniketan Colony, Road
No.3, Banjara Hills,
Hyderabad – 500034
Tel: 040-40062934
Branch office:
Flat No. 101, D.No. 9-19-
18, Sai Sri Kesav Vihar, Behind
Gothi Sons Show room, CBM
Compound, Visakhapatnam-
530 003 Tel:8916009235
www.hiregange.com

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Indirect tax latest judicial precedents november 2015

  • 1. HIREGANGE & ASSOCIATES Indirect Tax- Latest Judicial Precedents November 2015 This material and the information contained herein prepared by Hiregange & Associates intended for clients and other chartered accountants to provide legal updates on indirect tax and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.
  • 2. Hiregange& Associates Indirect Tax Chartered Accountants Judicial Precedents November 2015 2 By CA Ashish Chaudhary vetted by: CA Rajesh Kumar T R SUPREME COURT 1. Both inputs and final products are entitled for rebate under Rule 18 of Central Excise Rules (M/s Spentex Industries Ltd 2015-TIOL-239-SC-CX)  Background: Assessee filed claim of rebate on finished goods as well as material used in manufacture of final products. Department denied rebate claim stating that only one of the claim is admissible as Rule 18 of Central Excise Rules uses the word “OR” between two type of rebates.  Issue: Whether rebate claim can be claimed simultaneously for duty paid on raw material/intermediate product and final product exported out of India?  Decision: It has always been intention of government to grant benefit of rebate both on input and on final product. If only one of the rebates is allowed, it would defeat the very purpose of grant of remission from payment of excise duty in respect of the goods which are exported out of India. It may also lead to invidious discrimination and arbitrary results. Hence, it is necessary to read the word “OR” as “AND” to carry out the objectives of the Rule 18 and also to bring it at par with Rule 19. Simultaneous claim of both rebates permitted. Comment: The judgment will put to rest frivolous litigation on the issue since years. This would assist in bringing certainty in the rebate claim process. Also, many exporters who were not claiming both the rebates simultaneously till now to avoid litigation from department would be beneficiary by way of reduction in final cost of products. HIGH COURT 2. No Service tax on laying of pipes for water supply: (Indian Hume Pipes Co. Ltd.(2015 (40) S.T.R. 214 (Mad.)  Background: Assessee engaged in laying long distance pipelines to enable State Water Supply and Drainage Board to supply water.  Issue: Whether laying of pipeline is liable to service tax?  Decision: The activity of laying pipeline was undertaken in public interest to take care of the civic amenities liable to be provided by state. It is not commercial in nature, hence not covered in the “erection, commissioning or installation service”. Comment: Service of laying of pipeline provided to government, local authority or governmental authority is exempted vide entry no. 12 (e) of Notification No. 25/2012 under negative list regime also. If service recipient is other than these specified authorities, liable to service tax. 3. No service tax on commission by BSNL to SIM card and recharge coupon distributors (Bharat Cell 2015 (40) STR 221 (Mad)
  • 3. Hiregange& Associates Indirect Tax Chartered Accountants Judicial Precedents November 2015 3  Background: BSNL has been distributing following commission to franchisee: (i) Fixed commission for post paid and pre paid cards (ii) Commission on recharge coupons (iii) Target achievement bonus (iv) Retention Bonus  Issue: Whether service tax is leviable on commission under BAS category?  Decision: The tax has been paid on full value of SIM cards by BSNL. Commission given to distributor is part of that consideration only. Relied upon the judgment in case of G.R.Movers (2013 (30) STR 634). Not liable to service tax. Comment: Services of selling agent or distributor of SIM cards or recharge coupon vouchers specifically exempted vide entry no. 29 of Notification No. 25/2012-ST. No service tax post negative also. 4. Demand not to be confirmed merely based on letter of superintendent without SCN (Vijaya Consultants, Engineers & consultants 2015 (40) STR 232 (AP)  Background: Adjudication proceeding initiated by department based on letter of superintendent without issuance of SCN. Assessee given opportunity of detailed submission of reply and personal hearing.  Issue: Whether demand can be confirmed merely on the technical breach of non- issuance of show cause notice when ample opportunities given to assessee?  Decision: Issuance of notice under section 73 mentioning the specific clause of that section and specifying the amount of tax payable is indispensible. Tribunal was right in setting aside order of revenue. Proceeding cannot be initiated. Comment: Mere issuance of letter by department should not be construed as SCN. Further, SCN should be examined in-depth to verify whether all technical requirements complied with. This could be a strong argument in favour of assessee as many times notices may contain technical errors. 5. Refund of cenvat credit allowed for services exported even if payment not recd in foreign currency (Quintiles Technologies Pvt Ltd. 2015 (40) STR 237 (Guj)  Background: Assessee is 100% export unit. Refund of accumulated cenvat credit denied on the input services used in export of service for which payment not received in foreign exchange.  Issue: Whether refund is permissible on the services where consideration not received in foreign exchange?  Decision: There is nothing in the formula provided under Rule 5 of CCR that services for which payment received in foreign currency should only be included in export turnover of services. Assessee is 100% export unit and all services have been used for export business. Hence, refund is admissible. Comment: W.e.f. 1.7.2012, it has been specifically provided that export service means the services which have been exported in terms of Rule 6A of Service Tax Rules, 1994.
  • 4. Hiregange& Associates Indirect Tax Chartered Accountants Judicial Precedents November 2015 4 One of the conditions in Rule 6A is to realisation of proceeds in convertible foreign currency. Hence, now refund may not be allowed for services unless consideration not rreceived in foreign currency. One can refer judgment of Sun-Area Real Estate Pvt Ltd 2015-TIOL-956-CESTAT-MUM in cases where payment received in INR supported by FIRC as per FEMA guidelines. 6. Exemption to stem cell banks is prospective w.e.f. 17.2.2014 not prior to that (Life Cell International (P) Ltd 2015 (40) STR 77 (Mad.)  Background: Services provided by cord blood bank by way of preservation of stem cells has been exempted vide Notification No. 4/2014-ST dated 17.2.2014. It is claim of assessee that the services provided by them are health care service and the notification is merely in clarificatory nature having retrospective application.  Issue: Whether exemption notification may have retrospective effect when nothing specifically mentioned in the notification as such?  Decision: In the absence of any specific mention in the amendment notification that it is applicable retrospective, it will be applicable from the date of its publication i.e. 17.2.2014. Hence, service tax is applicable prior to this date. However, the court has not expressed any view on the question whether services could be considered “health care services” and left the same for deciding by adjudicating authority. Comment: The court has not discussed whether the activity falls within definition of health care service. Hence, there is still possibility to examine if the same may be covered within health care service to claim exemption during earlier period. 7. Service availed for construction of manufacturing plant is eligible for credit (Bellsonica Auto Components India P Ltd 2015 (40) STR 41 (P & H)  Background: Credit has been taken on construction services availed for construction of manufacturing plant and rental of immovable property leased by assessee. Department denied the credit alleging that services have been availed for bringing into existence an immovable property  Issue: Whether construction service falls within the definition of input service?  Decision: Held that without factory, final products could not have been manufactured. Services direct or indirectly used in the manufacture of final product is eligible for input service. As the land and building were used indirectly in relation to manufacture of final products, credit is eligible within means part of the definition. Also, inclusive part of the definition specifically covers set up related activities. Hence, credit is admissible. Comment: The definition of input service w.e.f. 1.4.2011 has specifically excluded works contract and construction services. Also, word set up has been excluded from the inclusive part of the definition. Hence, it may be difficult to take the credit. However, one can always take a stand that the services are covered within “means” part of the definition and hence eligible for credit.
  • 5. Hiregange& Associates Indirect Tax Chartered Accountants Judicial Precedents November 2015 5 8. No service tax on selling and distribution agents of lottery tickets: (Future Gaming And Hotel Services (Pvt) Ltd 2015-TIOL-2398-HC-SIKKIM -ST)  Background: The petitioners have been engaged in buying and selling of lottery tickets. It was earlier held by Sikkim High Court that no service tax is leviable on this activity. Government amended definition of service vide FA 2015 to specifically include lottery within the scope. The petitioner has challenged the amendment before HC.  Issue: Whether amendment carried out by FA 2015 is valid and service tax is leviable on activity of buying and selling of lottery tickets?  Decision: Lottery is an actionable claim which has been kept out of definition of service. The explanation provided in the Finance Act cannot enlarge the scope of main section wherein actionable claim has already been excluded. The Petitioners in buying and selling the lottery tickets is not rendering service to the State and, therefore, their activity does not fall within the meaning of 'service’. Comment: The judgment is set back to government where they had tried to overcome earlier judgment of HC by amending the Act. 9. Recovery proceeding not to be initiated against debtors of assessee before adjudication of SCN: (Gopala Builders 2015-TIOL-2451-HC-AHM-ST)  Background: Appellant engaged in providing works contract and construction service. Notice/Garnishee order issued under section 87 to debtors of the assessee to deposit the amount payable to assessee with the department.  Issue: Whether recovery proceedings can be initiated against debtors before conclusion of adjudication proceedings?  Decision: Recovery proceedings under section 87 can be initiated when show cause notice has been adjudicated and the amount payable has been determined. Issue of Garnishee order to debtors of the assessee without issuing SCN is not proper and set aside. Comment: In a zeal to meet revenue target, department may sometimes initiate proceedings directly against third party. The judgment of HC has correctly laid down that first amount payable should be confirmed thereafter only recovery proceedings can be initiated. 10. Refund claims filed beyond statutory time limit is not tenable even if paid under mistake of law (Natraj & Venkat Associates 2015 (40) STR 31 (Mad)  Background: Architectural service provided for construction of building in Sri Lanka. Refund claim filed beyond time period of one year contending that the amount paid is only a deposit as no tax was required to be deposited.  Issue: Whether refund is allowed after expiry of one year time period as provided under section 11B of Central Excise Act?  Decision: Held that amount paid under head service tax through TR-6 challan meant for payment of service tax only and hence cannot be considered as deposit. Taxes are collected for common good of state and having spent the taxes, it would
  • 6. Hiregange& Associates Indirect Tax Chartered Accountants Judicial Precedents November 2015 6 be unjust for states to require its repayment. Claim not admissible beyond statutory time limit of one year even in case of deposit also. Comment: There are divergent views among various high courts on this issue. Recently it has been held in case of Geojit BNP Paribas Financial Services Ltd by Kerala High Court that time limit of one year is not applicable when service tax paid by mistake. Assessee has to be very careful wherever refund claim is filed beyond one year time limit. TRIBUNAL 11. Excess payment of service tax in one period can be adjusted against future liability: Rule 6 (1A) of STR: (Garima Associates 2015 (40) STR 247(Mum-Tri)  Background: Assessee paid excess tax of Rs. 2,57,205/- in one quarter and adjusted the same against liability in next quarter. Disclosure made in ST-3 under Rule 6 (4A) of STR. Department allowed adjustment only upto Rs. 1 lac as provided under Rule 6 (4A). Adjustment not permitted under Rule 6 (1A) as assessee did not intimate about extra payment to department.  Issue: Whether self adjustment deniable merely when assessee failed to file intimation letter with the department.  Decision: Admittedly, adjustment can be made under Rule 6 (4A) only upto 1 lac. But there is another provision under Rule 6 (1A) which allows adjustment of advance tax paid without any monetary limit. The requirement to intimate to department could be considered as fulfilled when advance payment and its adjustment has been specifically shown in ST-3. Disallowance to amounts to unjustly enrich the government with excess amount which is not intention of law. Comment: The judgment has laid down that the procedural non compliance cannot deny substantial rights. It has also highlighted the importance of making appropriate disclosure in the ST-3 Return. 12. Credit eligible on services used in development and manufacture of prototype of vehicles (Dy. GM, Tata Motors Ltd. 2015 (40) STR 269 (Mum-Tri)  Background: Appellant availed consulting engineer services for research and development of prototype of vehicles. Department disallowed the credit of apprx. 137 crore alleging that credit not admissible as not used in manufacture of final products (i.e. vehicles)  Issue: Whether credit admissible on input service used in developing prototype?  Decision: Development of prototype is in relation to manufacture of final product only. Such prototype only being primary version before commencement of commercial production. The definition of input service includes services indirectly used in manufacture of final products. Hence, credit admissible. 13. No service tax on commission paid to overseas agent by manufacturer exporter of textile: (Texyard International . 2015 (40) STR 322 (Tri-Chennai)  Background: Assessee availing services of overseas commission agents for export
  • 7. Hiregange& Associates Indirect Tax Chartered Accountants Judicial Precedents November 2015 7 of finished goods and claiming benefit of exemption notification no. 14/2014-ST provided in relation to textile processing. Department denied benefit of notification and issued notice demanding service tax under reverse charge mechanism.  Issue: Whether activity of procuring order from overseas could be considered as “textile processing” to claim benefit of exemption notification?  Decision: Services provided by overseas commission agent are for export of goods of appellant and could be said to be an activity incidental or auxiliary to processing of textiles goods and benefit of exemption notification is allowed. Even if liability is upheld under reverse charge, tax so paid would be eligible for refund under Notification No. 41/2007 making entire exercise revenue neutral. Hence, no service tax leviable on export commission. Comment: Presently, place of provision of services provided by intermediary located abroad is outside India (non taxable territory) and hence not liable to service tax under RCM. In relation to service provided domestically, exemption not allowed in view of the language of Notification No. 25/2012-ST which covers intermediate production process as job work in relation to textile processing only and commission is not job work process. 14. Coaching to CA students for preparing for exam is not vocational training and is liable to tax: (Shri Jay Ajit Charia 2015-TIOL-2284-CESTAT-AHM)  Background: Assessee imparting coaching to CA students. Exemption claimed on the premise that the services provided are vocational training. Also questioned clubbing of income of other family members with the assessee income.  Issue: Whether coaching of CA students is vocational training entitled for exemption benefit?  Decision: Held that it cannot be considered that institute is providing any coaching to seek employment. After coaching, students are not seeking employment but appearing in the exam. Hence, the institute cannot be said vocational training institute but services provided taxable as commercial training or coaching service. Clubbing also permitted when ITR clearly establishes that the income of relative is from coaching only. Comment: The service is taxable in the negative list regime also. 15. Lease rent equalization shown in Balance Sheet is not “payment” or “consideration” towards any service. No ST. (Reliance Infratel Ltd 2015-TIOL- 2160-CESTAT-MUM)  Background: Entry has been made in the Balance Sheet towards lease rent equalization (writing off operating lease amount on straight line basis) as per AS- 19. Department demanded service tax as the entry made was towards associated enterprise and as per Rule 6, in case of associated enterprises, service tax is payable at the time of debit/credit entry made in the books of account.  Issue: Whether service tax can be levied on lease rent equalization which is merely a book entry to comply with requirement of Accounting Standard?
  • 8. Hiregange& Associates Indirect Tax Chartered Accountants Judicial Precedents November 2015 8  Decision: Rule 6 of Service Tax Rules in case of associated enterprises is subject to section 67. Mere entry in the books to comply with requirement of Accounting Standard is not a 'payment' actually received or receivable, and therefore neither 'consideration' nor the 'gross amount charged' in terms of clauses (a) and (c) respectively of the explanation to Section 67 of the Act. Hence, service tax is not applicable on lease rent equalization. NCR Office: 509, Vipul Trade Centre, Sohna Road, Sector 48, Gurgaon Tel: 8510950400; ashish@hiregange.com Head Office: 1010, II Floor, 26th Main, 4th T Block, Jayanagar, Bangalore - 560041. Tel: 080-26536405 Branch Office: Basheer Villa”, House No.8- 2-268/1/16/B, II Floor, Sriniketan Colony, Road No.3, Banjara Hills, Hyderabad – 500034 Tel: 040-40062934 Branch office: Flat No. 101, D.No. 9-19- 18, Sai Sri Kesav Vihar, Behind Gothi Sons Show room, CBM Compound, Visakhapatnam- 530 003 Tel:8916009235 www.hiregange.com