Pronouncements under Service tax-16 05 15v2

Recent pronouncements under Service
tax
Presented by:
Ca. Payal Shah
Organised by:
Ghatkopar Study Circle
On:
16th May, 2015

Cases on topics
• Applicability
• Valuation
• Payment of Service tax
• Reverse Charge Liability
• Export of services
• Refund of Service tax
• CENVAT Credit
• Service tax Audit
• Circulars
• Adjudication
• Penalty
5/16/2015 Ca. Payal Shah 2

Overlapping of taxes
• A & Co. is having series of hotels spread across India
• It provides boarding and lodging facilities and also provides
restaurant services
• Vide Rule 2C of Service tax (Determination of Value) Rules, 2006,
Service tax is payable on 40% of billed value
• As per VAT Laws of respective State, VAT has to be charged on 100%
of the billed value
• Whether Service tax can be charged on supply of food?
• Whether this overlapping of taxes is allowed?

• Section 65B (44) of Finance Act, 1994
“service” means any activity carried out by a person for another for
consideration, and includes a declared service, but shall not include—
(a) an activity which constitutes merely,—
(i) a transfer of title in goods or immovable property, by way of sale, gift
or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to
be a sale within the meaning of clause (29A) of article 366 of the
Constitution; or
(iii) a transaction in money or actionable claim;
– …

• Article 366 (29A) of the Constitution of India
(29A) tax on the sale or purchase of goods includes…
(f) a tax on the supply, by way of or as part of any service or in any other
manner whatsoever, of goods, being food or any other article for human
consumption or any drink (whether or not intoxicating), where such
supply or service, is for cash, deferred payment or other valuable
consideration, and such transfer, delivery or supply of any goods shall
be deemed to be a sale of those goods by the person making the
transfer, delivery or supply and a purchase of those goods by the person
to whom such transfer, delivery or supply is made
• Section 66E of Finance Act, 1994: Declared Services
The following shall constitute declared services, namely :—…
(i) service portion in an activity wherein goods, being food or any other
article of human consumption or any drink (whether or not intoxicating)
is supplied in any manner as a part of the activity.

• Rule 2C of Valuation Rules
Determination of value of service portion involved in supply of food or
any other article of human consumption or any drink in a restaurant or
as outdoor catering. — Subject to the provisions of section 67, the value
of service portion, in an activity wherein goods being food or any other
article of human consumption or any drink (whether or not intoxicating)
is supplied in any manner as a part of the activity at a restaurant or as
outdoor catering, shall be the specified percentage of the total amount
charged for such supply, in terms of the following Table, namely :-
Sr. No. Description Taxable value = % of total
amount
1 Restaurant 40%
2 Outdoor catering 60%

No VAT on value of services
• Hotel East Park vs. Union of India (Chhattisgarh) 2014 (35) STR 433
– Constitutional Validity
• Article 366 (29A) of COI has bifurcated supply of food into 2 part; service part
and sale of goods
• Service tax only on service portion vide Section 66E (i) of FA, 1994
• Accordingly, it held that section 66E(i) was intra vires the Constitution
– Valuation
• Rule 2C of Service tax Rules, 2006 – Service tax presumed to be 40%/60%
• VAT cannot be charged on the value demarcated by Service tax
• State Government is directed to frame such rules and issue suitable
clarification
• Similar view pronounced by Uttarakhand High Court in case of
Valley Hotel & Resorts vs. Comm of Commercial Tax, Dehradun
(Uttarakhand) 2014 (35) STR 28

• Chhattisgarh High Court directed respective State Government to make
rules so that no VAT is charged on value on which Service tax is levied
• What about assessees in Mumbai Jurisdiction?
– Judgment of other High Courts has persuasive value even if the said decision is
appealed to Supreme Court
• Sports Club of Gujarat Ltd. vs. Union of India 2013 (31) STR 645 (Guj.)
– Strong case on merits
– When there are 2 views on the subject matter, the one favouring assessee shall be
adopted
– Bona fides
• Recent amendment under Maharashtra VAT Laws
– No VAT on Service tax amount
– Nothing mentioned about VAT on value on which Service tax is leviable
• Practical issues
– Trade Conflicts

Levy of Service tax on equipment leasing and hire
purchase transactions
• Kerala Non Banking Finance Com. vs. Union of India (Ker.) 2015
(37) STR 41
– Constitutional Validity
• There is no conflict between the levy of sales tax on the sale or deemed
sale of vehicle and the Service Tax payable on services rendered by the
Financier under the hire-purchase agreement. So much so the
Constitutional provision referred above authorising sales tax does not
stand in the way of Parliament levying Service Tax on taxable service
charges received in respect of hire-purchase transactions by the
Financiers
• Since incidence of Service Tax is not on sale of goods or deemed sale of
goods pertaining to leasing and hire-purchase transactions covered by
clauses (c) and (d) of Article 366(29A) of the Constitution of India, we
uphold the authority of Parliament to authorise levy of Service Tax on
banking and other financial services including equipment leasing and hire-
purchase

Levy of Service tax on charges collected from members
by a club/society…
• A gym is providing various services to its members such as
yoga, sports etc.
• Gym is registered as Public Charitable Trust
• Whether services provided by club to its members is leviable
to Service tax?

…Levy of Service tax on charges collected from
members by a club/society…
Pre negative list of services scenario:
• Explanation to Section 65 Of the Finance Act, 1994
Explanation. — For the purposes of this section, taxable service includes any
taxable service provided or to be provided by any unincorporated association
or body of persons to a member thereof, for cash, deferred payment or any
other valuable consideration
• Ranchi club Ltd. vs. Chief Commissioner of C. Ex. & S. T., Ranchi
Zone 2012 (26) STR 401 (Jhar.) admitted in Supreme Court in 2013
(32) STR J34 (SC)
– In view of mutuality, if club provides any service to its members, it is not a
service by one legal entity to another, and is not liable to Service tax
– Sale and service - Nature of - Sale entails transfer of property whereas
service does not -However, both transactions requires existence of two
parties - Sale requires seller and buyer, and Service requires service
provider and service receiver
• Sports Club of Gujarat Ltd. vs. Union of India 2013 (31) STR 645
(Guj.)

members by a club/society…
• Joint Commercial Tax Officer, ... vs Young Men‘s Indian Association ... on
12 February, 1970 SCC (1) 462
– Unlike proprietary clubs the case of a members' club is analogous to that of an
agent investing his own monies for preparing things for the consumption of the
principal and later recouping himself for the expenses incurred. Therefore, in the
present case, even though the clubs are distinct legal entities they were ,Only
acting as agents for members in the matter of supply of various pre- parations to
them and no sale would be involved as the element of transfer would be
completely absent. [685 A-B, 686 H]
– the clubs or associations sought to be rendered liable in these appeals were not
transferring property belonging to them but were merely acting as agents for and
on be-half of the members. They were not selling goods but were rendering a
service to their members
• Post negative list of services:
Explanation 3 to Section 65B (44) Of the Finance Act, 1994
– For the purposes of this Chapter,—
– (a) an unincorporated association or a body of persons, as the case may be, and a
member thereof shall be treated as distinct persons.

members by a club/society
• Matunga Gymkhana vs. Commr. Of ST, Mumbai (Tri.-Mum.) 2015
38 STR 407
– In view of decision of Jharkhand High Court in the case of Ranchi Club Ltd.,
on application of principle of mutuality, services provided by appellants to
their respective members would not fall within ambit of taxable club or
association service nor the consideration whether by way of
subscription/fee or otherwise received therefor be exigible to Service Tax
• Whether the case is applicable post negative list scenario?
• Publication by one of the very renowned News paper
– The decision means a flat-owner or owner of a commercial premise in a
housing society registered under the Maharashtra Co-operative Societies
Act will have to pay much less. The society will not be required to impose
a service tax charge (currently 12.36%) against maintenance charges
collected from its members.

Service tax on Reimbursements
• A Pvt. Ltd. is providing consulting engineering services to
National Highway Authority of India
• A Pvt. Ltd. recovered Travel, hotel stay, transportation etc.
incurred by it in the course of providing taxable services
• Whether such reimbursements shall form part of gross value
of taxable services?

Service tax on Reimbursements…
• SECTION 67. Valuation of taxable services for charging service tax.
(1) Subject to the provisions of this Chapter, where service tax is
chargeable on any taxable service with reference to its value, then
such value shall, —
(i) in a case where the provision of service is for a consideration in
money, be the gross amount charged by the service provider for such
service provided or to be provided by him;…
• RULE 5 of Service tax (Determination of Value) Rules, 2006
Inclusion in or exclusion from value of certain expenditure or costs.
— (1) Where any expenditure or costs are incurred by the service
provider in the course of providing taxable service, all such
expenditure or costs shall be treated as consideration for the taxable
service provided or to be provided and shall be included in the value
for the purpose of charging service tax on the said service…

…Service tax on Reimbursements…
• RULE 5 of Service tax (Determination of Value) Rules, 2006
– Exclusions
– As a pure agent
• Contractual Agreement
• Title
• Use
• Actual Amount
– 8 Conditions to exclude the expenditure or cost incurred by SP as pure
agent from the value of taxable services
• Pure agent
• SR receives and uses
• SR liable to make payment
• SR authorises
• SR knows that the goods or services shall be provided by the third party
• Separate indication in Invoice
• Actual recovery
• Procurements in addition to services provided

…Service tax on Reimbursements…
• Intercontinental Consultants & Technocrats Pvt. Ltd. 2014 (35) STR J99
(SC)
– Delhi High Court had ruled that no Service tax can be levied on reimbursements in
absence of legislative competence
– Hon’ble Supreme Court granted leave in SLP filed by department
– Thereby, Hon’ble Supreme Court has admitted the case but final verdict is pending
• Explanation (a) to Section 67 of Finance Act, 1994 till 13th May, 2015
– Consideration includes any amount payable for the taxable services provided or to
be provided
• Introduction of following in Explanation (a) to Section 67 of Finance Act,
1994 w.e.f. 14th May, 2015
– Consideration includes (i) … (ii) any reimbursable expenditure or cost incurred by
the service provider and charged, in the course of providing or agreeing to provide
a taxable service, except in such circumstances, and subject to such conditions, as
may be prescribed …

Service tax on Reimbursements-Retrospectivity
• TRU circular 28.02.2015
– Para 5.2 (iv) intention of the Department
• Section 67 prescribes for the valuation of taxable services. It is
being prescribed specifically in this section that consideration for a
taxable service shall include
– All reimbursable expenditure or cost incurred and charged by the
service provider. The intention has always been to include
reimbursable expenditure in the value of taxable service. However,
in some cases courts have taken a contrary view. Therefore, the
intention of legislature is being stated specifically in Section 67

Service tax on Reimbursements-Retrospectivity
• 2013 (289) E.L.T. 117 (Sikkim) Unicorn Industries
– Authority exercising it cannot read in powers of delegated legislation
something more than what that provision in fact provides - It is
impermissible to read Intent. [para 20]
• 1984 (18) E.L.T. 207(Bom.) Universal Drinks Private Ltd., Nagpur
– It is only a declaratory or a procedural enactment which is normally held
to be retrospective. A remedial Act on the contrary is not necessarily
retrospective. It may either be enlarging or restraining and it takes effect
prospectively, unless it has retrospective effect by express terms or by
necessary intendment.
• 2014 (302) E.L.T. 529 (Guj.) Goyal Traders
– Interpretation of statutes - Amendments - Retrospective applicability of -
Amendments, either creating fresh liability hitherto not existing, or
extinguishing accrued rights would be considered prospective unless the
statute either specifically or by necessary implication gives such
provision retrospective effect

Agent can pay Service tax on behalf of Principal
• Zaheer Khan provides services to various corporates for promotion
of their products
• He entered into a tripartite agreement
• As per the said Agreement, his agent had to negotiate, receive
consideration, discharge Service tax, deduct expenses and his
commission and had to remit balance amount to Zaheer Khan
• Department contended that this is not appropriate way of discharge
of Service tax liability. Accordingly, department has demanded
Service tax with interest and penalty.
• Whether the action of department is justified?

Agent can pay Service tax on behalf of Principal
• Zaheerkhan B. Khan (Mum.-Tri.) 2014 (33) STR 75
– Section 65 (7) of FA, 1994
• “assessee” means a person liable to pay the service tax and includes his
agent
– Service Tax rendered by agents for services rendered by principal
sufficient
• Section 65 made ineffective from 1st July, 2012
• W.e.f. 1st July, 2012, Section 65B (12) of FA, 1994
– “assessee” means a person liable to pay tax and includes his agent

Service tax paid by service provider for RCM Services
• Coca Cola India Pvt. Ltd. had entered into a contract for
sponsorship of a Cricket team
• Service provider collected Service tax and deposited the same
with Government
• Since the services were sponsorship services, covered under
RCM, department demanded Service tax again from Service
receiver
• Whether Coca Cola should surrender and pay huge Service tax
liability on sponsorship services?

Service tax paid by service provider for RCM Services
• Coca Cola India Pvt. Ltd. Vs. Commissioner of Service tax, Delhi
III (Del.-Tri.) 2014-TIOL-2198
– Relying on Delhi Tribunal’s decision in case of Hero Motocorp Limited
vs. CST, Delhi reported in 2013 (32) S.T.R. 371 (Tri. Del.) = 2013-TIOL-
873-CESTAT-DEL, services were held not to be sponsorship services
– Once Service tax is discharged on a transaction under one category,
Service tax cannot be demanded on the same transaction under
different category again

Export of services and Refund of Service tax
• A Ltd., India provided marketing services to its holding company, B Plc,
situated at UK
• The invoice was raised on 30th June, 2013 whereas convertible foreign
exchange was realised by A Ltd. on 31st March, 2014
• Whether the services can be treated as export of services vide Rule 6A of
Service tax Rules, 1994?
• In the course of providing output services, A Ltd. availed various services on
which Service tax is paid
• In absence of output Service tax liability, A Ltd. filed refund claim on 14th
March, 2015 of accumulated CENVAT Credit vide Notification No. 27/2012-CE
(NT) dated 20th June, 2012 read with Rule 5 of CENVAT Credit Rules, 2004
• Having regard to Section 11B of Central Excise Act, 1944, Department
concluded that the refund is time barred and accordingly, rejected the refund
claim
• Whether the action of department is justified?

Export of services
• Rule 6A of STR: Export of services
– The service provider is located in the taxable territory
– The service recipient is located outside India
– The service is not specified in negative list under Section 66D of the Act
– The place of provision of the service is outside India
– The payment for such service has been received by service provider in
convertible foreign exchange and
– The service provider and service recipient are not merely establishments of a
distinct person in accordance with item (b) of Explanation 3 of clause (44) of
section 65B of the Act
• Expl. 3 (b) & Exp. 4 of Section 65B (44) of FA, 1994
– Expl. 3 (b) : an establishment of a person in the taxable territory and any of his
other establishment in a non-taxable territory shall be treated as
establishments of distinct persons.
– Expl. 4. : A person carrying on a business through a branch or agency or
representational office in any territory shall be treated as having an
establishment in that territory;

Export of services
• Tandus Flooring India Pvt. Ltd. Vs. Commr. Of Service tax,
Bangalore (AAR) 2014 (33) STR 33
– The applicant proposes to enter into Marketing and Sales Support
Services agreements with Tandus US and Tandus China
– They are covered by none of these exceptions, namely Rules 4 to 12 of
these Rules. Consequently in their case the place of provision of
service shall be the location of the service recipients
– The applicants, as well as the recipients of service, are independent
legal entities, and not merely establishments of a distinct person, as
evidenced by the certificates of incorporation under the respective
laws, copies of which have been furnished by them. Consequently, the
bar under clause (f) above would not apply to their case

Refund of Service tax
Refund of CENVAT Credit (Notification No. 27/2012-CE(NT) dated 18th June,
2012)
• Exporter of Goods / Services:
– Refund Amount
(Export turnover of goods+ Export turnover of services) x Net CENVAT credit
Total turnover
– Quarterly claims
– Claim before expiry of 1 year from the relevant date
– Refund available on inputs and input services
– Ineligible exporters if claimed
• Drawback
• Rebate
– Follow procedures
– Proper documentation

Situations Relevant Date
Relevant Date: Explanation (B) to Section 11B of the Central Excise Act, 1944
Export of goods: Refund of Excise Duty
on final product or on inputs used in
manufacture of final product:
Goods exported by sea or air Date on which the ship or aircraft leaves
India
Goods exported by land Date on which such goods passes the
frontier
Goods exported by post Date of dispatch by the Post Office
Goods returned for being remade,
refined, reconditioned or subject to any
other similar processes in the factory
Date of entry into the factory
Goods requiring affixation of banderols
if removed for home consumption but
not so required for exports, if returned
after being removed for exports
Date of entry into factory

Situations Relevant Date
Explanation (B) to Section 11B of the Central Excise Act, 1944
Duty paid as per rates fixed by Government
through Notification. After payment of duty but
before expiry of that period, if the rates are
reduced
Date of such reduction
Person other than a manufacturer Date of purchase of goods
Goods exempted by order under Section 5A (2) of
the Central Excise Act, 1944
Date of issuance of such order
Excise duty paid provisionally Date of adjustment of duty after
final assessment
Duty is refundable on the basis of judgment,
decree, order or direction of appellate authority,
Appellate Tribunal or any court
Date of such judgment, decree,
order or direction
Any other case Date of payment of duty

• Eaton Industries P. Ltd. 2011 (Mum.-Tri.) (22) STR 223
– Statutory provisions indicating that date when payment for services
exported received as relevant date (Rule 5 of Cenvat Credit Rules,
2004 - Rule 3 of Export of Services Rules, 2005)
• Affinity Express India Pvt. Ltd. 2015 (Mum.-Tri.) (37) STR 321
– Combined and harmonious reading of sub-clause (a) thereof with Rule
5 of Cenvat Credit Rules, 2004 and Notification No. 5/2006-C.E. (N.T.)
indicates that period of one year is to be computed from date of
export of service
– Payment condition was only to ensure that service provider received
payment in convertible foreign exchange so as to get benefit of Service
Tax

• Ratio Pharma India Pvt. Ltd. (Tri.-Mum.) 2014-TIOL-2397
– It is inferred that just as the relevant date in the case of Central Excise
is the date of export of goods, the relevant date in the present case
would mean would be the date on which the services are exported
– To have a uniformity on the issue in view of the different judgments of
the Tribunal, it is my considered view that the matter should be
referred to Larger Bench
• Hundai Motor India Engineering (P) Ltd. (AP) 2015-TIOL-739
(Decision dated 4th March, 2015)
– Export of services Refund of CENVAT credit under Rule 5 of the
CENVAT Credit Rules, 2004 – Relevant date for filing the refund claim –
Appeal by revenue against the order of Tribunal holding that the
relevant date is the date of receipt of payment

Name of the Assessee Favourable/Against
Year of
reportingCitation Court Jurisdiction
Date of
Decision
Hyundai Motor India
Engineering Favourable 2015 TIOL-739 HC AP 04-03-2015
Ratio Pharma India Ref. to LB 2014 TIOL-2397 Tri. Mumbai 14-11-2014
Apotex Research Favourable 2014 TIOL-1836 Tri. Bangalore 18-09-2014
Affinity Express-ROM Against 2015 37 STR 333 Tri. Mumbai 22-08-2014
Hyundai Motor India
Engineering Favourable 2014 TIOL-1034 Tri. Bangalore 21-05-2014
BA Continuum India Favourable 2014 TIOL-2231 Tri. Bangalore 08-05-2014
Affinity Express Against 2015 37 STR 321 Tri. Mumbai 06-05-2014
Taco Faurecia Favourable 2014 TIOL-442 Tri. Mumbai 22-01-2014
Business Process
Outsourcing Favourable 2014 34 STR 364 Tri. Bangalore 31-12-2013
Bechtel India Favourable 2014 34 STR 437 Tri. Delhi 17-07-2013
GTN Engineering (I)
Ltd. Against 2012 28 STR 426 HC Mad. 25-08-2011
Eaton Industries Favourable 2011 22 STR 223 Tri. Mumbai 15-12-2010

CENVAT Credit on ST paid to Commission Agent
• A Ltd. was engaged in manufacturing and sale of goods. For
sale of goods, commission agents were appointed
• Service tax paid to these commission agents was claimed as
CENVAT Credit by A Ltd. considering the same as services in
relation to “sales promotion” which is eligible input service
• Department denied CENVAT Credit on such commission
agent’s services since the commission is directly related to
sales and not sales promotion
• In view of Gujarat High Court’s unfavourable decision,
whether the matter can be referred to larger bench?

• Ambika Overseas (P & H) 2012 (25) STR 348
– Services provided by Overseas Commission Agents of canvassing and
procuring of orders, within the ambit of definition of input service
under Rule 2(l) of Cenvat Credit Rules, 2004 - Availment of credit
upheld
• Cadila Healthcare Ltd. (Guj.) 2013 (30) STR 3
– Agents were directly concerned with sales rather than sales promotion
- Services provided by them was neither Business Auxiliary Service
under Sections 65(19) and 65(105)(zzb) of Finance Act, 1994, nor were
they covered in main or inclusive part of definition of input service in
Rule 2(l) of Cenvat Credit Rules, 2004

• Astik Dyestuff Pvt. Ltd. (Guj.) 2014 (34) STR 814
– If there is conflict between jurisdictional High Court’s decision and CBEC Circular,
decision of jurisdictional high Court is binding on the department.
– Decision of jurisdictional High Court in case of Cadila Healthcare Limited (Supra) is
challenged before the Hon’ble Supreme Court and the said order is not stayed by
Hon’ble Supreme Court.
– Decision of jurisdictional High Court is binding on the department rather than decision
of other Courts even in case there are contradictory decisions prevailing on the subject
matter.
– Since decision of Cadila Healthcare Limited (Supra) is pending before Hon’ble Supreme
Court, the matter cannot be referred to Larger Bench. Even otherwise, High Court did
not see any reason to take a contrary view than as given in Cadila Healthcare Limited
(Supra).
– Just because there were contrary decisions, matter cannot be referred to Larger Bench
when High Court was in agreement with the view taken by jurisdictional High Court.
– Accordingly, Hon’ble High Court held that the Tribunal was right in relying on the
decision of Cadila Healthcare Limited (Supra) CENVAT credit of sales commission
services

CENVAT Credit on ST paid to outdoor service caterer
• Rule 2 (l) of CENVAT Credit Rules, 2004
– “input service” means any service, -
– …
– but excludes, -
– (C) such as those provided in relation to outdoor catering, beauty
treatment, health services, cosmetic and plastic surgery, membership of a
club, health and fitness centre, life insurance, health insurance and travel
benefits extended to employees on vacation such as Leave or Home Travel
Concession, when such services are used primarily for personal use or
consumption of any employee
• Hindustan Coca Cola Beverages Pvt. Ltd. (Mum.-Tri.) 2015 (38)
STR 129
– Cost of outdoor catering service used in relation to business activities for
part of cost of final product, fact not rebutted by Revenue - Cost of such
services admittedly borne by appellant and not by employee - Cenvat
credit not deniable

Service tax audit
• Whether Service tax audits conducted by Department are bad
in Law?
• Travelite (India) vs. Union of India (Del.) 2014 (35) STR 653
– Hon’ble High Court quashed Rule 5A (2) of STR, 1994 empowering
department to carry out audit on the ground that such Rule did not
have appropriate statutory backing
• Finance Act, 2014
– Section 94 (2) (k) of FA, 1994 w.e.f. 6th August, 2014
In particular, and without prejudice to the generality of the foregoing power,
such rules may provide for all or any of the following matters, namely :-
• imposition, on persons liable to pay service tax, for the proper levy and
collection of the tax, of duty of furnishing information, keeping records
and the manner in which such records shall be verified

Service tax audit
• Rule 5A of STR, 1994 Access to a registered premises. — …
(2) Every assessee shall, on demand, make available to the officer
authorised empowered under sub-rule (1) or the audit party deputed by the
Commissioner or the Comptroller and Auditor General of India, or a cost
accountant or chartered accountant nominated under section 72A of the
Finance Act, 1994, - within a reasonable time not exceeding fifteen working
days from the day when such demand is made, or such further period as may
be allowed by such officer or the audit party, as the case may be, -
(i) the records as mentioned in maintained or prepared by him in terms of
sub-rule (2) of rule 5;
(ii) trial balance or its equivalent the cost audit reports, if any, under
section 148 of the Companies Act, 2013 (18 of 2013); and
(iii) the income-tax audit report, if any, under section 44AB of the Income-
tax Act, 1961 (43 of 1961), for the scrutiny of the officer or audit party,
or the cost accountant or chartered accountant, within the time limit
specified by the said officer or the audit party or the cost accountant
or chartered accountant, as the case may be.”
Notification No. 23/2014-ST dated 5th December, 2014

Service tax audit
• CBEC Circular No. 181/7/2014-ST dated 10th December, 2014
– Clarifying changes made and legal backing for conducting Service tax
Audits
• Decision stayed by Hon’ble Supreme Court on 18th December,
2014
– Rule 5A (2) of STR, 1994 granted statutory backing to Service tax
authorities to conduct Service tax audit w.e.f. 6th August, 2014
– The Cost Accountant or Chartered Accountant authorized under
Section 72A of FA, 1994 are granted power to do Service tax Audit on
or after 5th December, 2014
– In light of Hon’ble Delhi High Court’s decision, one may feel that
Service tax audits done on or before 5th August, 2014 are without the
authority of law
– However, one has to wait till Apex Court finally decides this issue.

Beneficial Circulars viz-a-viz Oppressive Circulars
• Mysore Electricals Industries Ltd. 2006 (204) ELT 517 (SC)
– Change in classification due to Circular
– Change has to be given a prospective effect
• Suchitra Components Ltd. 2007 (208) ELT 321 (SC)
– Departmental clarifications - Date of effect –
– Beneficial circular to be applied retrospectively while oppressive
circular applicable prospectively
– Circular when against the assessee, they have right to claim
enforcement prospectively

Beneficial Circulars viz-a-viz Oppressive Circulars
• L & T Sargent & Lundy Ltd. 2014 (35) STR 945 (Tri.-Ahmd.)
– Circular when against the assessee, they have right to claim enforcement
prospectively
– C.B.E. & C. Circular No. 868/6/2008-CX., dated 9-5-2008 clarifying that
export of services without payment of Service Tax not to be treated as
exempted services - Circular to be applied retrospectively and accordingly
full credit admissible
• International Clearing & Shipping Agency Pvt. Ltd. 2014 (34) STR
418 (Tri.-Chennai)
– Demand of Service Tax confirmed by including value of reimbursements -
In their own matter, appellant allowed benefit of exclusion of
reimbursements vide Order-in-Original Nos. 35-36/2010, dated 25-8-2010,
whenever conditions as laid down in Para 6 of C.B.E. & C. Circular No.
119/13/2009-S.T., dated 21-12-2009 shown to have been complied with in
respect of reimbursements - HELD : Above Circular being clarificatory is
applicable even for period prior to issue of such circular

Extension for filing reply to SCN
• Tulip Global Pvt. Ltd. 2014 (36) STR 1083 (Tri.-Del.)
– The appellants were repeatedly asking for extension to file reply to
SCN on account of change in counsel
– Request for extending time to reply to show cause notice neither
accepted nor rejected - Adjudication order passed ex parte
– Adjudicating authority under legal obligation to respond to request
for extending time - Request could have been rejected if felt that
appellant was intentionally delaying proceeding
– Non-communication of decision on request keeps an assessee in dark
who may entertain a view that request stands granted
– Matter remanded for fresh decision

Recovery before concluding adjudication
• Section 87 of the Finance Act, 1994
– Recovery of any amount due to Central Government. — Where any amount
payable by a person to the credit of the Central Government under any of the
provisions of this Chapter or of the rules made thereunder is not paid, the Central
Excise Officer shall proceed to recover the amount by one or more of the modes
mentioned below :—
• R. V. Man Power Solution 2014 (33) STR 23 (Utta.)
– The appellants were issued SCN but without deciding the matter and without any
hearing, notice for recovery was issued
– Accordingly, all the bank accounts of the petitioner was freezed
– According to me, going by the language of Section 87 of the Finance Act that any
amount payable means that amount adjudged after hearing the show cause notice
and this provision of Section 87 is one of the methods of recovery of the amount
due and payable after adjudication is done. Moreover, I find from the language of
clause (b), there is no power to freeze the Bank accounts. At the most, if it is
applied, the money can be claimed from the Bank itself. Such claim can be made
only when the final adjudication has been done after quantifying the amount due
and payable by the assessee

Recovery after making pre-deposit
• Kala Mines and Minerals 2015 (38) STR 208 (Tri.-Mum.)
– The Appellant complied with Section 35F of the Central Excise Act,
1944 while filing appeal.
– DGCEI wrote a letter to the bankers of the Appellant to remit the
amounts lying with the bank to the Government exchequer, in
pursuance to which, the bankers froze the bank accounts
– In our considered view and as also statutorily once mandatory
deposit of 7.5% is made, there is no reason for recovery of any
further amount from the appellant and the action of the Dy. Director,
DGCEI seems to be beyond the scope of law
• Finance Act, 2015
– ST payable in self-assessed return but not paid-Can be recovered with
interest without issuance of SCN

Penalties
• Calderys India Refractories Ltd. 2014 (36) STR 102 (Tri.-Mum.)
– Discharge of Service Tax liability and interest immediately on pointing
out of short-payment - Transaction reflected in balance sheet of
relevant years - Evidence indicating no intention to suppress or
withhold information
– No penalty under Section 76, 77 and 78 of the FA, 1994

Penalties
Particulars Penalty under Section 76 (Bona
fide cases)
Penalty under Section 78
(Mala fide cases)
Cases covered Cases other than
 Fraud
 Collusion
 Wilful mis-statement
 Suppression of facts
 Contravention of provisions
of the Act with intent to
evade Service tax payment
Cases of
 Fraud
 Collusion
 Wilful mis-statement
 Suppression of facts
 Contravention of
provisions of the Act with
intent to evade Service tax
payment

Penalties
Particulars Penalty under Section 76
(Bona fide cases)
Penalty under Section 78 (Mala
fide cases)
Non-levy/Non-
payment/Short-
levy/Short-
payment/Errone
ous refund of
Service tax and
SCN issued
Penalty not exceeding 10% of
Service tax (In addition to
payment of Service tax with
interest)
Penalty equal to 100% of
Service tax (In addition to
payment of Service tax with
interest)
Effective from 14th May, 2015

Penalties
(Bona fide cases)
fide cases)
Service tax with
interest paid
within 30 days
from the date of
service of SCN
No penalty Reduced penalty of 15% of
Service tax provided such
reduced penalty is also paid
within 30 days from the date of
service of SCN

Penalties
(Bona fide cases)
fide cases)
Service tax with
interest and
reduced penalty
as per these
Sections is paid
within 30 days
from the date of
receipt of
Adjudication
Order
25% of the penalty imposed 25% of Service tax

Waiver of penalties
• Section 80 removal
• Pratibha Processors vs. Union of India 1996 (88) ELT 12 (SC)
held that penalty is for contumacious behavior of the
assessee and it is penal in nature
• Principal of natural justice to be followed

Criterion for selection of relevant cases
• Facts of the case on hand are of prime importance
• Try to find all decisions on the matter including unfavourable ones (In a year
thousands of decisions)
• Try to highlight Higher Court’s decisions in favour of the assessee
• Before relying on any case, please ensure that:
– The case should be read thoroughly
– Understand the crux of the decision
– It should not be only a stay case as far as possible
– The case should be of the law applicable to the case on hand (i.e. should not be an older
decision)
– If the case is based on older law, check if similar interpretation can be adopted in new
law. If yes, even an older decision can be considered
– The decisions should be on merits
– If the decision is on facts, the facts should be identical with that of the case on hand
– Find out the latest status of the decision before relying on the same
– Even if the decision is on different facts and law, check if the ratio of the decision can be
applied in the case on hand

Disclaimer
The presentation is meant for understanding of certain important concepts pertaining to the
topic. Before using the same for any statutory interpretations, raising demands or taking any
business decisions, prior written consent of the author is mandatory.
The presentation highlights latest pronouncements under indirect tax. The same can not be
construed to be the opinion of the Author.
In any case, the author is not responsible for the usage of the presentation material without any
written consent of the Author.
The views presented in the Presentation are personal views of the Author and may not be
accepted by the Tax or Judicial Authorities.
The Presentation endeavors to explain the situation of the Law as on or before the date of the
presentation. The Author does not undertake any responsibility to update the same in the future.
© Author

Ca. Payal Shah
Independent Practitioner and
Associate at Office No. 422, 4th Floor, Zest Business Spaces, M. G.
Road, Ghatkopar (East), Mumbai – 400 077.
2/22 Nityanand Nagar, Sahar Road, Andheri (East),
Mumbai-400 069.
capayalshah9@gmail.com
Right advice at right time…

Pronouncements under Service tax-16 05 15v2

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