office of the principal commissioner of c. g. s. t.,

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OFFICE OF THE PRINCIPAL COMMISSIONER OF C. G. S. T., AHMEDABAD - SOUTH.

StnST 3iiM<rciG. S. T. BHAVAN, AMBAWADI, AHMED ABAD - 380 015

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F. No.: STC/04-37/H&KSolutions/OA/2017-18 DIN no. : 20201164WS0000006200

3TT^r cii'Tl’Ui: Date of Order : 20.11.2020 Sflft «t»^ dl(l<bl: Date of Issue : 20.11.2020

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This copy is granted free of charge for private use of the person(s) to whom it is sent.

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Any person deeming himself aggrieved by this Order may appeal against this order in Form E.A.1 to Commissioner (Appeals), Central GST, Central GST Bhavan, Near Government Polytechnic, Ambawadi, Ahmedabad -15 within sixty days from date of its communication. The appeal should bear a court fee stamp of Rs.2.00/- only.

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The Appeal should be filed in form No. E.A.-l in duplicate. It should be filed by the appellants in accordance with provisions of Rule 3 of the Central Excise (Appeals) Rules, 2001. It shall be accompanied with the following:5«tTi 3i41« 4?t ylcl iCopy of the aforesaid appeal.

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Copies of the Decision (one of which at least shall be certified copy of the order appealed against) or copy of the said Order bearing a court fee stamp of Rs. 2.00/-.

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An appeal against this order shall lie before the Commissioner (Appeal) on payment of 7.5% of the duty demanded where duty or duty and penalty are in dispute, or penalty, where penalty alone is in dispute."

Tfe^/Reference : Show Cause Notice/<PKU| old 13ft TjTETT : WF. TT. F. No. : VI/l(d)/CTA/07/Cir- IV/H&K-SCN/17-18 dated 23.10.2017, issued to M/s. H & K Solutions Pvt. Ltd., 719, 7th Floor, Venus Atlantis, 100 Ft. Ring Road, Prahladnagar, Ahmedabad-380 015, by the Joint Commissioner of Central Tax Audit, Ahmedabad.

1

Brief facts of the case

M/s H & K Solutions Pvt. Ltd., 719, 7th Floor, Venus Atlantis, 100 Ft. Ring Road, Prahladnagar, Ahmedabad-380 015, (hereinafter referred as the “said service provider" or “the asses see ”) has been registered with Service Tax Department and provides taxable services. The said service provider is holding Service Tax registration number AACCH3280JSD001.

Audit of the said service provider was initiated on 15.07.2016. Verification of the records pertaining to Financial Years 2014-15 and 2015-16 was conducted by auditors of erstwhile Central Excise & Service Tax, Audit-II Commissionerate, Ahmedabad, on 10.01.2017, 16.01.2017 and 24.01.2017 and certain records were further required. Post Goods and Service Tax Regime (GST), the said verification and audit of records was handed over to Central Tax, Audit, Ahmedabad Commissionerate. During the course of audit, the said service provider was asked to submit documents, like Copies of Contracts and sub-contracts entered into with their service recipients, Ledger A/cs with corresponding income invoices along with abstract/ work-sheets for the different taxable services provided and import of service; Ledger A/cs of reimbursement Payments shown under the head of other current assets with supporting invoices raised along with invoices of expenses incurred; Gross value of abatement/exemption claimed for the services provided with supporting documents and records; Service Tax receivable ledger a/c along with input invoices; Service Tax Payable Ledger a/c and Service Tax Paid Ledger a/c. It appears that these documents/details had been required in relation to their claim of acting as a pure agent with regard to re-imbursement of expenses claimed from their service recipients and its relation to total income shown and for reconciliation of the same. It further appears that these documents had to be co-related with the reimbursement expenses incurred and it had to be seen why service tax is not discharged on the said reimbursement expenses in terms of Service Tax (Determination of Value) Rules, 2006.

2.

Whereas it further appears that it had been observed on verification of documents furnished by the said service provider vide letters dated 09.08.2017 and 17.08.2017 that in sub-head : “Reimbursement Payment” under the head of “Other Current Assets” in the Trial Balance for F.Y. 2014-15 and 2015-16, amount of Rs. 3,81,34,404/- and Rs. 2,64,64,428/- had been shown on debit side. On further scrutiny of Reimbursement Payment ledgers furnished by the said service provider, it was observed that they had shown reimbursement of Salary, Postage & Courier, Telephone & Internet, Conveyance Expenses, Consultant/Contractor etc., in their books of accounts from their service recipients. These reimbursements of expenses were made to the said service provider by M/s Unique Mercantile India Pvt. Ltd., Ahmedabad, M/s Uni Pac Developers Pvt. Ltd., Ahmedabad and M/s Unique SMCS, Ahmedabad. It also appears that the said service provider provides services of deploying resources, identifying appropriate locations for hotels, deploying consultants and other agencies for construction of hotels, different types of consultancy during execution of the projects, etc. They have also shown to have acted as “Pure Agent” for certain payments, in the contracts entered into by them with M/s Unique Mercantile India Pvt. Ltd., their service recipient. Further, the said service provider has not shown any deductions under the head of “Amount charged as Pure Agent” in respective ST-3 Returns filed by them. Consequent upon verification of the documents available, letter bearing F. No. CEA-II/04-139/CIR-V/AP-XXII/H & K/20lb- 17 dated 21.08.2017 along with a detailed questionnaire was issued to the said service provider by the auditors to verify the following facts in terms of conditions laid down for “Pure Agent” and to look into the detailed aspect of agreement entered into with M/s Unique Mercantile India Pvt. Ltd. along with other points, including import of services, other income showing confirmation fees, etc.:

3.

3

Whether the said service provider fulfilled the conditions laid down for ‘Pure Agent’ as required under Rule 5 of Service Tax (Determination of Value) Rules, 2006?

(i)

Even after submitting contractual agreement on letter head, whether the said service provider qualified the criteria of Pure Agent as claimed by them or such arrangements have been made only to escape the inclusion of the cost of various expenditures in taxable value of service?

(iii) Whether employees on pay roll of the said service provider for which TDS, EPF, ESIC etc. were being deducted at the end of the said service provider could be treated as employees of M/s Unique Mercantile India Pvt. Ltd. (service recipient)? Further, whether services of these employees were used by M/s Unique Mercantile India Pvt. Ltd. (service recipient) directly or the said service provider (M/s H. & K. Solutions Pvt. Ltd.)?

(iv) What was the exact nature of transactions of “Confirmation Fees” received by the said service provider from their Foreign Service recipient?

(ii)

What was the exact nature of transactions pertaining to M/s Desert Queen General Trading LLC for which expenses of consultancy charges of Rs. 1.25 crore was booked in ledger by the said service provider? The said services were never received. However they took the credit of service tax on the same.

(v)

It further appears that in response to the above referred letter dated 21.08.2017 and questionnaire, the said assessee furnished detailed reply vide their letter dated 31.08.2017 received on 05.09.2017. Apart from respective answers to 50 questions sent to them for detailed verification, the said service provider also communicated in their above referred reply that they satisfied all the eight conditions laid down in Rule 5 of Service Tax Determination of Value Rules, 2006, as “pure agent”; that they had entered into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; that they had neither intended to hold nor hold any title to the goods or services so procured or provided as pure agent of the recipient of service; that they had not used such goods or services so procured; that they had received only the actual amount incurred to procure such goods or services; that more than 70% of expenses were nothing but salary of employees hired for M/s Unique Mercantile India Pvt Ltd. by the said service provider and these employees were deputed to other group companies of M/s Unique Mercantile India Pvt. Ltd.; that the reason for entering into such an arrangement was not difficult to see as employees might not be willing to sign contracts with several employer-companies; that contracts of such employment arrangement were signed by the said service provider and not by M/s Unique Mercantile India Pvt. Ltd.; that the said service provider did not charge any margin or mark-up on the said reimbursement amount; that they had further cited the judgment of the CESTAT in the case of Franco Indian Pharmaceutical (P) Ltd. [2016 (42) S.T.R. 1057 (Tri.-Mumbai)]; that in the absence of mark-up/margin, the payments received by M/s H & K Solutions Pvt. Ltd. (the said service provider) would not partake the character of consideration for any service, but would merely represent reimbursement of costs.

4.

5. It further appears that during the course of audit proceedings, personal interactions in the matter were also held with the said service provider in which their stand was also attended to. Taking into account all the facts and records available, the said service provider was issued letter F. No. CEA-II/04-139/Circle-V/AP- XXII/H&K/2016-17 dated 27.09.2017, vide which they were communicated that they were required to pay the service tax amounting to Rs. 25,28,560/- and Rs. 15,65,243/- for

4

the audit period i.e. Financial Years 2014-15 and 2015-16 along with applicable interest as per provisions of section 75 of the Finance Act, 1994 as reimbursement of expenses shown by their company as pure agent did not satisfy the conditions laid down in Sub Rule (2) of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 and they had not declared the correct value of services provided under Section 67 of the Finance Act, 1994. It further appears that they were also informed that they were further required to pay the Service Tax amounting to Rs. 3,39,477/- (Rs. 49,050/- and Rs. 2,90,427/- for the audit period i.e. Financial Years 2014-15 and 2015-16 respectively) along with applicable interest as per provisions of section 75 of the Finance Act, 1994 on the confirmation fees received for the services provided as “Intermediary”. The said service provider was issued another query memo vide letter F. No.CEA-II/04-139/Circle-V/AP- XXII/H&K/2016-17 dated 29.09.2017 vide which they were further communicated on the issue of ineligible Cenvat credit on import of services which were not received. The said service provider was further communicated that they were not eligible for Cenvat credit of Service Tax, Education Cess, S.H. Education Cess paid amounting to Rs. 15,45,000/- and were required to reverse/pay the same under Rule 14 of Cenvat Credit Rules, 2004 along with applicable interest. It was also communicated that they had an option available with them under provisions of Section 78 (1) of the Finance Act, 1994 with regard to penal action.

Whereas it further appears that the said service provider vide their letter dated 29.09.2017, informed that they were voluntarily making payment of Service Tax, Interest and Penalty to the tune of Rs. 4,69,600/- after availing benefit of cum-tax price with respect to “Confirmation Fees” for the Financial Year 2014-15 and 2015-16 in agreement to the observation raised vide the above referred letter dated 27.09.2017. They further furnished copy of challan No. 80024 dated 29.09.2017, showing payment of Service Tax of Rs. 2,98,879/- towards Business Auxiliary Services, Interest of Rs. 1,25,889/- and Penalty of Rs. 44,832/-.

6.

In the same letter dated 29.09.2017, they further communicated with regard to ineligible Cenvat credit of Rs. 15,45,000/-; that they were not required to pay such tax as per the prevalent Point of Taxation Rules, however they had made the payment through oversight; that the anticipated services were not received by them; that they were required to adjust the amount paid by them by virtue of Service Tax Rules, 1994 under Rule 6(3) or Rule 6(4A); that however, during the course of filing of ST-3 Returns, it was shown as input services and it was adjusted during the course of future payments. They also cited other grounds for concluding audit point raised on this aspect.

7.

It appears that with reference to the above referred queries communicated through letters dated 27.09.2017 and 29.09.2017 issued by the Central Tax, Audit Commissionerate, Ahmedabad, the said service provider vide their letter dated 04.10.2017 communicated that they had paid service tax UNDER PROTEST in respect of reimbursable expenses for the financial years 2014-15 and 2015-16 although they firmly believed that no service tax liability could arise on reimbursement. They submitted copies of challans Nos. 8004 dated 03.10.2017 and 8005 dated 03.10.2017 for Rs. 22,50,410/- and Rs. 13,75,693/- respectively for Service Tax paid under protest after availing the cum-tax benefit. They also provided copies of documents for Financial Years 2012-13 and 2013-14 namely group summary of reimbursement payment shown under the current assets, detailed ledgers of the party showing debit notes issued, copies of all debit notes issued for the said period, income group showing income booked for the said years, gross trial balance for 2012-13 and 2013-14, detailed ledger account of confirmation fees recovered, details of reimbursement expenses. Vide their letter dated 04.10.2017 received on 06.10.2017, they have also submitted that they have not raised any reimbursement debit notes on any party whatsoever during the financial year 2016-17 and furnished duly authenticated documents namely unaudited provisional trial balance

8.

5

for F.Y. 2016-17, sub-group summary of Reimbursement Payment under the head of other advances, Detailed ledgers of service recipients (M/s Unique Mercantile India Pvt. Ltd.-RE, M/s City Pulse Enterprises Pvt. Ltd. and M/s Uni-Pac Developers Pvt. Ltd.-RE).

Vide their letter dated 06.10.2017, regarding the audit point of confirmation fees received, the said service provider has informed that they accept the audit point of service tax on confirmation fees; they have willingly paid total service tax of Rs. 2,98,879/- along with interest of Rs. 1,25,889/- and Penalty® 15% of Rs. 44,832/- taking into consideration cum-tax value for the financial years 2014-15 and 2015-16 and paid the amount vide Challan dated 29.09.2017 for Rs. 4,69,600/- in all; that tax-cum value for Financial Year 2014-15 and 2015-16 are Rs. 6,14,073/- and Rs. 15,92,710/- respectively on which they have paid service tax of Rs. 75,899/- and Rs. 2,22,979/- respectively; that they have also willingly paid Service Tax amounting to Rs. 1,00,693/-, Interest of Rs. 77,156/- and Penalty @15% amounting to Rs. 15,104/- on cum-tax value of Rs. 8,14,665/- in respect of confirmation fees received (gross value of taxable service: Rs. 9,15,358/-) in the Financial Year 2013-14; that they undertake that they have not received any confirmation fees for the financial year 2012-13 and 2016-17 and have not shown the same in their respective financial statements; that they have willingly paid the above referred service tax, interest and penalty® 15% on cum-tax value and they undertake that they will not file any refund for the same or appeal against it at any point of time in future; that they do not want show cause notice and personal hearing in the matter; that they request to close audit proceedings with respect of audit point for confirmation fees raised. The above referred payment of service tax on confirmation fees for F.Y. 2013-14 was made vide Challan No. 80025 dated 29.09.2017.

£

9.

It further appears that the discrepancies mentioned at column 2 of the table below were noticed in respect of audit undertaken for financial years 2014-15 and 2015- 16. Therefore the details of similar transactions for the period 2012-13, 2013-14 and 2016-17 were called for and accordingly the revenue implication in respect of the said issues, for the period 2012-13 to 2016-17 is worked out as detailed at column 3 of the table as follows:

10.

S. Gist of Objections RevenueImplications

Assessee’s agreement

Yes/No. If no, reasons for

dis-agreement

Spot payment made if anyNo.

Rs.

1 Non-payment of Service Tax on account of non- inclusion of reimbursable expenditures in cost of services in guise of pure agent

Service tax - Rs.78,64,034/-

along with applicable

interest

Not agreed. Reasons stated in reply dated

31.08.2017 and 29.09.2017.

Service Tax-Rs. 36,26,103/- (Paid

under protest)

2. Non-payment of Service Taxon services provided as an Intermediary

Service tax - Rs.4,52,615/-

along with applicable

interest

Agreed but Service Tax

paid on cum- tax price.

Service Tax- Rs.399572/-+

Interest-Rs.203045/- +Penalty-Rs. 59936/- (Total-Rs. 662553/-)

3. Ineligible Cenvat Credit onservice tax paid import of services, not received

Rs. 15,45,000/- alongwith applicable

interest

Not agreed. Reasons stated in reply dated

29.09.2017

NIL

Rs. 98,61,649/- alongwith applicable

interest

Service Tax-Rs. 40,25,675/-+ Interest-

Rs. 203045/- +Penalty-Rs. 59936/-

TOTAL

6

11. The audit objections as above are enumerated hereinafter:

Non-payment of Service Tax on account of non- inclusion of certainexpenditures in the cost of services provided, in the guise of acting as a pure agent:12.?

12.1 Taking into account the audit observation on the aspect of non-payment of service tax on account of non-inclusion of certain expenses shown as reimbursable expenditures, in the cost of services, in the guise of acting as a pure agent, relevant provisions of Section 67 of the Finance Act, 1994 is reproduced herein below:

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;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;

(Hi) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.

(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.

Explanation. — For the purposes of this section, —

(a) “consideration ” includes-

(i) any amount that is payable for the taxable services provided or to be provided;

(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;

(in) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.

* *y(b)[ * * *

(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of

7

account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.

12.2 Relevant portion of Service Tax (Determination of Value) RULES, 2006 is also reproduced herein below:

RULE 2:

2. Definitions—In these rules, unless the context otherwise requires,—

(a) “Act” means the Finance Act, 1994 (32 of1994);

(b) “section ” means the section of the Act;

(c) “value” shall have the meaning assigned to it in section 67;

(d) words and expressions used in these rules and not defined but defined in the Act shall have the meaning respectively assigned to them in the Act.

RULE 5:

5. 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.

Explanation - For the removal of doubts, it is hereby clarified that for the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided.

(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

(Hi) the recipient of service is liable to make payment to the third party;

(iv) the recipient of service authorises the service provider to make payment his behalf;

(v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

on

(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

8

(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Explanation 1— For the purposes of sub- rule (2), “pure agent” means a person who-

(a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

(c) does not use such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services.

Explanation 2.- For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.

Illustration 1.— X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what Xpays to Y. Y does not act as an agent on behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent

Illustration 2 — In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service.

Illustration 3. —A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B.

Illustration 4. - Company X provides a taxable service of rent-a-cab by providing chauffeur driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the

9

?

*chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X.

12.3 It appears that the said service provider was issued Works Order Ref. No. UNQ/Hosp/2011 dated 23rd June 2011, by M/s Unique Mercantile India Pvt. Ltd., F/7, Vishal Comm. Centre, Near Dinesh Hall, Income Tax, Ashram Road, Ahmedabad-9 to act as a consultant for their (M/s Unique Mercantile India Pvt. Ltd.’s) hotel projects across India. The copy of the same has been provided by the said service provider. M/s Unique Mercantile India Pvt. Ltd. vide the above referred works order appeared to have awarded work to the said service provider as consultant for hotel projects, for various services like development of hotels, brand tie up for hotels and such other allied services related to their hotel projects. Reference of this works order appears to have been mentioned in Certificates of payments/R.A. Bills issued by the said service provider to M/s Unique Mercantile India Pvt. Ltd. and its associated companies. A sample of one such Certificate of payment/ R.A. Bill is reproduced hereunder for ease of reference.

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I CERTIFICATE OF PAY AMENT: PROVIDING CONSULTANCY FOR HOTEL HOWARD JOHNSON UDAIPUR. :Olly PuIsp enterprises Pvt. Ltd. f H « K Solutions Pvt. Ltd.: UNQfHOSP/2012 Otd. 23.06.2011

NAME Of WORK Client Consultant Work Order No R.A. RILL NO ON: U63040GJ200BPTC059027

: 8tn HoJo UdelpurDet«: 0G.0G 701 f*

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anxwml lor executed work as per snnexure I 30.2(MM0 2«|CI*«*»ono. 7.1\Ae dfsuueeed

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•nnexure II T4j39.6ie.59] <32,640.01

3S.00.3e5.00 yl90.717.7r,Totn* Pnyebte wljhjilil* Dill4,72,760.60

42.83.102.64

. .. .Gross Payeble emount with UU* billRupees Two Lacs Ninety Six Thoueand Seven Hundred Eighteen only.

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12.3.1 As per the said Works Order, it appears to have been decided between the said service provider (M/s H & K Solutions Pvt. Ltd.) and the service recipient (M/s Unique Mercantile India Pvt. Ltd.) that the said service provider would use its resources in (i) identifying and assisting the said service recipient in bringing bestlocations suited for hotels on lease; (if) for obtaining various permissions from theBrands and complying with their requests and standard for the hotel projects: (hitfor completion of construction of hotel project together with interiors and put it forready to use for commercial operation etc, along with all required permissions.

10

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except plan passing/revision and BU (the same shall be obtained bv the Leaser andthe said service provider will assist in getting the same), to run the Hotel; (iv) inidentifying and entering into an arrangement for brand tie up or such other facilityfor the hotel project with reputed hotel chains. It further appears that as per point No. 6 of the above referred works order dated 23.06.2011, the service recipient (M/s Unique Mercantile India Pvt. Ltd.) or newly formed company was required to execute that they would award consultancy contract to the said service provider on an exclusive basis and no other agency, company, individual or such other entity shall be awarded with any kind of work, contract, job in relation to Hotel project without obtaining prior written consent from the said service provider. It further appears that the said service recipient agreed to pay fees for the above consultancy to the said service provider in terms of point No. (7) of the said works order dated 23.06.2011. The said clause/point No. (7) is reproduced herein below which is self-explanatory:

“7. Our fees for the above consultancy shall be as under:(a) The model of this contract would be based as follows:

The contract is based on cost plus margin basis and the margin is agreed upon as 12% of all the expenditure towards completion of these projects. Broadly all the expenditure towards, civil works, Services, Interiors, Resources (direct and Indirect), all 5SU items, consultancy/Statutory fees etc. would be charged as total cost and 12% markup would be paid on it to H&K by UNQ as their fees.For clarity purpose the lease amount paid to the Lessor would have margin of 7.5% markup would be paid to H&K by UNQ as their fees.Payment to employees done on behalf of unique. Payment to any other done on behalf of unique, travel allowance, including tickets, hotel, fooding, Couriers, and Conveyance will not attract any fees by H&K and would be reimbursed at actuals as a pure agent. All above shall be submitted to UNQ on the day of expense and UNQ would pay the invoice within 7 days from date of invoice.The billing cycle would be monthly and payments would be made by UNQ to H&K within 30 days of the receipt of Invoice.

I.

II.

III.

IV.

(a) Apart from this UNO would also work out a Performance LinkedIncentive (PLI) for the vendor which could be linked to the profits ofthe entire project This would be discussed with H&K at anappropriate time and would be informed throush a separatecommunication.

(b) First installment of INR 25,00,000.00 Lakhs Net (INR Twenty Five Lakhs only) shall be paid in as Second Part security amount within 3 days of signing of this Works Order.

(c) Second Installment of INR 25,00,000.00 Net (INR Twenty Five Lakhs only) shall be paid in as Second part security amount within 60 days of signing of this Work Order.

All other cost on traveling, out of pocket expenses, communication and such other incidental cost shall be charged separately as a reimbursement of expenses and payable on a monthly basis. ”

(d)

Whereas it further appears that on being asked, the said service provider further furnished a copy of “Renewal of Collaboration Agreement” with M/s Unique Mercantile India Private Limited entered into on 1st day of April, 2012. In terms of this agreement M/s Unique Mercantile India Private Limited (UNQ) also deemed to mean and include its successors and permitted assigns and it’s associate companies, concerns or other Special Purpose Vehicle Companies/firms formed for the hospitality sector

12.4

ll

business. This collaboration agreement on renewal also refers to Works Order dated 23rd June, 2011 and Collaboration Agreement entered on 23rd June, 2011 between the said service provider and service recipient (M/s Unique Mercantile India Private Limited). In the said agreement also, the said service provider has been referred to as H&K and service recipient as UNQ. The relevant part of the agreement, at S.No. 1: “Definition” pertaining to “Total Expenditure for the Project”, at clause (iv) and “Scope of Work” at clause (vii) are reproduced herein below which are self-explanatory:

“Total expenditure for the Project”: Total Expenditure for the Project shall mean all payouts for the Project/s directly or indirectly whether incurred by UNQ or Lessor or any other party for the Project. It is also clarified that all resources/manpower, consultants/agencies recruited/hired for the Project, whether on payroll of H&K or UNQ or any other agency related to the Project shall be charged by H&K to UNQ with the agreed upon mark up and shall be paid by UNQ accordingly. However, for calculation of the mark up fees/remuneration to H&K, the Total Expenditure shall not include the travelling, lodging and food expenditure incurred for the Project/s.

“Scope of Work” means, in relation to a Party, the work and obligations in connection with the Project, which it will be responsible for under this Collaboration Agreement.

%

iv.

vii.

It further appears that under the Part of Responsibilities and Deliverables at S.No. 4 of the above referred agreement dated 01.04.2012, scope of the work for the said service provider has been mentioned at S. No. 4.1. In this clause, on part of the service recipient i.e. M/s Unique Mercantile India Private Limited and its associated companies and concerns, it has been mentioned that the said service recipient shall provide funds, investments needed and also provide financial assistance to M/s H&K Solutions Pvt. Ltd. to execute all projects/business opportunities including capital and revenue expenses. Under Sharing and Payments clause at Serial No. 7 of the said agreement, relevant clause 7.1 and 7.5 are reproduced herein below:

12.5

7.1 Project Consultancy Fees:H&K shall be paid 12% of Total Expenditure including of Service Tax incurred towards execution/completion of the Project/s on accrual basis byUNQ.

Payment to employees done on behalf of unique, Payment to any other agency done on behalf of unique, travel allowance, including tickets, hotel, fooding, Couriers, and Conveyance will not attract any fees by H&K and would be reimbursed at actuals as a pure agent. All above shall be submitted to UNQ on the day of expense and UNQ would pay the invoice within 7 days from date of invoice.

It further appears from Clause 9 (General) of the above referred agreement that the relationship hereby established between the Parties is solely that of independent contractors and this Agreement shall not create an agency, partnership, joint venture or employer-employee relationship, and nothing under this Agreement shall be deemed to authorize either Party to act for, represent, or bind the other Party except as expressly provided in this Agreement.

It appears from the above clauses of the agreement that the service provider and service recipient are not associated with each other and are having separate identity. During the course of audit, the said service provider cited various case laws in which

7.5

12.6

12.7

12

services of employees were procured by associated firms/companies and reimbursement of salary was made. However, in this case it appears that the service provider and the service recipients are distinct identities and therefore they do not qualify as associated firms/companies and therefore their reliance on the said case laws is ill-founded.

12.8 It further appears that as per agreement between the said service provider and service recipient, clause (iv) of Definition part at S. No. 1 mentions that “total expenditure for the Project” shall mean all pay-outs for the Project/s directly or indirectly whether incurred by UNQ or Lessor or any other party for the Project. It is also clarified that all resources/manpower, consultants/agencies recruited/hired for the Project, whether on payroll of H&K or UNQ or any other agency related to the Project shall be charged by H&K to UNQ with the agreed upon mark up and shall be paid by UNQ accordingly. However, for calculation of the mark up fees/remuneration to H&K, the total expenditure shall not include the travelling, lodging and food expenditure incurred for the Project/s. It further appears from clause 7.1 pertaining to Project Consultancy Fees that the said service provider shall be paid 12% of Total Expenditure including of Service Tax, incurred towards execution/completion of the Project/s on accrual basis by UNQ. It appears in view of the above clause (i.e. clause iv of Definition part and clause 7.1 of Project Consultancy Fees) that agreement between the service providerand service recipient clearly exhibits that project consultancy fees will be chargedon total expenditure which includes expenditure of all resources/manpower.consultants/agencies recruited/hired for the Project whether on payroll of H&K orUNO or any other agency related to the Project. It also appears that it shall becharged by the said service provider to the said service recipients with the agreedupon mark up and shall be paid by the service recipient accordingly. The agreementalso provides for Performance Linked Incentive (PLI), over and above theconsultancy charges, which is apart from fee.

It further appears from clause 7.5 of the above referred agreement that payment to employees done on behalf of service recipients, payment to any other agency done on behalf of the service recipients, travel allowance, including tickets, hotel, fooding, Couriers, and Conveyance, will not attract any fees by H&K and would be reimbursed at actuals as a pure agent. However, it appears from this clause that it does not specify that to whose employees, the payment will be done on behalf of servicerecipients. It also appears that clause 7.1 and 7.5 of the said agreement itself are contradictory to each other as mark-up has been decided on total expenditure, definitionresources/manpower/consultancy, etc. Also the assumption that no mark-up was charged by the service provider on certain expenses cannot ipso facto be construed to be the expenses incurred as pure agent in terms of provisions of the Finance Act.

12.9

formadeof which includes all payments

It also appears that the said service provider was issued letter F. No. CEA-12.1011/04-139/CIR-V/AP-XXII/H & K/2016-17 dated 21.08.2017. The said service provider vide letter dated 31.08.2017 replied to the questionnaire sent to them.

Whereas it appears from the questions and respective replies that, as12.11regards “Payment to employees” mentioned in Para 7(a) (III) of the contract, the said service provider has communicated that employees belong to M/s Unique Mercantile India Pvt. Ltd. and the said service provider hires them on their behalf. From the contract entered in between the said service provider and service recipients, scope of work has been clearly defined that the said service provider would use its resources in identifying and assisting the said service recipient in bringing best locations suited for hotels onlease; that the said service provider will provide services for obtaining variouspermissions from Brand and complying with their requests and standard for hotelprojects; that the said service provider will render services for completion of construction

13

of hotel project together with interiors and put it for ready to use for commercial operation etc, along with all required permissions, except plan passing/revision and BU fthe same shall be obtained bv the Leaser and the said service provider will assist ingetting the sameY to run the Hotel: that the said service provider would provide services in identifying and entering into an arrangement for brand tie up or such other facility for the hotel project with reputed hotel chains. It appears from the above scope of work that the entire project is to be executed by the said service provider, except plan passing/revision and BU (which shall be obtained bv the Leaser and for that also the saidservice provider will assist in getting the samel. Taking into consideration the scope and nature of work to be performed by the said service provider, it appears that the employees hired by the said service provider have not worked for the service recipient but for the service provider, during the execution of the project, as the entire execution of the hotel projects was looked after by the said service provider. Hence, it appears that hiring of employees on behalf of the service recipients is only a camouflage to claim that services were used by the service recipient. Further it may be seen from the contract itself that no service of the employees engaged in the projects of the service recipient was directly rendered to the service recipients. It was only by way of integrated and composite nature of services, that the services could be provided by the service provider, i.e. to say that the services of these employees were utilised by the service provider as an integral part of the service of execution of hotel projects for the service recipient. There could not be any artificial bifurcation of value of services rendered by the said provider in absence of utilization of services of the employees by the service recipient. Therefore, it was an integrated and built-in agreement, whereby, various responsibilities were well casted upon the said service provider, which inherently required utilization of the various services and employees, purportedly shown subsequently as reimbursement on ‘pure agent’ basis.

12.12questions as above has clearly indicated that service of employees, other vendors/service providers are received and utilized during the course of execution of the project of M/s Unique Mercantile India Pvt. Ltd. and therefore does not fulfill the conditions for pure agent as laid down under rule 5(2) of Service Tax (Determination of Value) Rules, 2006 as discussed hereinafter.

Whereas it further appears that the said service provider in reply to the

12.13payments initially only for the sake of administrative conveniences as replied in one of the question raised by the department is an afterthought. It appears that the administrative convenience can be on incidental or exceptional basis. Regular payment of Salaries and deduction of TDS, statutory dues like EPF and ESIC from the payments made to the employees on record shows that it was not an administrative convenience but appears to be a modus operandi to evade service tax by not including the salary expenses in the cost of taxable services. Similarly expenses for other services like telephone, travelling, courier, hotel accommodation, etc. and for which payments were made by the provider, were also attempted to be excluded from the gross value of taxable service by citing them to be reimbursed expenses as pure agent. Illustrations given at S. No. II and III in the Explanation 2 to Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 are very much similar to the scope and nature of service provided by the said service provider. They are reproduced here under:

Illustration 2 — In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service.In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable

It further appears that the said service provider claims to have made the

service

14

expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service.

Illustration 3. — A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B.

Further Explanation 1 to Rule 5(2) of the Service Tax (Determination of12.13.1Value) Rules, 2006 defines Pure Agent as:

“Explanation 1. - For the purposes of sub-rule (2), “pure agent” means a person who -

(a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

(c) does not use such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods orservices. ”

From the foregoing it also appears that the said assessee does not qualify as “pure agent”, as conditions (b) & (C) of Explanation 1 above are not fulfilled in as much as, the services of the persons stated to be employed on behalf the service recipient & other services such as telephone, etc. received by the service provider, are actually used by them for the execution of the service of consultancy provided for bringing up Hotel Projects, though they have shown to have entered into contract with the service recipient to act as pure agent and have claimed to have received only the amount incurred for procuring such service.

12.13.2

It further appears that payments made by the said service provider to the employees/vendors/service providers have not been indicated in the invoices issued by them. The same have been claimed separately by issuing debit notes. On being asked about this aspect, no reason for the same has been given even though specifically asked in the questionnaire. It appears that the same has been purposefully done to hide the facts regarding receipt of amounts shown as reimbursement of expenses, from statutory authorities with intent to evade service tax. It further appears that the said service provider, while answering to Question admitted to the fact that the services procured by them from employees/vendors/service providers are for the projects undertaken by them on its account, during the course of execution of respective project. It appears that these services, which are part of the project undertaken by the said service provider, were used by the said service provider only, which a “pure agent” cannot do in terms of explanation 1 to sub-rule (2) of rule (5) of Service Tax (Determination of Value) Rules, 2006. On plain verification of expense sheet attached with Debit Notes raised by the said service provider, it can be seen that the reimbursement has been claimed for wide range of expenses which included Material Shifting/laying and cleaning of site in a particular month, telephone, travelling, petty cash expenses. Petty cash expenses reimbursed,

12.14

15

sinclude purchase of construction material, payments to labour, tempo rent, guest house rents, bike petrol, Paint purchases, etc. It appears to have covered almost all array of expenses incurred by the service provider for execution of the project undertaken, which clearly is not in consonance with the basic concept of pure agent in terms of Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.

It further appears that the said service provider has specifically mentioned12.15in reply to question that they hire staff on behalf of M/s Unique Mercentile India Pvt. Ltd. Hiring of staff for some particular project or in exceptional circumstances or on incidental basis appears to be justified but in the instant case, hiring of each and every employee for execution of the project undertaken by the service provider cannot be said to be hiring of staff on behalf of M/s Unique Mercentile India Pvt. Ltd. Apart from Salary, all other costs, including food, travelling, conveyance, courier expenses have been shown to be claimed as reimbursement by the said service provider, whereas all these services were consumed or used by the said service provider for executing the work for the service recipients. Further, while answering to question “whether M/s H&K have received reimbursement of expenses of Consultant/Contractor, Salary of employees of M/s H&K”, the said service provider has categorically replied that the said reimbursement has been received by H&K. It appears that the said service provider has admitted to the fact that they received reimbursement of salary of their employees or contractors only. It appears that cost of these services procured were part of services provided by the said service provider and the value of which is to be included in the value of taxable services in terms of Section 67 of the Finance Act, 1994 read with Rule 5(1) ofthe Service Tax (Determination of Value) Rules, 2006.

It further appears from the answer to Questions that the said service provider has received the reimbursement of payments made for other expenses like Postage & Courier Exp., Telephone & Internet expenses, Conveyance Expenses, Travelling Expenses, Rent Expenses for Guest House, as if it is the expense of the staff of the service recipients hired through the said service provider. However, it appears to be far from truth, as expenses like payment of rent of guest house which is pre-determined cost and does not require any urgency or intercession, are being paid by the said service provider first and then reimbursement is claimed by them from their service recipient. It further appears from expense sheets attached to the Debit Notes and ledger that invoices of telephone and internet expenses raised by different telephone service companies, travelling expenses, etc. which have been claimed as reimbursement, are in the name of M/s H & K Solutions Pvt. Ltd. Further, while answering to the question “By service providers of services like Telephone & Internet, whether bills of Telephone & Internet Expenses have been raised in name of M/s H&K or M/s UMIPL for which M/s H&K has been working as pure agent?”, the reply of the said service provider is “It has been issued in the name of H&K”. Similarly, while answering to Question “Whether Mobile phone nos. shown under Group: Reimbursement Payment Bangalore (Ledger RE-Telephone & Internet Bangalore) are registered in the name of M/s H&K or their employee’s name? Please confirm the number wise details.”, the reply of the said service provider is “Major are in the name of H&K Solutions Pvt. Ltd. and a few are in the name of employees”. It appears from answers and evidences available on records that M/s H&K Solutions Pvt. Ltd. claimed reimbursement of the expenses of the telephones/mobiles, invoices of which were raised in their names, by the service providers of H&K such as Vodafone, etc. They even received reimbursement of expenses for the so called employees of their service recipients, which were claimed to be hired by M/s H & K Solutions Pvt Ltd on behalf of the recipients. It appears to be unreasonable that they paid the mobile bills which the name of employees of their service recipients and then, claim reimbursement of the same from their service recipients. Moreover, all these services were consumed for the projects, for which they had acted as service provider. The theory presented by them again appears to be far from truth. It is surprising that the said service provider was

12.16

were in

16

-SI

. :.a

simultaneously acting as pure agent, as third party, as hirer of employees, as consultancy service provider. At the cost of repetition, it may be emphasized that it is evident from the contract itself that no service of the employees engaged in the projects of the service recipient was directly rendered to the service recipients. It was only by way of essential and integral nature of contract entered into by the two parties, that the services could be provided by the said service provider, i.e. to say that the services of these employees utilised by the said service provider as an essential integral part of the service of execution of hotel projects for the service recipient.

12.17reimbursement of various expenses incurred by staff of M/s H & K Solutions Pvt. Ltd., though they have not replied in specific, it has been stated by the said service provider that the said expenses have been incurred for the project of M/s Unique Mercantile India Pvt. Ltd., by the employees that have been hired by M/s H & K Solutions Pvt. Ltd. on behalf of service recipients. Their evasive replies appears to be pre-determined effort for not disclosing the fact that they were not working as pure agent and that the provisions of pure agent had artificially been created on paper to suppress the actual gross value charged which had to be declared by them under Section 67 of the Finance Act, 1994. In the guise of pure agent, they have received reimbursement of expenses like Salary, Consultancy Charges, and Telephone/Travelling Expenses from their service recipients.

7

were

It further appears from reply to above referred question regarding

12.18detailed sheets of expenses (on the basis of which they claim reimbursement from their service recipients) and in respect of some of whom IDS, ESIC and PF were deducted at M/s H & K Solutions Pvt. Ltd.’s end, the said service provider was specifically asked as to whether they were employees of M/s H & K Solutions Pvt. Ltd. It appears that reply to this question is again not specific and it has been stated by them that persons in question were hired for the particular project and the same have either resigned or relieved as the project was over. At present, none of the persons are employees of M/s H & K Solutions Pvt. Ltd. as stated by them. It again appears to be a misstatement on their part to suppress the facts. The said service provider further provided the list of employees in respect of which they had deducted EPF and ESIC subscription and deposited with government as shown in Tax Audit Report (Form 3CD). It appears from the list of persons made available by the said service provider that TDS in respect of majority of the employees was deducted at the end of the said Service Provider only. Further, out of these 38 employees, Employee’s State Insurance subscription (ESIS) and Employee’s Provident Fund (EPF) Subscription in respect of Shri Sanjay Rai, Shri Manoj Kumar Gharai, Shri Anil Kumar Nandigam, Shri Lai Mohmmad, Shri Merubhai Chavda, Shri Akash P. Mewada, Shri Bhanu Rana, Shri Harshwardhan Singh Chauhan etc. were found to be deducted at the end of the said service provider only and have been shown in their records. A specimen ledger account showing the deductions, is reproduced herein after:

It further appears that as regards the list of 38 persons who were found in

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Therefore, the claim of the said service provider that the employees were12.18.1hired for the particular project also appears to be contradictory in terms of these evidences on record. It appears that they were employees of the said service provider only for which reimbursement had been made to curtail the gross value of services to be shown by them in their ST-3 returns.

Further, in reply to question, the said service provider has stated that12.19services of various consultants like Khushbu D. Narkhede, Deepk Arjun HUF, Lakkap Somappa Madivalar, Vikas Wagh were procured for the project by service recipient i.e. M/s Unique Mercantile India Pvt. Ltd. It appears that these were regular consultants for the service provider and cannot be treated as incidental costs. They appeared to be working on projects of the said service provider since long. From the ledgers of their works at Bangalore site, even salaries have been paid to Khushbu D. Narkhede, Deepak and others, which again contradicts their claim of pure agent. Further, in their books of accounts, incentives to consultants/contractors by M/s H & K Solutions Pvt. Ltd. have been paid to these consultants. (Question No. 30 and its reply by the said service provider refers). It again appears in contradiction that the said service provider in the capacity of pure agent is paying incentives to contractors/consultants of the service recipients. Therefore it appears that the services of the consultants were in fact utilised by the service provider during the provision of service to the service recipients.

12.20records that reimbursement of expenses have been claimed by the said service provider on expenses incurred by them, for the persons namely Mr.Vikas Wagh, Khushbu D. Narkhede, Deepak Arjun HUF, Lakkapa Somappa Madivalar, who have been claimed to be the consultants of the service recipient. In this regards following questions were asked from the said service provider and respective replies are also reproduced herein below:

Question: There has been reimbursement of expenses in books of account of M/s H&K in respect of Project Consultants/Contractors namely Khushbu D. Narkhede, Deepak Arjun HUF, Lakkapa Somappa Madivalar, VikasWagh. Whether from these consultants are procured by M/s H&K or by service recipients?

Answer: Procured for the project by service recipient.

Question: Salaries have shown to be paid to Khushbu D. Narkhede, Deepak Arjun HUF, Lakkapa Somappa Madivalar for Bangalore site of M/s UMIPL in the books of M/s H&K. Please confirm whether they are on your pay roll as employee or they working as project consultants of M/s H&K?

It further appears that there have been several evidences on financial

services

are

18

Answer: They are working as the consultant/contractor only.

12.20.1https://www.hksolutions.in/people.aspx that in the page “Our People”, Mr.Dipak Narkhede is introduced as General Manager, H&K Solutions Pvt. Limited, Mr.Vikas Wagh as Dy. General Manager, H&K Solutions Pvt. Ltd., Mr. Lakkapa Om as Dy. General Manager (Building Facilities & Services) of H & K Solutions Pvt. Ltd.. Apart from the above, the details of Mr. Sajid Momin, Manager Services, H&K Solutions Pvt. Ltd. and Mr. Pinkesh Mewada, Manager (Planning & QS), H&K Solutions Pvt. Ltd. have also been shown on the said page, both of whom, have been said to be employees of the service recipients as stated by the said service provider. It appears that the said service provider has wilfully mis-stated the facts that consultant/contractors were hired by their service recipients. Apart from this, Mr. Vikas Wagh who is said to be consultant on the reimbursement expense sheet, has signed two contracts entered by the said service provider with Shiv Nadar Foundation on 10th December 2015. It appears that Mr.Vikas N Wagh has signed these contracts in the capacity of DGM on behalf of M/s H&K Solutions Pvt. Ltd.

As it appears from the website of M/s H&K Solution Pvt. Ltd. -

It also appears from the contracts and the transactions in their financial12.21records that the said service provider has intentionally planned to show some part of the contract price as ‘reimbursement of expenses’ and to further claim it as non-taxable receipts, when incurring of the said expenses is towards performance of the contract itself. In this context, the scope of the work in terms of the agreement /works order is of much relevance. M/s H&K Solutions Pvt. Ltd. has in fact executed the entire worksusing the resources at his command, including the employees stated to be hired for the service recipient and other services such as telephone, courier, postage, etc. It appears that it is the substance of the transaction which matters and the real character of the transaction cannot be cloaked under the nomenclature of “reimbursement”. It also appears that transaction by the said service provider is one of the rendering services and the said service provider cannot articulate that expenses incurred to render the service are reimbursement as pure agent. In line of scope and nature of services rendered by them, the said service provider cannot claim that these reimbursable expenses, nature of which itself presents that these have been part of service element, does not represent cost of expenditure for services rendered by them. It further appears that their further claim/standoff not getting mark up over these expenses also appears to be superfluous. This is for the reason that the said service provider has already been receiving a mark-up of 12% over and above certain expenses in lieu of services which cannot be completed without utilising the said services claimed purportedly showing as pure agent. It’s a camouflage to show mark-up only on certain expenditures leaving behind a major part of services intentionally to evade service tax. It is evidently clear from the plain reading of contract itself that the said service provider is bound to use its resources in identifying and assisting the said service recipient in bringing best locations suited for hotels onlease: for obtaining various nermissions from Brand and complying with their requestsand standard for hotel projects: rendering services for completion of construction of hotelproject together with interiors and put it for ready to use for commercial operation etc.Further, it is clear from the agreement that the said provider utilizes various services of itsemployees and vendors to discharge its responsibility as cast upon it vide the aboveagreement. However, it has intentionally shown mark up over certain expenses only so asto escape the liability of service tax upon major expenses. It appears to be a miscalculatedattempt on part of the said service provided since the agreement itself has manifestedevidently the provision of these services (purportedly shown as reimbursement) asprimary ingredient in discharging responsibility and providing services by the saidservice provider in terms of the agreement.

Taking into account self-assessment era, where disclosure of correct taxable12.22value is the responsibility of the said service provider, it was their prime duty to disclose

19

https://www.hksolutions.in/people.aspx

ft.this reimbursable expenditure in gross revenue. Instead, it appears that they intentionally showed it in their current assets so that it could not be detected at different levels of statutory verifications. In terms of Accounting Standard-9 issued under the supervision' and control of Accounting Standard Board (ASB), revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering the services and from the use by others of enterprise resources yielding interest, royalties and dividends. Revenue is measured by the charges made to customers or clients for goods supplied and services rendered by them and by the charges and rewards arising from the use of resources by them. The said service provider has failed to follow the concept of disclosing gross revenue which could have presented clear and transparent picture of their financial records but they did not have intention for the same. Further, in terms of Accounting Standards-1, the major considerations governing the selection and application of accounting policies includes substance over form. As per this principle, the accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by the legal form. It appears that the said service providers has not followed this principle and selected and applied accounting policies vaguely. Even none of such deviation on part of the said service provider was ever stated by the auditors in the notes to accounts, thus hiding substantial disclosure. Keeping this into consideration, it was their obligatory duty in terms of accounting that they should have disclosed the correct facts in their financial statements. Instead of showing gross receipts and payments, they adopted net accounting method with intent to evade service tax. This dubious accounting practices adopted by the service provider assisted them in concealing the exact nature of revenue earned by them, which also made it difficult for the statutory authorities and the auditors of the Central Excise and service tax department to unveil the same.

It also appears on verification of ST-3 Returns filed by the said service12.23provider that they are required to declare Value of Taxable Service and Service tax Payable in Part B of the Service Tax Return. In the column at B 1.1, the service provider has to declare Gross Amount (excluding amounts received in advance, amounts taxable on receipt basis, for which bills/invoices/challans or any other documents may not have been issued) for which bills/invoices/challans or any other documents are issued relating to service provided or to be provided (including export of service and exempted service). After arriving at Gross Taxable Amount, at B 1.7 (including other considerations at B 1.2 toB 1.6) there is a specific column at S.No. B1.10 under which amount charged as Pure Agent has to be mentioned and subsequently to be deducted from Gross Taxable Amount to arrive at Taxable Value of Services. It appears that the said service provider neither included the reimbursed receipts in their gross value nor declared amount charged as pure agent in their ST-3 Returns with the intent not to disclose the facts. Simultaneously, showing reimbursable expenses in current assets also appears to be pre-determined effort to not disclose the facts to statutory authorities.

12.24travelling expenses etc., claimed & received by M/s H & K Solutions Pvt. Ltd., as reimbursement, are required to be included in the taxable value in terms of Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 as the said services have been used by the said service provider in the projects undertaken by their company for M/s Unique Mercantile India Pvt. Ltd. (and its associated companies). Reimbursements of expenses received are of two types. One type are those which are not part of the services provided, but paid for administrative convenience and then recovered from the service recipient - e.g. port expenses incurred by the CHA, air ticket charges paid by the travel agent, advertisement bill paid by advertising agency, etc. These are not part of the value of service, in as much they are not incurred/used for the provision of the main service provided by the service provider. Other type of expenses are such that they are part of the

It appears that the expenses of salary, postage, telephone expenses,

20

service and indeed service cannot be provided without such expenses, e.g. salary to the staff engaged in the provision of service, travelling/boarding/lodging expenses of such staff, out of pocket expenses to the auditors, consultants, etc. Therefore salary paid by the service provider to the staff directly involved in the execution of the project/provision of service; ownership of telephone/intemet services in the name of the service provider as shown in the invoices, association of various employees with the company (service provider) are enough indicative factors/reasons which establishes the fact that the expenses incurred were not purely of reimbursable nature and they are part of the service and indeed service cannot be provided without such expenses. The said service provider has nowhere disclosed the facts with regard to reimbursement of the various expenses on the invoices issued by their company and showed the same separately by way of issuing debit notes and thereby suppressing receipts of the said amounts in their ST -3 returns.

In view of the above, it appears that reimbursement of expenses received by12.25M/s H & K Solutions Pvt. Ltd., the said service provider, claimed to be received as pure agent, do not satisfy conditions laid down in sub-rule (2) of Rule 5 of Service Tax (Determination of Value) Rules, 2006 and they are liable to be included in gross value of taxable services provided by the said service provider. It is also pertinent to mention that w.e.f. 14.05.2015, an explanation a (ii) has been inserted in to the definition of ‘consideration’, which reads as under:

a) [“consideration ” includes


12.25.1charged will be part of ‘value’ for levy of service tax. These will not be included only if the conditions of‘pure agent’ are satisfied.

Thus all reimbursable expenditure or cost incurred by service provider and

12.26agreement entered into between the said service provider and M/s Unique Mercantile India Pvt. Ltd. (and its associated companies) cannot be said as fulfillment of all the conditions as stipulated in sub-rule (2) of Rule (5) of Service Tax (Determination of Value) Rules, 2006. Sub-rule (2) stipulates that subject to sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service, if all the eight conditions given therein are satisfied.

It appears that merely an inclusion of the clause of “Pure Agent” in the

12.27service provider has not fulfilled all the conditions laid down in sub-rule (2) of Rule 5 of the rules supra in as much as:

From the foregoing discussions and averments, it’s quite evident that the

i. The service provider has not acted as pure agent of the recipient of the service while making payments to the employees superfluously claimed to be hired by them for the service recipients and the telephone/mobile bills, travelling/courier/postage expenses, etc., in which case most of the bills were in the name of the service provider. Further, the payment of salaries, deductions of TDS, EPF, ESIC, etc. by the said service provider at their end also is evidentiary of the fact the payments made for the services of employees was not as a pure agent.

21

The recipients of the service (M/s. Unique & its associates) have neither directly received nor used the various services procured by the service provider. In fact the services were received and used by the service provider. The said service provider utilized different services to provide services in turn to the service recipient in accordance with the agreement.

n.

In this case the recipient of the service was not liable to make payments to the third parties, in as much as the invoices of third parties were in the name of the service provider and the services were also received and utilized by the service provider. The staff was also employed by the service provider and used for the execution of different projects by them.

m.

In this case though the recipient is shown to have authorized the service provider in the works order/agreement, it is evident that the various services for which so called authority for payment is given were neither received or used by the recipient directly and therefore such terms in the works order/agreement were only a camouflage to exclude certain payments from the purview of gross amount charged for the provision of the service.

iv.

The recipient of the services though may be stated to be aware that certain services like telephone, postage/courier, etc. were provided by the third party, the fact that the said services were in fact received and used by the service provider for further discharging their responsibility in terms of the agreement, cannot be vitiated.

v.

In this case the payments made by the service provider shown to be made on behalf of the recipient of service were not separately mentioned in the invoices issued by the service provider and the same were shown to be reimbursed by issuing debit notes.

vi.

In this case it is claimed that no mark ups on certain services have been claimed. However, having mark up over certain expenses and excluding the others irrespective of the fact that all such expenses were interlinked essentially for provision of primary services, does not entitle the assessee to claim “pure agent” on such certain reimbursed expenses.

vn.

In this case the condition that the goods or services procured by the service provider from the third party as a pure agent of the recipient of the service are in addition to the services he provides on his own account, is vitiated in as much as, as discussed supra the services of employees and other services such as telephone, hotel accommodation, travelling etc. were received and used by the service provider for the provision of the service of consultant for various hotel projects and are integral part of the service provided by them and without which the service could not have been provided.

vm.

12.28provider has not acted as a ‘pure agent’ for the service recipient within the meaning provided in Explanation 1 to Rule 5(2) of the Valuation Rules. They have further not fulfilled the conditions detailed in Rule 5(2) of the Valuation Rules. It is beyond doubt that in order to exclude expenditure or costs incurred by the service provider, he should have acted as a pure agent and the conditions detailed in Rule 5(2) of the Valuation Rules were required to be followed in principle. The benefits are considerable and substantial and therefore, conditions have to necessarily be fulfilled in order to exclude the costs and expenditure, which is not the case here. Therefore, there is no question of excluding any amount from the total taxable value received by the service provider from the service recipient on any count. This being the case, all costs and expenditure incurred by the

From the above facts and discussions, it is established that the service

22

service provider shall form part of the consideration for taxable service and would be includible in the value for charging service tax, as per the express provisions of Rule 5(1) of the Valuation Rules read with Explanation 2 to Rule 5(2) of the Valuation Rules.

12.29Rules are very explicit and substantive provisions for consideration of cost and expenditure incurred for the purpose of determining value and levy under Service Tax. The provisions of the Rules are well laid down. The Rules set out clear, specific and unambiguous conditions. Therefore, these provisions cannot be side lined and ignored and have to be followed in the right spirit, letter and text, as provided. The following rulings dwell on the same lines and are cited for support:

The following passage from the opinion of Late Rowlatt. J. in Cape Brabdy Syndicate vs. Inland Revenue Commissioners, 1921 (1) KB 64, 71 has become the locus classicus and has been quoted with approval in a number of decisions of the Hon’hie Supreme Court.

“...An a taxing act one has to look merely at what is clearly said. There is no room for any intendment. There is no enquiry about tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the Language used. ”

12.31 Therefore the service provider ought to have included all the expenses shown to be received as reimbursement in the guise of pure agent, to arrive at the gross taxable value.

It is to mention that the provisions of Rules 5(1) and 5(2) of the Valuation

12.30

Further, details for Financial Years 2012-13, 2013-14 and 2016-17 were12.32called for. The said service provider has furnished these details vide two letters both dated 04.10.2017. Accordingly, details of debit notes issued by the said service provider to the respective service recipients for the period from 2012-13 to 2015-16 for reimbursement expenses has been prepared. For the F.Y. 2016-17, on the basis of provisional Trial Balance and undertaking furnished by the said service providers, no reimbursement of expenses appeared to be claimed. The total Service Tax Payable but not paid by the said service provider by not including the amounts shown as reimbursement of certain expenses as discussed supra, during the period 2012-13 to 2015-16 is ascertained as follows:

(Figures in Rs.)Financial

YearGross

TaxableValue

ServiceTax

S.H.Edu.Cess

SwachchBharat

Cess

EducationCess

Total

2012-13 11629983 1395598 1395627912 0 14374662013-14 18873499 2264820 45296 22648 0 23327652014-15 20457609 2454913 49098 24549 0 25285602015-16 11398764 1535257 7268 3634 19084 1565243

62359855TOTAL 7650588 129575 64788 19084 7864034

In view of the above, it appears that the said service provider is required to12.33pay, a sum of Rs.78,64,034/-, under proviso to section 73 of the Finance Act, 1994. They are accordingly required to pay interest at applicable rates under Section 75 of the Finance Act, 1994 and also liable to penalty under provisions of Section 76 and/or 78 of the Finance Act, 1994 for non-payment of service tax with intent to evade payment oftax.

It further appears that the said service provider has paid Service Tax12.34amounting to Rs. 22,50,410/- vide challan No. 8004 dated 03.10.2017 and Rs. 1375693/- vide challan no. 8005 dated 03.10.2017 for Financial Years 2014-15 and 2015-16respectively by availing the benefit of cum-tax value in terms of Section 67(2) of the

23

Finance Act, 1994, under protest. Further, they have not paid any interest or penalty on above amount of service tax paid.

As regards payment of service tax by the said service provider on cum-tax12.35value, attention is invited to Section 67(2) of the Finance Act, 1994 reads as under:

“Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. ”

Taking into consideration Section 67(2) of the Finance Act, 1994, the said12.36service provider is required to pay service tax on gross value received by them. They cannot pay the same on back calculations taking into account cum-tax value as they had intentionally not disclosed the same at relevant time. It further appears contradiction in stand taken by the said service provider at the time of the audit proceedings that they are not liable to pay any service tax on reimbursed expenses. It is a deemed fact that whatever they have claimed as reimbursement from their service recipients did not include the element of service tax. The gross value received by them was not inclusive of service tax as they did not charge the same from the recipients of service. On raising the audit point, the said service provider claims the same as gross value inclusive of service tax which itself is contradictory. Hence, taking into account the mis-statement and suppression on their part, cum-tax value appear to be not acceptable and the said service provider is required to pay applicable service tax on the gross value of total reimbursed expenses. Similar view has been taken in the following judgments:

(1) Amrit Agro Industries vs. CCE Ghaziabad 2007 (210) ELT 183 (SC)(2) DhillonKool Drinks & Beverages Ltd. vs CCE Jalandhar - 2011(263) ELT241(T).(3) Asain Alloys Ltd. Vs CCE Delhi III - 2006(203)ELT 252(4) Sarla Polyster Ltd. vs CCE Surat II2008 (222) ELT 376(5) Shakti Motors Vs Commissioner of Service Tax, Ahmedabad - 2008 (12) STR

710 (Tri-Ahmd)

13. Non-payment of Service Tax on services provided as an Intermediary:

During the course of audit of records of M/s H & K Solutions Pvt. Ltd., it was noticed from ledgers/financial records that the said service provider has provided services as intermediary to two foreign entities viz. M/s Quality Personnel, LLP, Kazakhstan and M/s Techno International Limited, UAE, by way of facilitation of payments. In the service agreement with both the foreign entities. M/s H&K Solutions Pvt. Ltd. has agreed to act as an intermediary for disbursing the consideration on behalf of the Contractee i.e. M/s Quality Personnel LLP. In consideration of the same, the said service provider has also recovered “confirmation fees”, as intermediary which falls under the category of taxable services. Total confirmation fees received during the Financial Years 2014-15 and 2015-16 is Rs. 25,05,663/-.

13.1

13.2 In terms of Rule 9 of Place of Provision of Services Rules, 2012, the place of provision of service in case of Intermediary Services will be the location of service provider. Further, as per sub-section (2) of Section 66C of Finance Act, 1994, any rule made under sub section (1) shall not be invalid merely on the ground that either the service provider or the service receiver or both are located at a place being outside the taxable territory.

13.3 Accordingly, M/s H&K Solutions Pvt. Ltd., the said service provider is required to pay Service Tax (including Cesses) amounting to Rs. 85,280/- and Rs. 254197/- (Total Amount Rs. 3,39,477/- ) on confirmation fees received (i.e. total taxable

24

value of services) of Rs. 25,05,663/- for Financial Year 2014-15 and 2015-16. They are also required to pay Service Tax (including Cesses) amounting to Rs. 1,13,138/- on confirmation fees received i.e. total taxable value of services of Rs. 9,15,338/- for Financial Year 2013-14. The above mentioned service tax is required to be paid along with applicable interest in terms of provisions of Section 73 and section 75 of the Finance Act, 1994. No receipt of confirmation fees have appeared to be shown in respect of Financial Year 2012-13 and 2016-17 on their financial records.

M/s H & K Solutions Pvt Ltd. agreed with the audit point raised and they have willingly paid total service tax of Rs. 2,98,879/- along with Interest of Rs. 1,25,889/- and Penalty@15% of Rs. 44,832/- taking into consideration cum-tax value for the Financial Year 2014-15 and 2015-16 vide Challan No. 80024 dated 29.09.2017 for total amount of Rs. 4,69,600/- received. They have also willingly paid Service Tax amounting to Rs. 1,00,693/-, Interest of Rs. 77156/- and Penalty @15% amounting to Rs. 15,104/- vide challan no. 80025 dated 29.09.2017, on cum-tax value in respect of confirmation fees received amounting to Rs. 9,15,358/- in the F.Y. 2013-14. Since they have taken into consideration cum-tax value for the same, the same is not acceptable, as discussed hereinabove. Therefore, they are required to pay total service tax of Rs. 4,52,615/- in terms of Section 73(1) of the Finance Act, 1994.

13.4

Ineligible Cenvat Credit availed on service tax paid on import of services.14.which were never received;

It also appears that the said service provider has taken Cenvat credit of Rs. 15,45,000/- (Service Tax-Rs. 15,00,000/- plus Education Cess-Rs. 30,000/- and S.H. Education Cess- Rs. 15000/-) in the year 2014-15 on import of services. These services were supposed to be received by them from M/s Desert Queen General Trading LLC but was not received in actual. The said credit was subsequently utilized by them also. M/s H & K Solutions Pvt. Ltd. had made provision for the same in their financial accounts. Subsequently, they had shown consultancy charges in ST-3 return for the period of Oct- March, 2014-15 and have paid service tax of Rs. 15,45,000/- on import of services as service receiver vide Challan No. 80075 dated 09.12.2014 for Rs. 17,55,543/- which included interest of Rs. 2,10,543/- also. The said challan had been shown for payment of service tax, Education Cess and S.H. Education Cess as cash payment in ST-3 Return for the period October-March, 2014-15. Simultaneously, Cenvat Credit for Service Tax of Rs. 15,00,000/-, Education Cess of Rs. 30,000/- and S.H. Education Cess of Rs. 15,000/- is being reflected in the same ST-3 Return as taken. Subsequently, they have also utilized the same credit as evident from ST-3 returns filed by them.

14.1

In terms of rule 2(1) of Cenvat Credit Rules, 2004, ‘input service’ means any service used by provider of output service for providing an output service. Further, Rule 3(1) of CCR, 2004 also stipulates that a provider of output service shall be allowed to take credit of specified duties/cess/tax paid on any input service received by the provider of output service. No such services have been received by M/s H & K Solutions Pvt. Ltd. for which they have taken Cenvat credit. Hence, the said service provider is not eligible for Cenvat credit of the Service Tax, Education Cess, S.H. Education Cess paid amounting to Rs. 15,45,000/- and are required to reverse/pay the same under rule 14 of Cenvat Credit Rules, 2004 along with applicable interest. On being pointed out, they have communicated vide their letter dated 29th September, 2017 that they made the said payment through oversight and they were required to adjust the amount paid by them by virtue of Rule 6(3) or Rule 6(4A) of Service Tax Rules, 1994. They have also submitted that there is no loss to the department and instead of adjusting in Part D-F4 or Part D- F5, they adjusted from Part D F2 in their ST-3 Returns.

14.2

25

Rule 6(3) of Service Tax Rules, 1994 stipulates provisions regarding service provider who has issued an invoice or received any payment. In instant case, M/s H & K Solutions Pvt. Ltd. has paid service tax as service recipient. Further, Rule 6(4A) of Service Tax Rules, 1994 also speaks with reference to Rule 6(4) as per which also, M/s H & K Solutions Pvt. Ltd. does not fall in that category. Further, rule 6(4) also envisages regarding adjusting service tax liability for the succeeding month/quarter. Hence, M/s H & K Solutions Pvt. Ltd., the said service provider are required to reverse/pay wrongly availed and utilized Cenvat credit of Rs. 15,45,000/- under rule 14 of Cenvat Credit Rules, 2004 along with applicable interest.

14.3

In view of the above, it appears that M/s H & K Solutions Pvt. Ltd. have not/short paid service tax and/or have not reversed wrongly availed Cenvat credit on account of (i) non-inclusion of reimbursable expenditures in cost of services in guise of pure agent ; (ii) non-payment of service tax on Intermediary service provided by them and (iii) Availing ineligible Cenvat Credit of service tax paid on import of services, which were not received. In all the above audit observations, it appears that the said service provider, by way of mis-statement and suppression of facts had the intent to evade service tax.

15.

It further appears that the said service provider was asked to submit the documents for audit vide letter dated 15.07.2016 and the documents were furnished by the said service provider on 27.12.2016. Auditors of erstwhile Central Excise & Service Tax, Commissionerate-Audit-II, C. Excise & Service Tax, Ahmedabad visited the premises of the said service provider on 10.01.2017, 16.01.2017 and 24.01.2017 to procure the documents for examination and verification. It further appears that the audit party asked for certain documents during their visit on 24.01.2017 which the service provider failed to produce. The said service provider vide letters dated 17.02.2017, 15.03.2017, 06.04.2017 and 19.05.2017, was asked to make available the documents namely Contract Copy, sub-contract copy, Ledger A/c with corresponding income invoices along with abstract work-sheets for the different taxable services provided and import of service; Ledger a/c of reimbursement Payment shown under the head of other current assets with supporting invoices raised with invoices of expenses incurred; Gross value of abatement/exemption claimed for the service provided with supporting documents and records; Service Tax receivable ledger a/c along with input invoices; Service Tax Payable Ledger a/c and Service Tax Paid Ledger a/c. The said service provider provided these documents after considerable lapse of time on 05.09.2017. It appears that all these facts available on records substantiates that the said service provider intentionally tried to prolong the audit proceedings as they had already willfully misstated and suppressed facts with the intent to evade the service tax.

16.

17. Whereas it also appears that the said service provider has contravened the provisions of Section 67 read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006, Section 68 & 70 of the Finance Act, 1994 and Rule 6 and Rule 7 of the Service Tax Rules, 1994 as detailed below:

(i) they have contravened Section 67 of the Finance Act, 1994 read with Rule 5 of the Rules ibid in as much as they have failed to self-assess their Service Tax Liability at the specified rates and in such manner and within such period as discussed supra;

(ii) they have contravened Section 68 of the Finance Act, 1994 in as much as they failed to pay the service Tax to the credit of the Central Government, by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services;

26

(iii) they have contravened Section 70 of the Finance Act, 1994 in as much as they failed to submit a correct half-yearly return incorporating the details of the Service Tax discussed supra, along with a copy of the Challan in form GAR-7, in triplicate for the months covered in the half-yearly returns;

18. Further, the said assessee had at no point of time declared that they were getting reimbursement of expenses as pure agent; receiving confirmation fees for providing services as intermediary and have availed ineligible Cenvat credit for the services which were not received by them. Thus, they have willfully suppressed the facts and mis-stated by way of filing the returns, not disclosing the full facts with intent to evade the payment of Service Tax.

Therefore, in view of the above, it appeared that service tax amounting to Rs. 78,64,034/-, not paid on the amounts shown as reimbursed expenses, for the period from 1st April, 2012 to 31st March, 2017 is required to be demanded and recovered from them by invoking extended period under the proviso to Section 73(1) of the Finance Act, 1994.

19.1

It further appeared that on confirmation fees recovered by the said service provider, total Service Tax amounting toRs. 4,52,615/-, for the period from 1st April, 2012 to 31st March, 2017 is required to be demanded and recovered from them by invoking extended period under the proviso to Section 73(1) of the Finance Act, 1994.

It also appears that ineligible Cenvat credit availed on import of services, which were not received by the said service provider, the same amounting to Rs. 15,45,000/-, is required to be demanded and recovered from them by invoking extended period under the proviso to Section 73(1) of the Finance Act, 1994readwith Rule 14 of Cenvat Credit Rules, 2004.

19.2

19.3

It also appears that interest at the applicable rate on the Service Tax not paid as discussed above is required to be demanded and recovered from the said service provider under the provisions of Section 75 of the Finance Act, 1994. Interest is also required to be recovered on the Cenvat Credit wrongly availed in terms of Section 75 of the Act ibid read with Rule 14 of the Cenvat Credit Rules, 2004.

It also appears that the said service provider have rendered themselves liable for the penal action under the provisions of Section76 and/or Section 78 of the Finance Act, 1994 read with Rule 15 of Cenvat Credit Rules, 2004, since their acts of omission & commission of various provisions of the Finance Act, 1994 and Cenvat Credit Rules, 2004 as discussed supra are committed with an intent to evade payment of service tax by adopting suppression and misstatement of the facts. They have also rendered themselves liable to penal provisions under Section 77 of the act ibid.

It appears from the discussion supra, that the noticee had at no point of time brought it to the notice of the department that they have collected certain amounts as reimbursement of expenses and not included the same in the assessable value, even though they were fully aware of the fact that they had not acted as pure agent and therefore the amounts were required to be included in the value of the taxable services provided by them. They also deliberately did not show in the ST-3 returns filed by them, that certain amounts were claimed to be received as pure agent, though specific provision for declaration of the same are made in the ST-3 returns. The amounts claimed as reimbursement was also not shown in the invoices issued by the service provider and instead the same was claimed by issuing debit notes to deter easy detection by the statutory authorities including the auditors of Central Excise & Service Tax Department. All these clearly show the audacity of the service provider to suppress the facts from the department with intent to evade payment of tax. Similarly they received amounts against intermediary service provided by them, however they had not paid service tax on the

20.

21.

22.

27

amounts so received and this fact also was never brought to the notice of the department. Further the wrong availing of Cenvat Credit on the services which were never received by them was also not disclosed. Thus, they have willfully suppressed the facts by way of not declaring the same while filing the ST-3 returns or in any other manner to the department. The said service provider is a big company of long standing, registered with the service tax department for long and therefore they ought to be fully aware of the provisions of law, which they willfully flouted with intent to evade payment of service tax. Had the audit not been carried out, evasion of Service Tax would have not come to the light of the department.

Whereas, it had been observed on verification of documents furnished by the said service provider that in sub-head: “Reimbursement Payment” under the head of “Other Current Assets” in the Trial Balance for F.Y. 2014-15 and 2015-16. On detailed scrutiny of “Reimbursement Payment” ledgers called for from the said service provider, it was observed that they had shown reimbursement of Salary, Postage & Courier, Telephone & Internet, Conveyance Expenses, Consultant/Contractor etc., in their books of accounts from their service recipients. As regards specific head of “Reimbursement Payment” under current assets in Balance Sheet, it appears that the said service provider intentionally did not disclose the said expenses in their gross income and gross expenditure side in their Profit & Loss A/c. The said service provider has failed to follow the concept of disclosing gross revenue in terms of Accounting Standard-9, which could have presented clear and transparent picture of their financial records, but they deliberately suppressed their correct revenue by resorting to dubious accounting practices, and they also did not follow the principle of Accounting Standard 1 which emphasis that the accounting practices should be governed by their substance and not merely by the legal form.

23.

The said non-disclosure of reimbursement could be detected only after the auditors asked for the gross Trial Balance with details of transactions total on debit and credit side. Thereafter, the nature of these transactions was further verified from their Debit Notes, Certificate of Payments, re-imbursement expenses ledger, etc. and only after detailed scrutiny of these documents, the modus of the said service provider have been detected. Incorporating “Reimbursement Payments” on the Current Assets in the Balance Sheet itself indicates that they had pre-determined mind to conceal receipts and payments of these transactions from auditors of Central Excise and Service Tax.

It further appears that payments made by the said service provider to the employees/vendors/service providers have not been indicated in the invoices issued by them. The same have been claimed separately by issuing debit notes. Also the amounts claimed to be received as “Pure Agent” has not been reflected in their ST-3 returns despite specific provisions for disclosure of the same.

Further the assessee vide their letter dated 04.10.2017 has contended that for the period prior to 01.04.2014 the audit was concluded by the department and since no objection in the matter was raised at the material time they continued with practice.

23.1

23.2

23.3

same

23.4 At the outset, it is to state that audit conducted for the previous period is no bar for invoking extended period. Whether the normal period or extended period of limitation is applicable has to be appreciated in light of the statuette and previous audit is not a factor stipulated in the statuette. The statuette clearly provides that extended period is applicable if the ingredients such as fraud, suppression, wilful mis-statement, etc. as specified in proviso to Section 73(1) of the Finance Act, 1994 come into play. Further it need not be emphasized that the audit conducted by the officers of Revenue department are based on the principals of Test Checks and each and every document maintained by the assessee is not checked at the time of audit. In the instant case, it appears that the

have adopted dubious accounting practice by way of which they have managedassessee

28

•■V

to conceal the exact nature of the transactions and the revenue earned by them on account of provision of services. In fact, it was only by way of such practice that the assessee escaped the lens of the previous auditors. The factual position was unveiled only on studying gross Trial Balance and tracing the roots of such transactions by examining the respective ledgers along with the actual documents of the assessee. Further, there is nothing on record evidencing that all the relevant documents including the Gross Trial Balance had been produced before the previous auditors. Even assuming, for the sake of argument, that such documents had been produced, the assessee by resorting to dubious accounting practice, had hood-winked the previous auditors which clearly show mala fide intent on their part. Further, Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 casts an onus on the assessee to correctly assess their tax liability and reflect the same in their ST-3 returns. In the instant case, the assessee have failed to reflect the correct taxable value, by way of suppressing the income shown as ‘reimbursable expenses’, in their ST-3 returns. Thus, in the instant case it appears that the ingredients as specified under proviso to Sec. 73 of Finance Act, 1994 are fulfilled and as such the issue of unit having been audited previously does not take away the extended period from the department.

23.5 The above view is also held in following judgments/orders:

(i) Chemfab Alkalis Vs CCE Pondichary -2010 (251) ELT 264 (Tri - Chennai. Held:

“Audit parties visit all excisable units from time to time - Their visit cannot mean that extended period will not apply in respect of any unit, as that would render provision regarding extended period totally redundant - Section 11A of Central Excise Act, 1944. [para 6]”.

(ii) HCL Technology Ltd. - 2010 (254) ELT 175 (Tri. Del) -Held:

“5. As regards the applicability of longer limitation period, it is not the Appellant’s case that the supplier’s invoices on the basis of which Cenvat credit has been enclosed with the ST-3 returns. Without invoices, it is extremely difficult to the concerned central excise officer to know as to whether the Cenvat credit had been correctly taken. The Appellant’s plea is that the unit had been audited does not prove that the Departmental officers had knowledge about the Cenvat credit, as the audits by the internal audit parties of the department or the C&AG are only test checks in which hundred percent records are not checked. In view of these circumstances, we are of the prima facie view that the longer limitation period has been correctly invoked. ”

(iii) Collector Of C. Ex., Aurangabad Vs Tigrania Metal& Steel Industries - 2001 (132) ELT 103. Held:

“Suppression of material facts - Mere visit of Department’s Audit party to the factory of Respondents not enough to infer Revenue’s knowledge about the wrongful availment of benefit under Notification No. 208/83-C.E., dated 1-8- 1983 by Respondents - Respondents having availed the benefit under Notification ibid, had the burden to prove Revenue’s knowledge which they failed to discharge ”

(iv) Jaishri Engineering Co. (P) Ltd. Vs Collector of C. Ex. - 1989 (40) E.L.T. 214 (S.C.)-Held:

29

The fact that the Department visited the factory of the appellant and they should have been aware of the production of the goods in question, were no reason for the appellant not to truly and properly to describe these goods. As a matter of fact, not only did the appellant, as found by the Tribunal, described these goods properly but also gave a misleading description.

The Government has from the very beginning placed full trust on the Service providers/manufacturers and accordingly measures like self-assessments, etc., based on mutual trust and confidence are in place. Further, they are not required to maintain any statutory or separate records under the provisions of Central Excise/Finance Act and Rules framed there under, as considerable amount of trust is placed on them and private records maintained by them, for normal business purposes are accepted, practically for all the purposes. All these operate on the basis of honesty of the manufacturer/service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on them.

24.

Moreover in the present regime of liberalization, self-assessment and filing of ER - l/ST-3 returns online, no documents whatsoever are submitted by the assessee to the department and therefore the department would come to know about such of nonpayment of tax / wrong availment of Cenvat credit only during audit or preventive/other checks. As the service tax as detailed supra has been not paid in contravention of the provisions of the Finance Act, 1994 by resorting to suppression & misrepresentation, the same is required to be demanded & recovered from them under proviso of Section 73 of the Finance Act, 1994, by invoking extended period. Also the Cenvat credit wrongly availed is required to be demanded & recovered from them under proviso of Section 73 of the act ibid read with Rule 14 of the Cenvat Credit Rules, 2004. In the case of Mahavir Plastics versus CCE Mumbai, - 2010 (255) ELT 241, it has been held that if facts are gathered by department in subsequent investigation extended period can be invoked. In 2009 (23) STT 275, in case of Lalit Enterprises v CST Chennai, it is held that extended period can be invoked when department came to know of Service charges received by appellant on verification of his accounts. Interest at the appropriate rate is also required to be recovered from them under Section 75 of the act ibid. All the above mentioned acts of contravention of the provisions of the Finance Act on the part of the assessee have been committed with intent to evade payment of duty and thereby they have rendered themselves liable for penalty under Section 76 and/ or Section 78 of the Finance Act, 1994, read with rule 15 of the Cenvat Credit Rules where applicable. They are also liable to penalty under Section 77 of the Act ibid.

The provisions of the repealed Central Excise Act, 1944, and amendment of the Finance Act, 1994 have been saved vide Section 174(2) of the COST Act, 2017 and therefore the provisions of the said repealed/amended Acts and Rules made thereunder are enforced for the purpose of this notice.

Records of M/s. H&K Solutions Pvt. Ltd., Ahmedabad were audited by the officers of the erstwhile Audit-II, Commissionerate, Ahmedabad. It was earlier registered under the Jurisdiction of the Commissioner of Service Tax, Ahmedabad. Consequent to the issue of the Notification No. 12/2017 Central Excise (NT) to 14/2017 Central Excise (NT) all dated 09.06.2017, appointing the officers of various ranks as Central Excise officers & reallocating the jurisdiction of the Central Excise Officers and Trade Notice No. 001/2017 dated 16.06.2017 issued by the Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone, the said assessee is now registered under the Jurisdiction of the Commissioner, Central Goods and Service Tax, Ahmedabad South.

The audit points in consideration were discussed in detail with Shri Ashish Handa, Director of the unit, Shri Ninad Patel, Accounts Executive of the unit & Shri

25.

26.

27.

28.

30

Monish Bhalla, their consultant on 20.09.2017 & 26.09.2017, in presence of Joint Commissioner & Superintendent AP-XXVI, Circle-IV. As pre-consultation was done before issue of SCN, no further consultation in terms of instruction issued by the CBEC, New Delhi, from F.No.l080/09/DLA/MISC/15 dated 21.12.2015, F.N0.IO8O/DLA/CC Conference/2016 dated 13.10.2016 and Master Circular No. 1053/02/2017-CX dated 10.03.2017, was provided.

Therefore, M/s H & K Solutions Pvt. Ltd., 719, 7th Floor, Venus Atlantis, 100 Ft. Ring Road, Prahladnagar, Ahmedabad-380 015, vide SCN dated 23.10.2017, issued by the Joint Commissioner of Central Tax Audit, Ahmedabad, from File No. VI/l(d)/CTA/07/Cir-IV/H&K-SCN/17-18 read with corrigendum (for address purpose) dated 15.02.2018, were called upon to show cause, to the Additional Commissioner/Joint Commissioner, Central GST, Ahmedabad South Commissionerate having his office at Central GST Bhavan, Rajaswa Marg, Opp. Politechnic, Ambawadi, Ahmedabad - 380015, as to why: -

29.

Service Tax along with Education Cess, Secondary & Higher Education Cess and Swachch Bharat Cess of Rs. 78,64,034/- (Rs. Seventy Eight Lakhs Sixty Four Thousand and Thirty Four only) in total, should not be demanded and recovered from them under proviso to Section 73(1) of the Finance Act, 1994 by invoking extended period.

(0

(ii) Service Tax along with Education Cess and Secondary & Higher Education Cess of Rs. 4,52,615/- (Rs. Four Lakhs Fifty Two Thousand Six Hundred and Fifteen only) in total, should not be demanded and recovered from them under proviso to Section 73(1) of the Finance Act, 1994 by invoking extended period.

(hi) Cenvat Credit of Service Tax, Education Cess and Secondary & Higher Education Cess of Rs. 15,45,000/- (Rs. Fifteen Lakhs Forty Five Thousand only) wrongly taken and utilized by them should not be demanded and recovered from them under proviso to Section 73(1) of the Finance Act, 1994 read with rule 14(l)(ii) of Cenvat Credit Rules, 2004 by invoking extended period.

(iv) Service tax of Rs. 36,26,103/- (Rs. Thirty Six Lakhs Twenty Six Thousands One Hundred and Three only ) paid by them vide Challan No.8004 dated 03.10.2017 for Rs. 22,50,410/- and Challan No. 8005 dated 03.10.2017 for Rs. 13,75,693/-, under protest should not be appropriated in respect of Service Tax demand at (i) above by vacating the protest lodged by them vide their letter dated 04.10.2017.

(v) Service tax of Rs. 3,99,572/- (Rs. Three Lakhs Ninety Nine Thousand Five Hundred and Seventy Two only) paid by them vide Challan No. 80024 dated 29.09.2017 and Challan No. 80025 dated 29.09.2017 should not be appropriated in respect of Service Tax demand at (ii) above.

Interest at applicable rates under Section 75 of the Finance Act, 1975 should not be demanded and recovered from them on Service Tax /Cenvat Credit demanded at (i), (ii) & (iii) above.

(vi)

Interest of Rs. 2,03,045/- paid vide Challan No. 80024 dated 29.09.2017 and Challan No. 80025 dated 29.09.2017 should not be appropriated against the demand of interest for the demand raised at (ii) above.

(vii)

31

(viii) Penalty should not be imposed upon them under Section 76 of the Finance Act, read with Rule 15(1) of Cenvat Credit Rules, 2004 as applicable, for nonpayment of Service tax/wrong availing of Cenvat credit demanded at (i), (ii) & (iii) above.

Penalty should not be imposed upon them under Section 78 of the Finance Act read with Rule 15(3) of Cenvat Credit Rules, 2004 as applicable, for non-payment of Service tax/wrong availing of Cenvat credit demand at (i), (ii) & (iii) above, with intent to evade payment of tax.

(ix)

Penalty of Rs. 59,936/-(Rs. Fifty Nine Thousand Nine Hundred and Thirty Six only) paid by them should not be adjusted against the penalty to be imposed on them for violations mentioned at (viii) & (ix) above.

(x)

Penalty in terms of Section 77 of the Finance Act, 1994 should not be imposed upon them for contravention of provisions of Section 67, 68 & 70 of the Finance Act, 1994 and Rule 6 and Rule 7 of the Service Tax Rules, 1994.

(xi)

Defence reply & personal hearing.

The assessee has filed their defence reply vide their letter dated 12.02.2018, wherein they inter-alia submitted that the said show cause notice lacks merits as well as is hit by limitation and the said show cause notice deserves to be set aside on the very premises that there is no iota of suppression and the whole show cause notice is misconceived. The assessee, inter-alia, made further submissions as under:

30.

No Service Tax payable on Reimbursements: The noticee submits that they had entered into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service. The noticee further submits that they had received only the actual amount incurred to procure such goods or services. The conditions are prescribed as per Notification No. 12/2006-S.T., dated 19-4-2006 (as amended) SERVICE TAX DETERMINATION OF VALUE RULES, 2006. The Rule 5 of the said rules specifically excludes such value of certain expenditure or costs. The expenditure or costs incurred by the service provider, as a pure agent of the recipient of service, shall be excluded from the value of the taxable service, when the conditions are satisfied. The noticee would like to bring to your kind notice that all the eight conditions laid down in the said rules are satisfied. Therefore, there is no doubt that M/s H & K Solutions Pvt. Ltd. have acted as Pure Agent in as much as they have satisfied all the eight conditions of the said Rule as well as they have entered into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; they have neither intended to hold nor hold any title to the goods or services so procured or provided as pure agent of the recipient of service; they have not used such goods or services so procured; and they have received only the actual amount incurred to procure such goods or services. It is to further submit that there is no mark-up or margin added by the noticee for employee costs reimbursed by UMIPL. There was no intention among the noticee and UMIPL to render any services to each other as far as employee costs are concerned. If indeed the intention of H&K would have been otherwise, they would have charged some mark-up or margin to take the trouble of hiring an employee in its own rolls. In the absence of such a mark-up/margin, the payments received by H&K, will not partake the character of consideration for any service, but will merely represent reimbursement of costs. The department has not alleged any mark up being done by H&K in the show cause. And thus in absence of

1.

32

the same it is reasonable to assume that the entire transaction of reimbursement is without mark up and is done at actual only and thus it cannot be called consideration of services. It is to further submit that recently the Honourable CESTAT in the case of FRANCO INDIAN PHARMACEUTICAL (P) LTD. Versus COMMR. OF S.T., MUMBAI reported as 2016 (42) S.T.R. 1057 (Tri. - Mumbai) has taken view that service tax is not payable on sharing employee costs. It is to submit that the matter in dispute, has been settled in favour of assessee by various decisions of the Tribunal

a. Airbus Group India Pvt. Ltd. v. CST, Delhi reported in 2016 (45) S.T.R. 120 (Tri.-Del.)

b. M/s. Paul Merchants Ltd. v. CCE, Chandigarh reported in 2013 (29) S.T.R. 257 (Tri. - Del.);

c. Microsoft Corporation (I) Pvt. Ltd. v. CST, New Delhi reported in 2014 (36) S.T.R. 766 (Tri. - Del.)

d. Gap International Sourcing (India) Pvt. Ltd. v. Commissioner reported in 2015 (37) S.T.R. 757 (Tribunal).

e. CCE v. Computer Sciences Corporation India Pvt. Ltd. reported in 2015 (37) S.T.R. 62 (All.);

f. CCE v. Arvind Mills Ltd. reported in 2014 (35) S.T.R. 496 (Gujarat);g. Vokswagen India Pvt. Ltd. v. CCE reported in 2014 (34) S.T.R. 135 (Tri. -

Mumbai).

Confirmation fees: It is to submit that the noticee has paid the entire amount Service Tax after availing legal benefit of cum tax principle. The noticee has paid Rs.399572/- + Interest of Rs. 203045/- +Penalty of Rs. 59936/- (Total Amount being Rs.6,62,553/-). This amount was paid with the intention to gain peace of mind and to conclude the issue. However, it is not an admission that this tax was payable by the noticee. It is to submit that the noticee collects payment from the Quality Personnel LLP and paying the same to Techno International Limited after getting confirmation from both the parties of the assignment. For the above noticee is charging confirmation fees. The noticee has willingly paid the above referred service tax, interest and penalty@15% on cum-tax value and that they do not want show cause notice in the matter. The noticee requests that the additional demand may be dropped along with penalty as the noticee has already paid the Service Tax along with interest and 15% penalty.

2.

Suo-Motu Credit - Adjustment of Tax: It is alleged in the show cause notice that the noticee has wrongly taken Cenvat credit of Rs. 15,45,000/- (Service Tax-Rs. 15,00,000/- plus Education Cess-Rs.30,000/- and S.H. Education Cess- Rs.15000/-) in the year 2014-15 on import of services. It is to submit that these services were supposed to be received by the noticee from M/s Desert Queen General Trading LLC. The noticee merely had made provision for the same in their financial accounts. Subsequently, they had shown consultancy charges in ST-3 return for the period of Oct-March, 2014-15 and have paid service tax of Rs. 15,45,000/- on import of services as a service receiver vide Challan No. 80075 dated 09.12.2014 for Rs.17,55,543/- which included interest of Rs.2,10,543/- also. The said challan had been shown as cash payment in ST-3 Return for the period October-March, 2014-15. Simultaneously, Cenvat Credit for Service Tax of Rs. 15,00,000/-, Education Cess of Rs.30,000/- and S.H. Education Cess of Rs. 15,000/- is being reflected in the same ST-3 Return as taken and subsequently, they have also utilized the same credit as evident from ST-3 returns filed by them. It is to submit that the noticee made provision in their books with the anticipation that they were going to receive services from outside India. Thus, on making the provision they paid the Service Tax. It is the fact that the noticee was not required to pay such tax as per the prevalent Point of Taxation Rules. Thereafter, as the

3.

33

anticipated services were never received by the noticee, they never were required to pay any tax. Since tax was paid, the noticee adjusted the amount paid by them by virtue of Service Tax Rules 1994 under Rule 6(3) or Rule 6(4A). However during the course of filing of ST-3, it was mistakenly shown as input service and consequently it was adjusted during the course of future payments. It is to submit that even if it was not shown as input service, the noticee could have adjusted the same under Rule 6(4A) of the Service Tax Rules, 1994, which provides that notwithstanding anything contained in sub-rule (4), where an assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter, as the case may be. It is to submit that, it was merely clerical mistake in filing of the Return and there is no loss to the revenue Department. The noticee paid an amount which they were not required to pay because of absence of receipt of service, thus, the proper course of alternative was to adjust the said amount. Therefore the noticee adjusted the said amount in their return albeit through oversight instead of Adjusting the said amount in Part D-F4 or Part D - F5, the noticee adjusted in Part D-F2 in their ST-3 Returns. Thus it is nothing but technical and procedural mistake. To support their contention the noticee would like to draw attention to decision in the case of 2016 (42) S.T.R. 273 (Tri. - Bang.) wherein it was held that Liberal interpretation and generous view of Rules 6(3), 6(4A), 6(4B) and 6(1 A) ibid needs to be taken. Rule 6(3) of Service Tax Rules, 1994 stipulates provisions regarding service provider who has issued an invoice or received any payment. In instant case, M/s H & K Solutions Pvt. Ltd. has paid service tax as service recipient. Thus, the provision should be made applicable mutatis mutandis to the noticee in the capacity of a recipient. The noticee also wishes to place reliance on decisions in the case of M/s RS Chemicals reported at 2017 (353) E.L.T. 247 (Tri. - All.) wherein suo motu credit was allowed by way of refund claim and Department were also directed to pay Interest on the same.

4. Cum Tax Benefit: The noticee wishes to rely upon following decision of M/s Vaishali Developers & Builders reported at 2017 (47) S.T.R. 300 (Tri. - Del.) wherein it has been held that entire consideration has to be treated as cum duty and benefit of the same has to be extended. The noticee wishes to rely upon following decision of M/s Avtar Sodhi reported at 2016 (46) S.T.R. 547 (Tri. - Del.) wherein Honourable Tribunal has followed decision of Supreme Court and allowed the cum- tax benefit in view of the decision of the Supreme Court in case of Maruti Udyog [2002 (141) E.L.T. 3 (S.C.)]. The noticee wishes to rely upon decision of M/s Hans Interiors reported as 2016 (44) S.T.R. 607 (Tri. - Chennai) wherein it has been held that where service tax has not been collected for services rendered, Cum-tax value to be adopted, this principle has been upheld by the Hon’ble Apex Court in Commissioner v. Advantage Media Consultant - 2009 (14) S.T.R. J49 (S.C.): when the assessee is not disputing his liability for discharging the statutory obligations and has paid the entire tax along with the interest and 25% of the penalty and thereafter discharging his obligations as a taxpayer, in view of the provisions of Section 73(4A) the proceeding should be deemed to have been concluded.

In a similar case, the order passed by the Commissioner was reviewed by the Committee of Chief Commissioners by order no. 09/Review/2013 dated 22.04.2013 and Department had filed appeal before CESTAT, Ahmedabad. One of the grounds for filing the appeal is contained in para (b) of the said ‘Grounds of Appeal’ is as follows:

The Commissioner has extended the benefit of cum duty/tax to both noticees by referring to the provisions of Section 67 of the Finance Act, 1994; on the

34

basis of case laws relied upon by the noticees and also by relying on case of Hon ’ble Supreme Court in case of M/s. Rampur Engineering Co. Ltd. vs CCE Jaipur-I reported at 2006 (3) STR (650 (Tri-Del.) and Tribunal order in case of M/s. Prompt & Smart Security vs CCE Service Tax Bangalore reported at 2008 (9) STR 237 (Tribunal). Apart from above, no discussion or findings have been given while extending cum duty benefit. The conclusion of allowing the benefit of cum duty/ tax by the Commissioner does not appear to correct in as much as much the correctness of the claim of the noticees that figures on basis of which demand of Service Tax has been computed are inclusive of tax and cum tax benefit should be extended to them, has not been verified by the Commissioner before extending the benefit to them. No evidence appears to have been placed on record to substantiate their claim. The Hon ’ble Supreme Court of India in case of M/s Amrit Agro Industries Ltd. vs CCE Ghaziabad [2007 (210) ELT 183 (SC)] has held that “Therefore, unless it is shown by the manufacturer that the price of the goods includes excise duty payable by him, no question of exclusion of duty element from the price for determination of value under section 4(4)(d)(ii) will arise.

In our view, in the facts and circumstances of the case the judgment of this Court in the case of Bata India Ltd. (supra) on principle would apply. Therefore, in the present case, the assessee will have to show as to how he has determined the value. What the appellant has really done in the instant case has to be examined. Whether the price charged by him to his customers contains profit element or duty element will have to be examined. As stated above, this examination is warranted because, in the present case, one cannot go by general implication that the wholesale price would always mean cum-duty price, ...............

Thus, verification of the claim as regard cum tax benefit was warranted as noticees have been charging and collecting Service Tax from their clients/customers separately. Therefore the Commissioner appears to have erred in extending the benefit of cum duty and thereby not confirming the demand of Service Tax to that extent as also consequential demand of interest & imposition of penalty.

In this connection it is stated that the main ground of not allowing the cum duty benefit is because of the Apex Court order dated 19.03.2007 in the case of Amrit Agro. The period of dispute therein was July 1997 to September 1997 whereas the present case relates to the period 2006-07 onwards. The Hon’ble Supreme Court of India in case of M/s. Dugar Tetenal India Ltd. reported at 2008 (224) ELT 180 (SC) vide its order dated 07.03.2008, subsequent to Apex Court order in case M/s Amrit Agro covering the period from March 1988 to February 1992 had observed that duty element is deductible to determine assessable value of the goods.

Further the Apex Court in case of M/s. Maruti Udyog Ltd. reported at 2002 (141) ELT 3 (SC) relating to period April 1987 to May 1990 had extended the benefit of cum duty to the assesse.

The position that emerges from the above is that while in the case of M/s Amrit Agro the benefit of cum-duty has been allowed subject to the condition that the manufacturer shows as to how he has determined the value whereas in the case of M/s Maruti Udyog and M/s Dugar Tetenal India Ltd. the benefit of cum-duty price was extended without any condition though all these cases involved misstatement/suppression of facts and relates to period prior to 14.05.2003 when

35

Explanation was inserted in the Section 4 of the Central Excise Act, 1944. Similar words were also placed in the section 67 of the Finance Act 1994.

Incidentally it is mentioned that Explanation inserted in section 4 of the Central excise Act, 1944 is pari materia to Section 67 (2) of the Finance Act, 1994 (inserted with effect from 18.04.2006), which reads as under:

“(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. ”

Thus the benefit of cum tax is rightly admissible under Section 67(2) of the Finance Act, 1994.

Although there remains hardly any doubt that cum-duty benefit has to be extended after 18.04.2006, yet for the sake of argument even for the period prior to 18.04.2006, placing reliance on the decision of the Apex Court in case of M/s Amrit agro in preference to M/s Dugar Telenal India Ltd. may not be proper and correct especially in view of the fact that:

(i) it had come to be passed on 19.03.2007 by Division Bench comprising of Two Members;

(ii) the decision of the Apex Court in the case of M/s Dugar Tetenal India Ltd. was passed on 07.03.2008 i.e. after the decision in case of M/s Amrit Agro.

(iii) the decision in case of M/s Dugar Tetenal India Ltd. was passed by the Apex Court while referring to Apex Court decision of M/s Maruti Udyog, which was passed by Division Bench of Three Members;

(iv) the decision of M/s Dugar Tetenal India Ltd. also in consonance with the Explanation provided in Section 4 of the Central Excise Act, 1944, which has been the intention of the Government even for the period prior to 14.05.2003.

(v) the decision of M/s Maruti Uyog by a Bench comprising of higher number of members will have preference over decision of the Bench comprising of lesser number as in the case of M/s Amrit Agro.

Thus Apex Court order in M/s Amrit Agro case was although passed on 19.03.2007 but it relates to the period that existed prior to insertion of Explanation in Section 4(1) of the Central excise Act, 1944, hence the same is inapplicable to the present case which relates to period 2006-07 onward after the law was amended on 14.05.2003.

To set all the disputes at rest, an Explanation, relating to cum duty price was inserted in Section 4(i) of Central Excise Act, 1944 w.e.f. 14.05.2003 which reads as under:

“Explanation. — For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods. ”

36

It is strange that cum tax benefit is not to be extended after observing following facts in the show cause notice. It is a deemed fact that whatever amount they have claimed from their service recipients did not include the element of service tax. The gross value received by them was not inclusive of service tax as they did not charge the same from the recipients of service.

It is stated that there is no doubt that the noticee is not charging Service Tax separately. It is further prayed that the Judgment cited in the show cause notice cannot be relied upon as it pertains to the period prior to 01.04.2006.

5. Recovery of Interest: Without prejudice to anything mentioned above, it is submitted that even if Service Tax is determined under Section 73 of the Act, interest thereon cannot be demanded for the reasons given in the following paras:

(i) The show cause notice demands interest from the noticee under section 75 of the Finance Act, 1994, which reads as under:

[SECTION 75. Interest on delayed payment of service tax. — Every person, liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below ten per cent, and not exceeding thirty-six per cent, per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed:]

It could thus be seen that section 75 is charging section for levy of interest. The said section do not provide for recovery/collection of interest by any authority in case of non-payment of Service Tax, which is determined under Section 73 of the Act.

(ii) Further recovery of Service Tax has been proposed in para 17(a) & 18 (a) of the SCN under section 73 of the Finance Act, 1994. The said section provides for recovery of Service Tax not levied or paid or has been short levied or short paid or erroneously refunded. The said section do not provide for recovery of interest. Thus it could be seen that there is no provision either under section 75 or under section 73 or under any other section of the Finance Act for the recovery of interest.

(iii) Incidentally, it could be noted that there are provisions for recovery of interest in various other laws namely Customs Act, 1962 and Central Excise Act, 1944. as under:

(i) As regards Customs Act, 1962, Section 28(1) specifically provide for recovery of interest on short payment of customs duty. To be precise section 28(1) ibid reads as under;

“SECTION 28. Recovery of duties not levied or short-levied or erroneously refunded. — (1) Where any duty has not been levied or has been short-levied or erroneously refunded, or any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than the reasons of collusion or any wilful misstatement or suppression of facts, ”

37

Further Section 28AA of Customs Act, 1962 provides that the person who is liable to pay duty in accordance with the provisions of Section 28, shall, in addition such duty, be liable to pay interest after determination of duty under that section.

(ii) As regard Central Excise Act, 1944, relevant Section 11A is reproduced below:

“SECTION 11 A. Recovery of duties not levied or not paid or short- levied or short-paid or erroneously refunded. — (1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,................ ”

It could be seen that said section does not provide for recovery of interest but Section 11AA, which is reproduced below, provides for recovery of interest wherever the person is liable to pay duty, he shall, in addition to the duty, be liable pay interest after determination of amount of duty under Section 11 A.

“SECTION 11AA. Interest on delayed payment of duty. — (1) Notwithstanding anything contained in any judgment, decree, order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder, the person, who is liable to pay duty, shall, in addition to the duty, be liable to pay interest at the rate specified in sub-section (2), whether such payment is made voluntarily or after determination of the amount of duty under section 11 A. ”

(iv) It could thus be seen that while Central Excise Act, 1944 and Customs Act, 1962 provides for recovery of interest whenever order of recovery of central excise or customs duty is ordered under Section 11A of Central Excise Act or Section 28A of the Customs Act, respectively, there is no such provision for recovery of interest in so far as Finance Act, 1994 is concerned whenever order is passed under Section 73 determining the amount of Service Tax under said section. Thus in absence of the same, the interest cannot be ordered to be recovered while determining the amount of Service Tax under Section 73 of the Finance Act, 1994.

(v) Incidentally it is mentioned that in similar circumstances, the Hon’ble Tribunal in case of M/s. Pushpaman Forging reported at 2002 (149) ELT 490 (Tri.-Mad) has held that amount demanded under Rule 57CC being neither duty nor Modvat credit & in absence of the recovery proceedings machinery provided under the Act & Rules, the amount under Rule 57CC cannot be claimed from the assessee. The said order was upheld by the Hon’ble Supreme Court-2003 (153) ELT A89 (SC).

(vi) Similarly the Hon’ble Madras High Court in case of M/s. Etemit Everest Ltd. reported at 1997 (89) ELT 28 (Mad.) has observed that during the relevant period, Section 11D of the Central Excise Act, 1944 did not

38

i. ■ ■

provide for any obligation to pay the amount collected as representing duty & hence the same cannot be recovered.

(vii) In view of the above submissions, case laws & in absence for recovery mechanism for interest, the interest cannot be ordered to be recovered under Section 75, while determining the amount of Service Tax under Section 73 of the Finance Act, 1994. Hence the proposal of the SCN for demanding interest under section 75 be dropped.

6. No suppression when Audit was conducted: It is to further submit that for the Financial Years 2011-12 to 2013-14, Audit was conducted by the officers of Central Excise Audit - II Commissionerate. The Audit was conducted in the month of May and June 2015. Thereafter on 11.08.2015 the noticee gave all ledgers with foreign transactions and all ledgers with details and transactions with UMIPL. Thereafter final audit report being FAR 232/2015-16 dated 22.09.2015 was issued to the noticee. It is to submit that the show cause notice has relied upon the following judgments. The noticee submits that none of them is applicable to the present case as all the judgments have different set of facts.

The show cause notice has relied on Chemfab Alkalis Vs CCE Pondichary - 2010 (251) ELT 264 (Tri - Chennai. Held:(i)

“Audit parties visit all excisable units from time to time - Their visit cannot mean that extended period will not apply in respect of any unit, as that would render provision regarding extended period totally redundant - Section 11A of Central Excise Act, 1944. [para 6J”.

This decision is not applicable to the given instance as it is not the case where audit parties just visited the premises of the assessee. They sought specific information which is dispute matter of the present show cause notice and the noticee gave them all details during the course of earlier audit. Thus, this decision is not applicable to the case of the noticee.

(ii) The show cause notice has relied on HCL Technology Ltd. - 2010 (254) ELT 175 (Tri. Del) -Held:

“5. As regards the applicability of longer limitation period, it is not the Appellant’s case that the supplier’s invoices on the basis of which Cenvat credit has been enclosed with the ST-3 returns. Without invoices, it is extremely difficult to the concerned central excise officer to know as to whether the Cenvat credit had been correctly taken. The Appellant’s plea is that the unit had been audited does not prove that the Departmental officers had knowledge about the Cenvat credit, as the audits by the internal audit parties of the department or the C&AG are only test checks in which hundred percent records are not checked. In view of these circumstances, we are of the prima facie view that the longer limitation period has been correctly invoked. ”

This decision is not applicable to the given instance as it is not the case where audit parties are denying cenvat credit based on the test check of the documents of the assessee. They sought specific information which is dispute matter of the present show cause notice and the noticee gave them all details during the course of earlier audit. Thus, this decision is not applicable to the case of the noticee.

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(iii) The show cause notice has relied on Collector Of C. Ex., Aurangabad Vs Tigrania Metal& Steel Industries - 2001 (132) ELT 103. Held:

“Suppression of material facts - Mere visit of Department’s Audit party to the factory of Respondents not enough to infer Revenue’s knowledge about the wrongful availment of benefit under Notification No. 208/83- C.E., dated 1-8-1983 by Respondents - Respondents having availed the benefit under Notification ibid, had the burden to prove Revenue’s knowledge which they failed to discharge ”

This decision is not applicable to the given instance as it is not the case where revenue department was not in knowledge. They sought specific information which is dispute matter of the present show cause notice and the noticee gave them all details during the course of earlier audit. The assessee can easily substantiate on the basis of their letter dated 11.08.2015 that the information was available with the Department. Thus, this decision is not applicable to the case of the noticee.

The show cause notice has relied on Jaishri Engineering Co. (P) Ltd. Vs Collector of C. Ex. - 1989 (40) E.L.T. 214 (S.C.) - Held:(iv)

“The fact that the Department visited the factory of the appellant and they should have been aware of the production of the goods in question, were no reason for the appellant not to truly and properly to describe these goods. As a matter of fact, not only did the appellant, as found by the Tribunal, described these goods properly but also gave a misleading description. ”

This decision is not applicable to the given instance as it is not the case where revenue department was not in knowledge of description of reimbursement. They sought specific information which is dispute matter of the present show cause notice and the noticee gave them all details during the course of earlier audit. The assessee can easily substantiate on the basis of their letter dated 11.08.2015 that the information was available with the Department. Thus, this decision is not applicable to the case of the noticee.

(v) None of the above decisions are applicable to the given instance as they merely discuss about some or other aspect kept undisclosed by the assessee. However, in the matter with respect to Service Tax liability on reimbursement for which no mark-up was added was discussed during the course of earlier Audit verbally by the officers who visited the office premises. Later on the noticee submitted them all ledgers of M/s UMIPL on 11.08.2015 on going through the documents, legal provisions and various judgments the audit officers were convinced that the liability does not arise in such case. As the officers were satisfied with explanation of the noticee and as such the noticee continued the same practice as there was no objection.

(vi) It is to submit that the noticee vide their letter dated 14.05.2015, submitted Audited Balance Sheet and Profit and Loss Account for the Years 2011-12, 2012-13 and 2013-14. Also vide their letter dated 11.08.2015, wherein all ledgers and transaction details related to Unique Mercantile India Pvt Ltd were submitted to the Department. Thus, all details for the period prior to 01.04.2014 were already submitted to the Department during the course of earlier Audit. Thus, it is to submit that the Department had specifically reviewed the transactions which are part of the current notice. They became aware about activities, and if during the earlier period they did not have any objection then changing view and issuing demand notice for

40

•i.

the earlier period is bad in law. The noticee relies on the judgement of the Hon’ble Supreme Court in the case of Nizam Sugar Factory reported in 2006 (197) ELT 465 (SC), held that the show cause notice should have been issued within a period of one year from the date of audit by the departmental officers. The ratio of the Hon’ble Supreme Court judgement is squarely applicable to present facts and accordingly, the demand is even otherwise time barred and cannot be sustained for the period for which audit is already concluded by the Department.

Mere omission is Not suppression: In the present case, from the evidence adduced

by the noticee it can be easily inferred that the noticee was bona fide in their

conduct. Thus, the non-disclosure of Reimbursement amount in the ST-3 Form by

the noticee, at the most be termed as ‘omission’ and not wilful suppression, as

alleged in the SCN. The noticee wishes to put reliance on following judgments to support their contention.

7.

i) The Hon’ble Supreme Court of India in the case of M/s Padmini Products reported at 1989 (43) ELT 195 (S.C.) has held that mere negligence or failure or omission is not sufficient for wilful mis-statement or suppression of facts. These ingredients postulate a positive act, therefore unless there was deliberate attempt for not disclosing a certain facts it would not come within the four comer of wilful misstatement or suppression of facts.

ii) The Hon’ble Supreme Court of India in case of M/s Continental Foundation Joint Venture reported at 2007 (216) ELT 177 (S.C.) has held that

“JO. The expression “suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong words as ‘fraud’ or “collusion ” and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct. ”

iii) Further the Hon’ble Supreme Court of India in case of M/s Pushpam Pharmaceutical Company reported in 1995 (78) ELT 401 (S.C.) has held that:

“4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one

41

meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression. ”

iv) Further the Hon’ble Supreme Court of India in case of M/s Chemphar Drugs and Liniments reported in 1989 (40) ELT 276 (S.C.) has held that:

“8. .... Aggrieved thereby, the revenue has come up in appeal to this Court. In our opinion, the order of the Tribunal must be sustained. In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set offacts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to hereinbefore do not warrant any inference of fraud. The asses see declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted that the Department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the product other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence. ”

(v) Since in this case there was omission by the noticee of not declaring the Reimbursement value in ST-3 Return but the same cannot be treated as deliberate non-declaration. The Hon’ble Supreme Court (supra) has held that mere failure to disclose information cannot be equated with wilfhl mis-statement unless the latter implies making an incorrect statement with knowledge. It is to submit that omission to give correct information is not suppression of facts. In this case no evidence whatsoever has been brought on record by the show cause notice to conclude that the noticee had deliberately not declared value of reimbursements in ST-3 Return. Hence, the extended period of five years is not invokable as nondeclaration was mere omission and not suppression.

8. Extended period cannot be invoked: Without prejudice to the above written submissions, without admitting but assuming, they submit that the show notice is erroneous in as much as it demands Service Tax and proposed to the Cenvat Credit by invoking extended period. It is to submit that major portion of demand in the Show Cause Notice is being hit by the bar of limitation. The meaning of the word "suppression" was considered by the Hon'ble Supreme Court in the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh, reported in 2007 (216)

mere

cause reverse

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ELT 177 (SC), and was held by the Hon'ble Supreme Court with regard to the proviso to Section 11A of the Central Excise Act, 1944, that mere omission to give correct information was not suppression of facts unless it was deliberate and to stop the payment of duty.

In case of Jaiprakash Industries Ltd., reported in 2002 (146) ELT 481 (SC) also, the Hon'ble Supreme Court held that a bonafide doubt as to non-dutiability of goods was sufficient for the assessee to challenge the demand on the point of limitation. Thus, it is a totally settled legal position that extended period of limitation by invoking proviso to the main Section for demanding duty or tax beyond the normal period of limitation would be justified only when the assessee knew about the duty liability and still however, he did not pay the tax and deliberately avoided such payment, and it was only in such a situation where suppression of facts on part of the assessee could be justifiably alleged by the Revenue. However, mere failure in giving correct information would not be a case where the Revenue can invoke extended period of limitation.

Without prejudice to other submissions, it is submitted that the Department has failed to discharge the unshakeable burden of proof that they have suppressed the facts with intention to evade the Service Tax. Regarding many allegations levelled in the show cause notice, they have paid the amount demanded with interest. It is a clear case of interpretation of law, no allegation of suppression can be sustained against us.

Without prejudice to other contentions, it is to submit that extended period of limitation by invoking proviso to the main Section for demanding tax beyond the normal period of limitation would be justified only when the assessee knew about the tax liability and still however, he did not pay the tax and deliberately avoided such payment, and it was only in such a situation where suppression of facts on part of the assessee could be justifiably alleged by the Revenue. However, mere failure to pay Service Tax on account of interpretation of law would not be a case where the Revenue can invoke extended period of limitation. The show cause proposing various demands and penalties by invoking extended period should be dropped on this ground.

Without prejudice to other contentions, it is to submit that no mensrea can be attributed to the noticee for delay in discharging the tax liability. In absence of mensrea, merely for the venial breach of the provisions of law, penalty cannot be imposed. There is no element of fraud, willful mis-statement or suppression of facts with intent to evade payment of service tax, as all the income received bythemwere accounted for in the books of accounts and subjected to Income tax. In the absence of the element of suppression, no allegation of omission or commission or deliberate attempt to evade payment of Service tax can be made against them. The noticee wish to rely upon following decisions of various Courts:

a. The Hon'ble Supreme Court in case of Pahwa Chemicals Private Ltd. vs. Commissioner - 2005 (189) E.L.T. 257 (S.C.) has held that mere failure to declare something does not amount to mis-declaration or willful suppression of facts and that for proving mis-declaration, and willful suppression of facts, some positive action on the part of the assessee is a must.

b. As held by the Hon'ble Supreme Court in case of Hindustan Steel Ltd. vs. State of Orissa - 1978 (2) E.L.T. J 159 (S.C.) penalty could not be imposed

43

simply because there is default. For imposition of penalty presence of mens-rea is a must.

c. Padmini Products v. Collector of C. Ex., 1989 (043) ELT 0195 (S.C.) wherein the Apex Court held that suppression of facts is not failure to disclose the legal consequences of a certain provision.

9. Simultaneous penalties cannot be levied: Without prejudice to the contention of the noticee, it is submitted that the show cause notice is bad in law as much as, it proposes penalties under Section 76 as well as penalties under Section 78. It is to submit that no penalty under Section 76 of the Finance Act, 1994 can be imposed for the period on or after 10.05.2008, once penalty under Section 78 ibid is invoked, as both are mutually exclusive provisions of the law. The relevant provision of Section 78 is reproduced herein under for easy reference

“Provided also that if the penalty is payable under this section, the provisions of section 16 shall not apply. ”

Without prejudice to other contentions in this written submission, it is to submit that in this case the provision of Section 80 of the Finance Act, 1994 should be invoked for granting waiver from penalty under various Sections. The noticee has successfully demonstrated that the alleged non-payment was not on account of any deliberate attempt on their part to evade payment of service tax and in most cases they have paid the demand raised in Show Cause Notice with interest and penalty. Hence, they humbly request that the provisions of Section 80 should be invoked and penalties proposed under various Sections shall be waived.

"y. -

31. Further, the Consultant Firm, M/s Pankaj R. Shah & Associates, made further submission on 02.01.2020, vide their letter dated 28.12.2019, as under:

Service Tax payable on Reimbursement of expenses:

(1) In this respect, attention is drawn towards Order of Hon’ble Supreme Court of India in case of M/s U.O.I. v/s M/s INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT LTD wherein court has rejected appeal of tax authorities, holding that “Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assesses, as per these Rules, these reimbursable expenses also form part of ‘gross amount charged’, therefore, the issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. In this hue, the expression ‘such’ occurring in Section 61 of the Act importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what the gross amount is charged for providing ‘such ’ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such ‘taxable service’. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider for such service’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro

1.

core

assumes

44

. >

qua for rendering such a service. In the above case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realizing that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with ‘consideration ’ is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue ofprovisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax.

(2) Further, attention is drawn towards decision of Hon’ble CESTAT in case of Commissioner V/s Malabar Management Services Private Limited [2008 (9) STR 483 (Tri. Chennai)], wherein it was held that “the appellants received reimbursement, from the bank, of the salaries paid to their personnel deputed to render the above service to the bank as also of infrastructural expenses such as rent, telephone charges, electricity, stationery charges, internet charges, travel expenses, courier charges, advertisement etc. All these payments received by the appellants from the bank under invoices or debit notes were credited directly into the appellant’s bank account. But, in the service tax returns filed by them for the relevant periods, the service charges alone were declared to the department as the taxable value for the purpose of payment of service tax. The appellants voluntarily paid service tax on such value. After verification of their records and connected enquiries, the department took the view that the appellants should have paid service tax also on the reimbursements received by them from the bank towards staff salaries and infrastructural expenses incurred in connection with the rendering of Business Auxiliary Service to the bank. On this basis, show cause notices were issued by the department demanding differential tax from the appellants and proposing penalties on them. Essentially, this case involves a valuation dispute. The question is whether the reimbursements received by the appellants from the bank, of salaries and infrastructural expenses were liable to be included in the taxable value of the Business Auxiliary Service for the purpose of payment of service tax. Another issue is whether the extended period of limitation was invocable in this case. Section 67 of the Finance Act, 1994 defines ‘value of taxable service’ as the gross amount charged by the service provider for such service rendered by him. On the facts of the present case, “the service charges” collected by the appellants from the bank as consideration for the Business Auxiliary Service rendered by the former to the latter constitute “the gross amount charged by the service provider for such service ”. Other amounts collected by them from the bank under debit notes were only reimbursements of salaries and infrastructural expenses and the same cannot be said to be the amounts “charged” by the service provider. In the case of Bridgestone Financial Services Vs Commissioner of Service Tax, Bangalore [2007-TIOL-810-C ESTAT- BANGJ, the assessee was found to have provided a similar service to Citi Bank and it was held that the service fell within the category of Business Auxiliary Service and further that reimbursements of expenses by the bank were not taxable. In that case, the Bench took note of a circular issued in October 2003 by the Director-General of Service Tax, wherein it had been clarified that Reimbursements of expenses were not taxable. The same circular was considered by the Tribunal in the case of Scott Wilson Kirkpatrick (I) Ltd. Vs Commissioner of Service Tax, Bangalore [2007-

45

TIOL-110-CESTAT-BANG], wherein reimbursements of expenses were held not chargeable to service tax in respect of Consulting Engineers’ Service. In the case of B.S. Refrigeration Ltd. Vs Commissioner of Service Tax, Bangalore, 2006 (4) S.T.R. 103 (Tri.-Bang.) = 2006-TIO L-1189-C ESTATBANG it was held, in respect of Clearing and Forwarding Agents’ Service, that service tax was not leviable on the amount of expenses incurred by the C & F agent and reimbursed by the service recipient. In the case of Sangamitra Services Agency Vs CCE Chennai, 2007-TIO L-1335-C ESTAT-MAD, one of us sitting singly held, in respect of C & F Agents ’ Service, that service tax was not leviable on expenditure reimbursed by the service recipient towards freight, labour, electricity, telephone etc. Ld. Counsel for the present appellants has also relied on a few circulars of the Central Board of Excise & Customs. In F. No.B 43/1/97 dt. 6.6.97, it was clarified, in respect of customs house agents ’ service and steamer agents ’ service, that reimbursements of expenses were not chargeable to service tax. In F.No.343/5/97 dt. 2.7.97, it was clarified, in relation to Consulting Engineers’ Service and Manpower Recruitment Agents’ Service, that reimbursements of actual expenses were not subject to service tax. In F.No.B 11/3/98 TRU dt. 7.10.98, it was clarified, in respect of Market Research Agency Services and Security Agency Services, that expenses Reimbursed by the service recipient were not subject to service tax. In F.No.Bl1/1/2002 dt. 1.8.02, it was clarified, in respect of Cargo Handling Service, that service tax was not payable on reimbursements as in the case of service of Customs House Agent. Thus, the case law cited by Id. Counsel and the Board’s clarifications are in support of the appellants’ contention that service tax is not leviable on the payments received by them from ICICI Bank by way of reimbursements of expenses. Therefore, the demand of differential service tax raised by the Commissioner on the appellants in respect of Business Auxiliary Service rendered by them to M/s. ICICI Bank Ltd. during the periods of dispute cannot be sustained”.

(3) The court has held that Services charges collected from client as consideration for business auxiliary services constituted the gross amount charged by services provider for such services and REIMBURSEMENT OF SALARIES AND INFRASTRUCTURAL EXPENSES COULD NOT BE TERMED AS AMOUNTS CHARGED BY SERVICE PROVIDER and thus, not includible in taxable value owing to various tribunal decision and C.B.E. & C. clarifications. It is to be noted that CESTAT has referred the following cases while arriving at the final verdict.

Bridgestone Financial Services Vs Commissioner of Service Tax, Bangalore, 2007-TIO L-810-CESTAT-BANGScott Wilson Kirkpatrick (I) Ltd. Vs Commissioner of Service Tax, Bangalore, 2007-TIO L-l 10- CESTAT-BANGB.S. Refrigeration Ltd. Vs Commissioner of Service Tax, Bangalore, 2006- TIO L-l 189-CESTAT-BANGSangamitra Services Agency Vs CCE Chennai, 2007-TIO L-1335-C ESTAT- MAD

(4) The court has held that Services charges collected from client as consideration for business auxiliary services constituted the gross amount charged. Even, also, above referred case laws has been relied by following various tribunal across India.

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Relied in 2019 (20) GSTL 90 by Tribunal Madras / Chennai - Mail RelatedServices v/s Commissioner of service tax, ChennaiRelied in 2019 (24) GSTL 240 by Tribunal Hyderabad - KARVYCONSULTANTS LTD. v/s COMMR. OF C. EX., CUS. & S.T.,HYDERABAD-IIFollowed in 2019 (21) GSTL 394 Tribunal Hyderabad - HINDUSTAN SHIPYARD LTD. v/s C.C.E., CUS. & S.T., VISAKHAPATNAM-I Relied in 2019 (24) GSTL 353 by Tribunal Ahmedabad - MODERN BUSINESS SOLUTIONS v/s COMMISSIONER OF S.T., AHMEDABAD Relied in 2019 (24) GSTL 393 by Tribunal Delhi - TELENOR CONSULT AS v/s COMMISSIONER OF SERVICE TAX (AUDIT-I), DELHI-I Relied in 2019 (24) GSTL 403 by Tribunal Delhi - DELHI INTERNATIONAL AIRPORT LIMITED v/s COMMISSIONER OF COST, DELHIRelied in 2019 (26) GSTL 50 by Tribunal Ahmedabad - SAURASHTRA KUTCH STOCK EXCHANGE LTD. v/s COMMR. OF C. EX. & S.T., RAJKOTFollowed in 2019 (24) GSTL 588 Tribunal Delhi - BHARTIHEXCOM LTD. v/s COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I Relied in 2019 (22) GSTL 419 by Tribunal Hyderabad - EXHIBITION SOCIETY v/s COMMISSIONER OF SERVICE TAX, HYDERABAD-II Relied in 2019 (24) GSTL 746 by Tribunal Delhi - RAJ WEST POWER LTD. v/s COMMISSIONER OF SERVICE TAX, JODHPUR Relied in 2019 (25) GSTL 68 by Tribunal Allahabad - DISH TV INDIA LTD. v/s COMMISSIONER OF CUS., C. EX. & S.T., NOIDA

(5) In view of the above referred recent judgments and interpretations explained by Supreme Court itself, they have to state that in their case also, dispute is mainly in respect of service tax applicability on reimbursement of expenses. Now, as the above judgments have made it crystal clear that the service tax is not applicable on reimbursement of expenses and hence the question of service tax in their case does not arise at all in view of the recent ruling of Hon’ble Supreme court of India in the case of M/s Intercontinental Consultants and Technocrats Pvt Ltd.

2. Service Tax Payable on Confirmation Fees

(1) It is to submit that show cause notice demands Service tax of Rs.4,52,615/- but has not forwarded the cum-tax benefit. The noticee has paid the entire amount Service Tax after availing legal benefit of cum tax principle. The noticee has paid Rs.399572/- + Interest of Rs. 203045/- +Penalty of Rs. 59936/- (Total Amount being Rs.6,62,553/-). This amount was paid with the intention to gain peace of mind and to conclude the issue. However, it is not an admission that this tax was payable by the noticee.

(2) The noticee submits that without prejudice to other submissions had the legal benefit of cum-tax principle forwarded to them by the Audit Party this issue would not have arisen as the noticee requested to close audit proceedings with respect of audit point for confirmation fees raised. The noticee requests that the additional demand may be dropped along with penalty as the noticee has already paid the Service Tax along with interest and 15% penalty.

47

=5:3. Suo-Motu Credit - Adjustment of Tax:

(1) It is to submit that these services were agreed to be provided by M/s Desert Queen General Trading LLC to the assessee. The noticee had made provision for the same in their financial accounts. Subsequently, they had shown consultancy charges in ST-3 return for the period of Oct- March, 2014-15 and have paid service tax of Rs. 15,45,000/- on import of services as a service receiver vide Challan No. 80075 dated 09.12.2014 for RS. 17,55,543/- which included interest of RS.2,10,543/- also. The said challan had been shown as cash payment in ST-3 Return for the period October-March, 2014-15.

(2) Simultaneously, Cenvat Credit for Service Tax of RS.15,00,0001-, Education Cess of RS.30,0001- and S.H. Education Cess of RS.15,0001- is being reflected in the same ST-3 Return as taken and subsequently, they have also utilized the same credit as evident from ST-3 returns filed by them.

(3) It is to submit that the noticee made provision in their books with the anticipation that they were going to receive services from outside India. Thus, on making the provision they paid the Service Tax. It is to draw attention to the fact that the noticee was not required to pay such tax as per the prevalent Point of Taxation Rules. Thereafter, as the anticipated services were never received by the noticee, they never were required to pay any tax. Since tax was paid the noticee adjusted the amount paid by them by virtue of Service Tax Rules 1994 under Rule 6(3) or Rule 6(4A). However, during the course of filing of ST-3 it was mistakenly shown as input service and consequently it was adjusted during the course of future payments.

(4) It is to submit that even if it was not shown as input service, the noticee could have adjusted the same under Rule 6(3) or Rule 6(4A) of the Service Tax Rules, 1994.

32. A personal hearing was offered to the assessee. Shri Ninad Patel, Financial Analyst, Accounts Department of the assessee company, appeared on behalf of the assessee for personal hearing on 16.06.2020. He reiterated the earlier submissions made by the assessee and requested to set aside the SCN.

Discussion and Findings

I have carefully gone through the facts of the case and the submissions made by the assessee in writing as well as in person. The issues before me to decide are as under:-33.

(i) Short payment of service tax on account of non inclusion of reimbursable cost in the value of taxable services provided by the assessee;

Non-payment of service tax on the taxable services provided by the assessee, as an intermediary;

(iii) Availment and utilization of Cenvat credit of service tax paid under reverse charge on services agreed to be imported but not actually imported.

I proceed to consider each issue on its merits.

34.1 Short payment of service tax on account of non inclusion of reimbursable cost in the value of taxable services provided by the assessee.

(ii)

34.

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34.1.1services of hotel project consultancy and in addition to their consultancy fees on which service tax had been paid, the assessee also charged and received, the expenses of salary, postage & courier, telephone & internet, stationery & printing, conveyance, travelling & petrol, entertainment and office expenses, electricity bill, consultant, contractor, site expenses, rent accommodation and guest house rent and claimed the same as reimbursement at actual as a pure agent and did not include the same to arrive at the value of taxable services provided by them. These charges, incurred in the course of provision of service, were required to be included in the taxable value in terms of Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 as the said services have been used by the said service provider in the projects undertaken by them for their clients.

It has been alleged in the show cause notice that the assessee provided

The assessee, while furnishing reply, relying on a plethora of Tribunal34.1.2decisions, submitted that the said expenses were considered to be reimbursable charges not liable to be added in value of taxable services. Among others, the assessee cited Apex Court decision in the case of M/s Intercontinental Consultants and Technocrats PvtLtd. [2018 (10) G.S.T.L. 401 (S.C.)] and M/s Malabar Management Services Private Limited [2019 (22) GSTL J56 (SC)], in their favour and submitted that in their case also, dispute is mainly in respect of service tax applicability on reimbursement of expenses and these judgments have made it crystal clear that the service tax is not applicable on reimbursement of expenses.

34.1.3and utilities, office furniture and equipment, administrative expenses, Postage and courier expenses, stationery charges, document printing charges, travelling, lodging, boarding etc have been discussed and allowed as reimbursable charges by the Apex Court in the case-law of M/s Intercontinental Consultants and Technocrats Pvt Ltd. [2018 (10) G.S.T.L. 401 (S.C.)]. I also find that the charges such as, salary and infrastructure expenses namely, rent, telephone charges, electricity, stationery charges, internet charges, travel expenses, courier charges, advertisement etc have been discussed and allowed as reimbursable charges by the CESTAT Chennai in the case-law of M/s Malabar Management Services Private Limited [2008 (9) S.T.R. 483 (Tri. - Chennai)], subsequently affirmed by the Apex Court [2019 (22) GSTL J56 (SC)], relying upon the case law of M/s Intercontinental Consultants and Technocrats Pvt Ltd. [2018 (10) G.S.T.L. 401 (S.C.)].

I find that the charges such as, transportation, office rent, office supplies

I find that Hon’ble Supreme Court of India has elaborately discussed issues related to validity of sub-rule (1) of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 and related to inclusion of reimbursable charges in the value of taxable services, in light of the substitution of explanation in respect of the term, ‘consideration’ under clause (a) of Explanations under Section 67 of the Finance Act, 1994, w.ef 14th May, 2015 and held as under:

34.1.4

[21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessee. As per these Rules, these reimbursable expenses also form part of ‘gross amount charged’. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act.

22. Section 66 of the Act is the charging Section which reads as under:

49

“there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in subclauses of clause (105) of Section 65 and collected in such manner as may be prescribed. ”

23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various subclauses of clause (105) of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the ‘value of taxable services’. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.

24. In this hue, the expression ‘such ’ occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing ‘such’ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such ‘taxable service ’. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006 or after its amendment, with effect from, May 1, 2006). Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider for such service ’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.

25. This position did not change even in the amended Section 67 which was inserted on May 01, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of subsection (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider.

26. It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner:

“Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision, the Rule or bye-law has to be ignored. The statutory provision ahs precedence and must be complied with. ”

27. The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act.

50

28. It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel:V.

“the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect. ”]

29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with ‘consideration ’ is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature.

34.1.5taxable service, are made in Section 67 of the Finance Act, 1994. The term consideration used in Section 67(l)(i) of the Finance Act, 1994, has been explained vide clause (a) under Explanation under Section 67 of the Act, which during die period prior to 14th May, 2015, read as under:

Here, it is pertinent to note that the provisions, governing valuation of

Explanation. — For the purposes of this section,

(a) “consideration” includes any amount that is payable for the taxable services provided or to be provided;

34.1.6Section 67 of the Act, has been substituted w.e.f. 14th May, 2015, vide section 111 of the Finance Act, 2015, to read as under:

I find it also pertinent to note that the clause (a) under Explanation under

[(a) “consideration ” includes

(i) any amount that is payable for the taxable services provided or to be provided;


(Hi) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.]

51

Since, the period under dispute pertain to the period after 14th May, 2015,34.1.7as well, therefore, it is necessary to discuss and analyze the impact of such substitution, w.e.f 14th May, 2015, in the explanation in respect of the term consideration under clause (a) under Explanation under Section 67 of the Act, as far as it pertains to the present issue of reimbursement of charges, incurred on behalf of the customers.

I find that Hon’ble Supreme Court of India, vide the above discussed34.1.8judgment in the case of M/s Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (10) G.S.T.L. 401 (S.C.)] has observed, in respect of the substitution of explanation in respect of the term, ‘consideration’ under clause (a) of Explanation under Section 67 of the Act, w.e.f. 14th May, 2015 that ‘Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with ‘consideration ’ is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service’ and held that ‘only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Hon’ble Supreme Court also ruled that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature.

I find that Hon’ble Supreme Court of India, vide the above discussed judgment in the case of M/s Intercontinental Consultants and Technocrats Pvt Ltd. [2018 (10) G.S.T.L. 401 (S.C.)] has also observed, in respect of the Delhi High Court judgment dated 30.11.2012, in the case of M/s Intercontinental Consultants and Technocrats Pvt Ltd [2013 (29) STR 9 (DEL)], holding Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, ultra vires Section 66 and 67 of the Finance Act, 1994 and striking down the same to that extent as bad in law, that ‘Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessee. Rule 5 of the Rules went much beyond the mandate of Section 67. therefore, High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider for such service ’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. ’

34.1.9

34.1.10reimbursable charges, incurred in the course of provision of service, are required to be included in the taxable value in terms of Rule 5(1) of Service Tax (Determination of Value) Rules, 2006. I find that Hon’ble Delhi High Court had ruled in the case, supra, that Rule 5(1) of the Service Tax (Determination of value) Rules, 2006, which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Section 66 and 67 of the Finance Act, 1994 as it travels much beyond the scope of those sections and to that extent it has to be struck down as bad in law. The Apex court, upholding the same has rendered it as law of the land. Therefore, I hold that it will be beyond jurisdiction to effect Rule 5(1), which has been held to be ultra vires and has been struck down and the issue is no more res Integra. I find that the facts of the case on hand are squarely covered by the ratio as well as law decided by Apex Court. I also find that as per judicial propriety, I am bound by the decision of Apex Court.

34.1.11the service provider, prior to 14th May, 2015, shall NOT form part of value of taxable services provided by him, for charging service tax on it. As already discussed hereinabove, I find that the charges such as, transportation, office rent, office supplies

I find that it has been proposed in the show cause notice that the said

In view of the above, I come to conclusion that the charges, reimbursed to

52

and utilities, office furniture and equipment, administrative expenses, Postage and courier expenses, stationery charges, document printing charges, travelling, lodging, boarding etc have been discussed and allowed as reimbursable charges by the Apex Court in the case-law of M/s Intercontinental Consultants and Technocrats Pvt Ltd. [2018 (10) G.S.T.L. 401 (S.C.)]. I also find that the charges such as, salary and infrastructure expenses namely, rent, telephone charges, electricity, stationery charges, internet charges, travel expenses, courier charges, advertisement etc have been discussed and allowed as reimbursable charges by the CESTAT Chennai in the case-law of M/s Malabar Management Services Private Limited [2008 (9) S.T.R. 483 (Tri. - Chennai)], affirmed by the Apex Court [2019 (22) GSTL J56 (SC)], relying upon the case law of M/s Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (10) G.S.T.L. 401 (S.C.)]. Therefore, I find that issue is squarely covered by the above cited judicial pronouncements and I hold that reimbursement of such charges shall not qualify to form part of the consideration charged by the service provider for taxable service for the period prior to 14th May, 2015.

Going through the plain words used in sub-clause (ii) of clause (a), as34.1.12substituted w.e.f. 14th May, 2015, under Explanation under Section 67 of the Act, I find that the term consideration has now been widened to cover any reimbursable expenditure or cost, incurred by the service provider, in the course of providing taxable service.However, as it is provided under sub-clause (ii) of clause (a) under Explanation under Section 67, ibid, the inclusion (in consideration) of reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, is to be made except in such circumstances, and subject to such conditions, as may be prescribed. As prescribed under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, reimbursable expenditures are excludible subject to fulfillment of conditions as prescribed under sub-rule (2) thereof. The sub-rule (2) of Rule 5, ibid, reads as under:

[(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely

the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;(Hi)

(i)

(ii)

the recipient of service is liable to make payment to the third party; the recipient of service authorises the service provider to make

payment on his behalf;the recipient of service knows that the goods and services for which

payment has been made by the service provider shall be provided by the third

(iv)

(v)

party;the payment made by the service provider on behalf of the recipient of

service has been separately indicated in the invoice issued by the service provider to the recipient of service;(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

(vi)

53

Explanation 1. - For the purposes of sub-rule (2), “pure agent” means a person who -

i

enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

does not use such goods or services so procured; and receives only the actual amount incurred to procure such goods or

(a)

(c)(d)services.]

Therefore, in respect of reimbursement of charges for the period after34.1.13substitution of clause (a) under Explanation under Section 67, ibid, I have considered

each issue on its merits and found that some of the conditions have not been fulfilled, asdiscussed, as follows.

34.1.13.1 Contractual agreement to act as pure agent to incur expenditure or costs.

I find that the SCN itself accepts the existence of contractual agreement between the assessee and the service recipient, to act as pure agent to incur expenditure or cost, in the course of providing taxable service. However, I find that merely inclusion of the clause of “Pure Agent” in the agreement entered into between the said service provider and M/s Unique Mercantile India Pvt. Ltd. (and its associated companies) cannot be said as fulfillment of all the conditions as stipulated in sub-rule (2) of Rule (5) of Service Tax (Determination of Value) Rules, 2006. Therefore, I have to see whether all other conditions stipulated under Sub-rule (2), ibid, are fulfilled.

34.1.13.1.1

34.1.13.2 The service provider neither intends to hold nor holds any title to the

services so procured or provided as pure agent of the recipient of service.

34.1.13.2.1 I find that majority of expenses are paid as salary to the employees, who are on the pay roll of the assessee. Other expenses mainly pertain to facilitation for the said employees, in the form of conveyance, travelling, telephone, internet, lodging, boarding, office rent, supplies, utilities, furniture, equipment and administrative expenses such as postage, courier, stationery, electricity etc. It is a fact that the employees are on the pay roll of the assessee, therefore the assessee holds title to the same. I find that the assessee has failed to prove anything contrary to it and therefore I hold that the assessee fails to fulfill this condition.

34.1.13.3 The service provider does not use such services so procured.

34.1.13.3.1 As already discussed, I find that majority of reimbursable expenses are paid as salary to the employees, who are on the pay roll of the assessee. Other expenses mainly pertain to facilitation for the said employees, in the form of conveyance, travelling, telephone, internet, lodging, boarding, office rent, supplies, utilities, furniture, equipment and administrative expenses such as postage, courier, stationery, electricity etc. It is a fact that the employees are on the pay roll of the assessee, therefore it cannot be ruled out that the assessee does not use the service so procured and therefore I hold that the assessee fails to fulfill this condition.

54

V.

34.1.13.4when he makes payment to third party for the services procured.

The service provider acts as a pure agent of the recipient of service

I find that the assessee, when fails to fulfill all the conditions to be considered as pure agent’, as discussed hereinabove, cannot be said to act as pure agent to incur expenditure or costs on behalf of the service recipient. The assessee undoubtedly held title to the said services, involved in reimbursement and such services have been used by the assessee. Thus the assessee has not acted as a pure agent of the recipient of service when he made payment of salary to their employees and incurred other expenses.

34.1.13.4.1

34.1.13.5 The recipient of service receives and uses the services so procured by

the service provider in his capacity as pure agent of the recipient of service.

As already discussed, I find that majority of reimbursable expenses are paid as salary to the employees, who are on the pay roll of the assessee. Other expenses mainly pertain to facilitation for the said employees, in the form of conveyance, travelling, telephone, internet, lodging, boarding, office rent, supplies, utilities, furniture, equipment and administrative expenses such as postage, courier, stationery, electricity etc. It is a fact that the employees are on the pay roll of the assessee, therefore it cannot be mled out that the assessee does not use the service so procured. In absence of any evidence, it will be wrong to infer that the recipient of service had received and used the services of the persons, who are on the pay roll of the service provider. Therefore, I hold that this condition is not fulfilled, in the instant case.

34.1.13.5.1

34.1.13.6 The recipient of service is liable to make payment to the third party.

I find that there is no evidence on record, to prove that the recipient of service is liable to make payment to the persons who are on the pay roll of the service provider, on his own behalf. To the contrary, it can be logically inferred that the person, who has employed the employees, on his own pay roll, would be liable to make payment to the employees.

34.1.13.6.1

34.1.13.7

payment on his behalf.The recipient of service authorises the service provider to make

34.1.13.7.1 I find that there is no evidence on record, to prove that the recipient of service has authorised the service provider to make payment on his behalf.

The recipient of service knows that the services for which payment has34.1.13.8been made by the service provider shall be provided by the third party.

I find that there is no evidence on record, to prove that the recipient of service knows that the services for which payment has been made by the service provider shall be provided by the third party.

34.1.13.8.1

The services procured by the service provider from the third party as a34.1.13.9pure agent of the recipient of service are in addition to the services he provides on

his own account.

I find that there is no evidence on record, to prove that the said third party34.1.13.9.1services of employees of the service provider are in addition to the services provided by the assessee, on his own account. To the contrary, it can be logically inferred that the

55

services provided by the employees of the service provider are part and parcel of the services provided by the assessee to the recipient of the said taxable services.

In view of the above, I come to conclude that the assessee has NOT34.1.14fulfilled all the conditions as stipulated in Sub-rule (2) of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, in respect of reimbursable expenditure or cost. namely, salary, postage & courier, telephone & internet, stationery & printing, conveyance, travelling & petrol, entertainment and office expenses, electricity bill, consultant, contractor, site expenses, rent accommodation and guest house rent, incurred by the assessee and charged, in the course of providing taxable services, during the period w.e.f 14th May, 2015, as provided under sub-clause (ii) of clause (a), as substituted w.e.f. 14th May, 2015, under Explanation under Section 67 of the Finance Act, 1994. Therefore, such reimbursement for period w.e.f. 14th May, 2015, does NOT qualify to be excluded from the value of the taxable service, in view of clause (i) of sub-section (1) of Section 67 of the Finance Act, 1994 read with sub-clause (ii) of clause (a), as substituted w.e.f. 14th May, 2015, under Explanation under Section 67 of the Finance Act, 1994 read with sub-rule (2) of Rule 5 of the Service Tax (Determination of Value) Rules, 2006.

In view of the above, I hold that the charges, reimbursed to the service34.1.15provider, prior to 14th May, 2015, shall NOT form part of value of taxable services provided by him. However, the charges, reimbursed to the service provider, on and after 14th May, 2015, shall form part of value of taxable services provided by him, for charging service tax, calculated as under:-

(Figures in Rs.)Includible in

Value of Taxable Service

Period/Financial Year

NOT Includible in Value of Taxable

Service

Amount of reimbursable

charges received2012-13 11629983 11629983 02013-14 18873499 18873499 02014-15 20457609 20457609 02015-16

(prior to 14th May)3028494 3028494 0

2015-16 8370270 0 8370270(on or after 14th May)

2016-17 0 0 0TOTAL 62359855 53989585 8370270

34.1.16the period on and after 14th May, 2015, should form part of value of taxable services and consequentially be liable for payment of service tax at the applicable rate leviable thereon.

Accordingly, an amount of Rs.83,70,270/-, charged and recovered during

34.1.17recovered at actual and no service tax is charged extra on these charges, therefore the same should form part of cum-tax value, as provided under sub-section (2) of Section 67 of the Finance Act, 1994.

However, the assessee has submitted that reimbursable charges are

34.1.18 The assessee has relied upon the case laws of M/s Vaishali Developers & Builders [2017 (47) S.T.R. 300 (Tri. - Del.)], wherein it has been held that "as regards the quantification of service tax, it is now well settled law that the entire consideration received by the service provider has to be treated as cum duty and the benefit of the has to be extended’. The assessee has further relied upon the case laws of M/s Avtar Sodhi [2016 (46) S.T.R. 547 (Tri. - Del.)], wherein it has been held that ‘the benefit of cum-tax value is available to the assessees in view of the decision of the Supreme Court in case ofMaruti UdyogLtd. [2002 (141) E.L.T. 3 (S.C.)J’. The assessee has also relied

same

56

upon the case laws of M/s Hans Interiors [2016 (44) S.T.R. 607 (Tri. - Chennai)], wherein it has been held that ‘the decision of the Tribunal in the case of Advantage Media Consultant [2008(10)STR449(Tri.-Kolkata)] held that where service tax has not been collected for services rendered, Cum-tax value to be adopted. This principle has been upheld by the Hon ’ble Apex Court in Commissioner v. Advantage Media Consultant - 2009 (14) S. TR. J49 (S. C.). ’

I find that in the case of M/s Advantage Media Consultant [2008(10)STR449(Tri.-Kolkata)], subsequently maintained by the Apex Court [2009(14)STRJ49(SC)], it was held that the gross amount has to be adopted to quantify the tax liability treating it as value of taxable service plus service tax payable, when no tax is collected separately.

34.1.19

I find that the SCN also discussed the issue of cum-tax value at para 12.36 of the SCN. I find that the SCN nowhere alleges that the assessee has collected any amount in addition to the reimbursable charges at actual. However, the SCN proposes to deny cum-tax value benefit on the ground that whatever they have claimed as reimbursement from their service recipients, it did not include the element of service tax and the gross value received by them was not inclusive of service tax, as they did not charge the same from the recipients of service, relying upon the case laws of M/s Amrit Agro Industries [2007 (210) ELT 183 (SC)], M/s Dhillon Kool Drinks & Beverages Ltd. [2011(263) ELT241(Trib. Del.)], M/s Asian Alloys Ltd. [2006(203)ELT252(Trib. Del.)], M/s Sarla Polyester Ltd. [2008 (222) ELT 376(Trib. Ahmd.)] and M/s Shakti Motors [2008 (12) STR 710 (Tri-Ahmd)].

34.1.20

34.1.21the Finance Act, 1994, which reads as under:-

I have also gone through the provision of sub-section (2) of Section 67 of

[(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.]

I find that Hon’ble CESTAT Ahmedabad, interpreting the provision of subsection (2) of Section 67, ibid, in the case of M/s Shakti Motors [2008 (12) S.T.R. 710 (Tri. - Ahmd.)], has observed that ‘in terms of the above provision if the invoice does not specifically say that the gross amount charged includes service tax, it cannot be treated as cum-service tax price ’.

34.1.22

In view of the above, I have to see whether the assessee has collected the34.1.23service tax separately or the invoiced value includes service tax as well. The assessee has submitted that they have charged the reimbursable charges at actual with no additional marking up. The assessee has further submitted that they have also not charged service tax in respect of the said reimbursable charges, from the recipients of service, separately.

I find that the assessee has recovered the reimbursable charges by raising34.1.24debit notes, as alleged in the SCN at para 12.14 of the subject SCN. I find that the assessee has failed to furnish any evidence, in the form of invoice or otherwise, to prove that the gross amount is inclusive of service tax payable thereon. Therefore, I hold that no cum-tax benefit shall be available to the assessee in this situation and I come toconclude that the gross amount charged in the instant case, is not inclusive of service tax payable. Therefore, the assessee is liable to pay service tax amounting to Rs.11,90,922/-, attributable to the value, of taxable service charged in the guise of

57

reimbursable charges of Rs.83,70,270/-, charged and recovered by the assessee, during the period on and after 14th May, 2015, as discussed and calculated as follows

________________ _________________________________(Figures in Rs.)Period/

FinancialYear

Amount of reimbursable

charges received

Rate of service tax including

SBC

Service Tax @14%

S.B. Cess @ 0.5%

(wef 15,h Nov, 2015)

Total Service Tax Payable

2015-16(14,h May to

14lh Nov)

45,53,497 14% 6,37,490 0 6,37,490

2015-16(15th Nov to 31st March)

38,16,773 5,34,348 19,08414.5% 5,53,432

TOTAL 83,70,270 11,71,838 19,084 11,90,922

Therefore, I hold that the assessee is liable to pay service tax amounting to Rs.11,90,922/-, attributable to the gross amount charged, in the guise of reimbursable charges of Rs.83,70,270/-, charged and recovered by the assessee, during the period on and after 14th May, 2015, as discussed and calculated as above. I further hold that Service tax, amounting to Rs.36,26,103/-, paid by them under protest, should be appropriated against this Service Tax demand ,by vacating the protest lodged by the assessee.

34.1.25

The assessee has further submitted that Audit for the Financial Years 2011-34.1.2612 to 2013-14 had already been conducted by the officers of Central Excise Audit - II Commissionerate, in the month of May and June 2015 and Final Audit Report bearing FAR No. 232/2015-16 dated 22.09.2015 was issued to the noticee, therefore, the demand is time barred and cannot be sustained for the period up to 2013-14, for which audit is already concluded by the Department. However, I find that the demand pertaining to the period prior to 14th May, 2015 is not sustainable on merits, as discussed hereinabove, therefore, I see no relevance to discuss the issue of limitation, raised by the assessee.

The assessee has further submitted that the non-disclosure of34.1.27Reimbursement amount in the ST-3 Form, at the most can be termed as ‘omission’ and not willful mis-statement or suppression of facts, as alleged in the SCN. The assessee relied upon the case laws of M/s Padmini Products [1989 (43) ELT 195 (S.C.)], M/s Continental Foundation Joint Venture [2007 (216) ELT 177 (S.C.)], M/s Pushpam Pharmaceutical Company [1995 (78) ELT 401 (S.C.)] and M/s Chemphar Drugs and Liniments [1989 (40) ELT 276 (S.C.)].

However, I find that the said case laws cannot be made applicable to the instant case, as the assessee was required to disclose the amounts of reimbursements in the relevant columns of the ST-3 form meant for the purpose. The assessee has shown Reimbursement Payment under the head of Other Current Assets in the Trial Balance for 2015-16, instead of the head of Revenue, which shows that the assessee did not disclose the said expenses in their gross income and gross expenditure side in their Profit & Loss A/c, intentionally. The said non-disclosure of reimbursement could be detected only after the auditors asked for the gross Trial Balance with details of transactions total on debit and credit side and thereafter, the nature of these transactions was further verified from their Debit Notes, Certificate of Payments, re-imbursement expenses ledger, etc. and only after detailed scrutiny of these documents, the modus of the assessee had been detected. Incorporating “Reimbursement Payments” on the Current Assets in the Balance Sheet itself indicates that they had pre-determined mind to conceal receipts and payments of these transactions from auditors. Therefore, I find that the assessee deliberately suppressed their correct revenue by resorting to dubious accounting practices and they, intentionally, did not follow the principle of Accounting Standards.

34.1.28

58

k.-.-vV '

34.2 Non-payment of service tax on the taxable services provided by the assessee, as an intermediary.

34.2.1services as an intermediary and recovered charges as confirmation fees, during the Financial Years 2013-14 to 2015-16, amounting to Rs. 34,21,020/-. The assessee has failed to pay service tax amounting to Rs.4,52,615/-, leviable on the same.

It has been alleged in the show cause notice that the assessee provided

34.2.2paid service tax of Rs.3,99,572/-, on cum-tax value, with Interest of Rs.2,03,045/- and 15% Penalty, amounting to Rs.59,936/-, with the intention to gain peace of mind and to conclude the issue and requested to drop the additional demand along with penalty, allowing cum-tax value, in view of sub-section (2) of Section 67 of the Finance Act, 1994, as they have already paid the Service Tax along with interest and 15% penalty. The assessee has relied upon the case law of M/s Advantage Media Consultant [2008(10) STR 449 (Tri.-Kolkata)], subsequently maintained by the Apex Court [2009 (14) STR J49 (SC)], wherein it was held that the gross amount has to be adopted to quantify the tax liability treating it as value of taxable service plus service tax payable, when no tax is collected separately.

The assessee, while furnishing reply, submitted that they have willingly

I have gone through the provision of sub-section (2) of Section 67 of the34.2.3Finance Act, 1994, which reads as under:-

[(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.]

I find that Hon’ble CESTAT Ahmedabad, interpreting the provision of sub-34.2.4section (2) of Section 67, ibid, in the case of M/s Shakti Motors, has observed that ‘in terms of the above provision if the invoice does not specifically say that the gross amount charged includes service tax, it cannot be treated as cum-service tax price. ’

In view of the above, I have to see whether the assessee has collected the34.2.5service tax separately or the invoiced value includes service tax as well. I find that the assessee has failed to furnish any evidence, in the form of invoice or otherwise, to prove that the gross amount is inclusive of service tax payable thereon.

Therefore, I hold that the assessee is liable to pay service tax amounting to Rs.4,52,615/-, attributable to the value, of taxable service as an intermediary, collected as confirmation fees of Rs.34,21,020/-, charged and recovered by the assessee, during the period of the Financial Years 2013-14 to 2015-16. I further hold that Service tax, amounting to Rs.3,99,572/-, willingly paid by them, should be appropriated against this Service Tax demand.

34.2.6

34.3 Availment and utilization of Cenvat credit of service tax paid under reverse charge on services agreed to be imported but not actually imported.

It has been alleged in the show cause notice that the assessee has availed34.3.1and utilised Cenvat credit of Rs.15,45,000/-, in the year 2014-15, of service tax, paid under reverse charge on services agreed to be imported but not actually imported. Thus

59

fthe assessee availed credit without actual receipt and use of service, in contravention of sub-rule (1) of Rule 3 read with clause (l) of Rule 2 of Cenvat Credit Rules, 2004.

The assessee, while furnishing reply, submitted that they have paid service34.3.2tax of Rs. 15,45,000/- on services agreed to be imported, under reverse charge basis, vide Challan No. 80075 dated 09.12.2014, as cash payment, reflected in ST-3 Return for the period of October-March, 2014-15 and simultaneously availment Cenvat Credit for Service Tax of Rs. 15,00,000/-, Education Cess of Rs.30,000/- and S.H. Education Cess of Rs. 15,000/- is being reflected in the same ST-3 Return. The assessee further submitted that it is the fact that they were not required to pay such tax as per the prevalent Point of Taxation Rules, as the anticipated services were never received by them and since tax was paid, they were legally eligible for adjustment of excess amount paid earlier as service tax under sub-rule (4A) of Rule 6 of Service Tax Rules, 1994, however, during the course of filing of ST-3, it was mistakenly shown as Cenvat credit of service tax paid on input service, in the Part D2, E2 and F2 of the ST-3 return and consequently it was adjusted by way of utilizing the same during the course of future payments, instead of directly adjusting the said amount in Part D5, E5 and F5 of the ST-3 return filed by the assessee. The assessee also submitted that there is no short-payment of service tax and there is no loss to the Revenue and thus, it is nothing but technical and procedural mistake. The assessee relied upon the case law of M/s Dell India Pvt. Ltd. [2016 (42) S.T.R. 273 (Tri. - Bang.)], wherein, adjustment of excess payment of service tax was allowed. The assessee further relied upon the case law of M/s R. S. Chemicals [2017 (353) E.L.T. 247 (Tri. - All.)], wherein, it was held that amount of duty paid in excess is in the nature of Revenue deposit and there is no limitation for refund of Revenue deposit.

I find that it is a fact that the assessee has paid to the credit of the exchequer34.3.3an amount of service tax in excess of the amount of service tax liable to be paid. This excess amount can either be refunded to person.who paid in excess or due adjustment has to be allowed. I have gone through the provisions of sub-rule (4A) of Rule 6 of Service Tax Rules, 1994, which reads as under:-

[(4A) Notwithstanding anything contained in sub-rule (4), where an assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter, as the case may be.]

34.3.4excess is required to be adjusted against service tax liability for the subsequent period. Here, the assessee has adjusted the excess payment of service tax by way of taking Cenvat credit of service tax paid on input service, in the Part D2, E2 and F2 of the ST-3 return and consequently it was adjusted by way of utilizing the same during the of future payments, instead of directly adjusting the said amount, against liability of service tax payment, in Part D5, E5 and F5 of the ST-3 return filed by the assessee.

I find that it would make no difference to the Revenue, if it is adjusted by way of direct adjustment against liability of service tax or by way of allowing credit of

amount in Cenvat Credit Account to be utilised for payment of service tax in subsequent period. Hon’ble Tribunal, in the case of M/s Dell India Pvt. Ltd. [2016 (42) S.T.R. 273 (Tri. - Bang.)] observed that when the assessee paid excess amount of tax to the exchequer, law of the land is very clear under Article 265 of the Constitution of India, which says that “No tax shall be levied or collected except by authority of law ”. The Hon ble Tribunal further observed that if Revenue becomes very rigid on strict compliance of the procedure every time and all the time, there could be situations where

I find that sub-rule (4A) of Rule 6, ibid, provides that an amount paid in

course

34.3.5

excess

60

such rigidness and strictness on the part of the Revenue could become contrary to the provisions of the Article 265 of the Constitution of India.

It has also been alleged in the show cause notice that sub-rule (4A) of Rule 6 of Service Tax Rules, 1994 speaks with reference to sub-rule (4) of Rule 6, ibid, as per which also, M/s H & K Solutions Pvt. Ltd. does not fall in that category. However, I find that the paragraph in the said sub-rule (4A) starts with the words, 'Notwithstanding anything contained in sub-rule (4) which means that sub-rule (4A) shall prevail over sub-rule (4), ibid.

34.3.6

34.3.7the amount of service tax paid in excess is allowed to be adjusted by way of Cenvat credit instead of direct adjustment in service tax liability. Here, the assessee has adjusted the excess payment of service tax by way of taking Cenvat credit of service tax paid on input service, in the Part D2, E2 and F2 of the ST-3 return and consequently it was adjusted by way of utilizing the same during the course of future payments, instead of directly adjusting the said amount, against liability of service tax payment, in Part D5, E5 and F5 of the ST-3 return filed by the assessee. I find that such a procedural lapse deserves to be condoned. I hold that the excess amount deposited in exchequer cannot be retained without authority of law and therefore, the service tax demanded on the ground of procedural lapse is not sustainable.

In view of the above, I find only procedural lapse and no revenue loss, if

In respect of levying interest under Section 75 of the Finance Act, 1994, the assessee has submitted that if the amount of Service Tax is determined under Section 73 of the Finance Act, interest thereon cannot be demanded, as there exist no provisions, to charge interest, on the amount determined under Section 73 of the Finance Act, 1994. The assessee further submitted that the only provisions to charge interest on service tax are made in Section 75 of the Finance Act, 1994, which provides that every person, liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest for the period by which such crediting of the tax or any part thereof is delayed. The assessee also submitted that Section 75, ibid, does not provide for recovery/collection of interest by any authority in case of non-payment of Service Tax, which is determined under Section 73 of the Act, as proposed in the SCN. However, I find that Section 75 of the Finance Act, 1994 provides that the person, who is liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, shall pay simple interest for the period of delay, if he fails to credit the tax or any part thereof to the account of the Central Government within the prescribed period. I hold that service tax needs to be determined under Section 73, ibid, when service tax was not paid or was short-paid. Non-payment or short-payment of service tax will take place only when the person liable to pay service tax fails to credit the same to the account of Central Government within the prescribed period. Therefore, in my considered view, Section 75, ibid, is rightly applicable to charge interest on the amount not credited to the account of Central Government within prescribed period and consequently determined under Section 73, ibid, to be liable to be paid by the person as specified under Section 68, ibid.

35.

As already discussed hereinabove, the assessee was required to disclose the amounts of reimbursements in the relevant columns of the ST-3 form meant for the purpose. The assessee has shown Reimbursement Payment under the head of Other Current Assets in the Trial Balance for 2015-16, instead of the head of Revenue, which shows that the assessee did not disclose the said expenses in their gross income and gross expenditure side in their Profit & Loss A/c, intentionally. The said non-disclosure of reimbursement could be detected only after the auditors asked for the gross Trial Balance with details of transactions total on debit and credit side and thereafter, the nature of these

36.

61

transactions was further verified from their Debit Notes, Certificate of Payments, reimbursement expenses ledger, etc. and only after detailed scrutiny of these documents, the modus of the assessee had been detected. Incorporating “Reimbursement Payments” on the Current Assets in the Balance Sheet itself indicates that they had pre-determined mind to conceal receipts and payments of these transactions from auditors. Therefore, I find that the assessee deliberately suppressed their correct revenue by resorting to dubious accounting practices and they, intentionally, did not follow the principle of Accounting Standards. Further, the assessee was required to disclose the amounts of taxable services provided as an intermediary in the ST-3 form and to pay due service tax within prescribed period. The assessee has failed to do so and contravened the provisions of Section 70 of the Finance Act, 1994 in as much as they failed to submit a correct half- yearly return incorporating the details of the Service Tax discussed supra, for the months covered in the half-yearly returns and contravened Section 68 of the Finance Act, 1994 in as much as they failed to pay the service Tax to the credit of the Central Government, by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services. I find that the assessee has short-paid service tax on account of suppression of facts and thus rendered themselves liable for penalty under Section 78 of the Finance Act, 1994.

The assessee has submitted that in this case, the provision of Section 80 of the Finance Act, 1994 should be invoked for granting waiver from penalty under various Sections, as the alleged non-payment was not on account of any deliberate attempt on their part to evade payment of service tax and in most cases they have paid the demand raised in Show Cause Notice with interest and penalty. However, I find that the provisions of Section 80, ibid, are no more in force w.e.f. 14th May, 2015, by virtue of omission of Section 80, ibid, vide Section 116 of the Finance Act, 2015. I also find that the assessee has failed to furnish evidences to prove that there was reasonable cause for non-payment of service tax during the period prior to 14th May, 2015.

36.1

The Government has from the very beginning placed full trust on the Service providers/manufacturers and accordingly measures like self-assessments, etc., based on mutual trust and confidence are in place. Further, they are not required to maintain any statutory or separate records under the provisions of Central Excise/Finance Act and Rules framed there under, as considerable amount of trust is placed on them and private records maintained by them, for normal business purposes are accepted, practically for all the purposes. All these operate on the basis of honesty of the manufacturer/service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed them.

36.2

on

36.3 Moreover in the present regime of liberalization, self-assessment and filing of ER-l/ST-3 returns online, no documents whatsoever are submitted by the assessee to the department and therefore the department would come to know about such of nonpayment of tax / wrong availment of Cenvat credit only during audit or preventive/other checks. As the service tax as detailed supra has been not paid in contravention of the provisions of the Finance Act, 1994 by resorting to suppression & misrepresentation, the same is required to be demanded & recovered from them under proviso of Section 73 of the Finance Act, 1994, by invoking extended period. In the case of M/s Mahavir Plastics versus CCE Mumbai, - 2010 (255) ELT 241, it has been held that if facts gathered by department in subsequent investigation extended period can be invoked. In 2009 (23) STT 275, in case of Lalit Enterprises v CST Chennai, it is held that extended period can be invoked when department came to know of Service charges received by appellant on verification of his accounts. All the above mentioned acts of contravention of the provisions of the Finance Act on the part of the assessee have been committed with

are

62

y

The above discussions amply demonstrate that the assessee has suppressed the facts and contravened the provisions of the Finance Act, 1994, as specified above and as such the consequences shall automatically follow. The Hon’ble Supreme Court has settled this issue in the case of M/s Dharamendra Textile Processors [2008 (231) E.L.T. 3 (S.C.)] and further clarified in the case of M/s Rajasthan Spinning & Weaving Mills [2009 (238) E.L.T. 3 (S.C)]. Hon’ble Supreme Court has held that the presence of malafide intention is not relevant for imposing penalty and mens-rea is not an essential ingredient for penalty for tax delinquency which is a civil obligation. Therefore, I hold that the assessee is liable for penalty under Section 78(1) of the Finance Act, 1994.

36.4

As regards the imposition of penalty under Section 76 of the Finance Act, 1994, I find that Section 78B of the Finance Act, 1994 stipulates that the provisions of the amended Section 76 and 78 will be applicable in cases where the order is passed after the date on which the Finance Bill, 2015 received the assent of the President. The relevant text of the same reads as under:

37.

[SECTION 78B. Transitory provisions. — (1) Where, in any case,—(a)(h) service tax has not been levied or paid or has been short- levied or short-paid or erroneously refunded and a notice has been served under sub-section (1) of section 73 or under the proviso thereto, but no order has been passed under sub-section (2) of section 73, before the date on which the Finance Bill, 2015 receives the assent of the President, then, in respect of such cases, the provisions of section 76 or section 78, as the case may be, as amended by the Finance Act, 2015 shall be applicable.]

37.1 The Finance Bill, 2015 received the. assent of the President on 14.5.2015 and as such the amended provisions of the relevant sections will be applicable. The amended provision of sub-section (1) of Section 76 of the Finance Act, 1994 reads as under:

[(1) Where service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, for any reason, other than the reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made there-under with the intent to evade payment of service tax, the person who has been served notice under sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty not exceeding ten percent of the amount of such service tax:]

The above makes it amply clear that the penalty under Section 76 is imposable only in cases where the non-payment/ short-payment of service tax is on account of reasons other than fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made there-under with the intent to evade payment of service tax. In the instant case, as I have already discussed hereinabove, that the non-payment/ short-payment of service tax is on account of suppression of facts and contravention of the provisions of law with an intent to evade payment of service tax and as such the provisions of Section 76 of the Finance Act, 1994 will not be applicable to the facts of the present case and no penalty can be imposed under Section 76 of the Finance Act, 1994.

37.2

As already discussed hereinabove, I find that the assessee is further liable for penalty under Section 77 of the Finance Act, 1994 for failure to comply the provisions38.

.63

of Section 67, 68 & 70 of the Finance Act, 1994 read with Rule 6 and Rule 7 of the Service Tax Rules, 1994. As per Section 70 of the Finance Act, 1994, every person liable to pay Service Tax is required to himself assess the tax due on the services provided/received by him and thereafter furnish ST-3 returns by disclosing wholly and truly all the material facts in their Service Tax returns. Whereas, in the present case, it is seen that the assessee has not assessed the tax due, correctly on the taxable services provided and failed to file correct ST-3 returns thereby violated the provisions of Section 70(1) of the Finance Act read with Rule 7 of the Service Tax Rule, 1994 and thus rendered themselves liable for penalty under Section 77 of the Finance Act, 1994. Therefore, I hold that the assessee is liable for penalty under Section 77 of the Finance Act, 1994.

I find that the then effective provisions of the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985, as repealed vide Section 174(1) of the COST Act, 2017 and the then effective provisions of the Chapter V of the Finance Act, 1994, as omitted vide Section 173 of the COST Act, 2017, and the then effective provisions of the Cenvat Credit Rules, 2004, as superseded vide notification no. 20/2017-CE (NT) dated 30.06.2017, have been saved vide Section 174(2) of the COST Act, 2017 and notification

20/2017-CE (NT) dated 30.06.2017. Therefore, the provisions of the said repealed/amended Acts and Rules made there under are rightly enforceable for the purpose of demand of tax, interest, etc. and imposition of penalty under this notice. As per Section 142(8)(a) of the COST Act, 2017, where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act.

39.

no.

In view of my foregoing findings, I pass the following order:ORDER

I hereby confirm the demand of Service Tax, amounting to Rs.11,90,922/- (Rupees Eleven Lakh, Ninety Thousand, Nine Hundred & Twenty Two only) (including cesses), attributable to the gross amount charged, in the guise of reimbursable charges of Rs.83,70,270/-, charged and recovered by the assessee, during the period on and after 14th May, 2015, in terms of proviso to section 73(1) of the Finance Act, 1994 read with Section 68 of the Finance Act, 1994, by invoking extended period of limitation and order recovery of the same, from the assessee, under the provisions of the Finance Act, 1994 and the Central Goods & Service Tax Act, 2017;

40.

(0

(ii) I hereby confirm the demand of Service Tax, amounting to Rs.4,52,615/- (Four Lakh, Fifty Two Thousand, Six Hundred & Fifteen only) (including cesses), attributable to the value, of taxable service as an intermediary, collected as confirmation fees of Rs.34,21,020/-, charged and recovered by the assessee, during the period of the Financial Years 2013-14 to 2015-16, in terms of proviso to section 73(1) of the Finance Act, 1994 read with Section 68 of the Finance Act, 1994, by invoking extended period of limitation and order recovery of the same, from the assessee, under the provisions of the Finance Act, 1994 and the Central Goods & Service Tax Act, 2017;

(hi) I hereby allow as adjustment against service tax liability, of the amount of Rs.15,45,000/- (Rupees Fifteen Lakh & Forty Five Thousand Only), already paid in excess, as discussed hereinabove and condone the procedural lapse of incorrect entry in the ST-3 return;

(iv) I hereby order that the amount of service tax, of Rs.36,26,103/-, already paid under protest, be appropriated against the demand of service tax hereby confirmed;

64

■. >4-

*

(v) I hereby order that the amount of service tax, of Rs.3,99,572/-, already paid willingly, be appropriated against the demand of service tax hereby confirmed;

(vi) I hereby order that Interest at the appropriate rate should be charged and recovered, from the assessee, on the above confirmed demand, as mentioned in clause (i) and (ii) above in terms of the provisions of Section 75 of the Finance Act, 1994 and the provisions of the Central Goods & Services Tax Act, 2017;

(vii) I hereby order that the amount of interest, of Rs.2,03,045/-, already paid willingly, be appropriated against the demand of interest hereby confirmed;

(viii) I do not impose any penalty on the assessee in terms of the provisions of Section 76 of the Finance Act 1994;

(ix) I hereby order that Penalty, amounting to Rs. 16,43,537/- (Rupees Sixteen Lakh, Forty Three Thousand, Five Hundred & Thirty Seven only), should be recovered, from the assessee, under Section 78(1) of the Finance Act, 1994 and the provisions of the Central Goods & Services Tax Act, 2017, however, in view of clause (ii) of the second proviso to Section 78 (1), if the amount of Service Tax confirmed and interest thereon is paid within the period of thirty days from the date of receipt of this Order, the penalty shall be twenty five percent of the said amount, subject to the condition that the amount of such reduced penalty is also paid within the said period of thirty days;

I hereby order that the amount of penalty, of Rs.59,936/-, already paid willingly, be appropriated against the demand of penalty hereby confirmed; and(x)

(xi) I hereby order that Penalty, amounting to Rs.10,000/- (Rupees Ten Thousand Only), should also be recovered, from the assessee, under Section 77 of the Finance Act, 1994 and the provisions of the Central Goods & Services Tax Act, 2017.

Thus, the Show Cause Notice dated 23.10.2017, issued by the Joint Commissioner of Central Tax Audit, Ahmedabad, from File no. VI/l(d)/CTA/(T7/Cir- IV/H&K-SCN/17-18, is disposed off in above terms. n V i A—

41.

)&>

(Mohit Agrawal) Additional Commissioner

COST, Ahmedabad South.F. No. STC/04-37/H&K Solutions/OA/2017-18 DIN no. : 20201164WS0000006200

Date:-20.11.2020BY REGD POST A.D./HAND DELIVERYTo,M/s H. & K. Solutions Pvt. Ltd., 719, 7th Floor, Venus Atlantis,100 Ft. Ring Road, Prahladnagar, Ahmedabad-380 015

Copy to:-The Hon’ble Principal Commissioner, CGST, Ahmedabad-South.The Deputy Commissioner (RRA), Central GST, Ahmedabad South.The Deputy Commissioner, Central GST, Division-VIII, Ahmedabad South. The Superintendent, Central GST, Range-I, Division-VIII, Ahmedabad South. The Assistant Commissioner (System), Central GST, Ahmedabad South. Guard File.

(1)(2)(3)(4)

(6)

65

office of the principal commissioner of c. g. s. t.,

Documents