OFFICE OF THE COMMISSIONER, CENTRAL EXCISE & SERVICE

TAX, 38, M.G. MARG, CIVIL LINES, ALLAHABAD-211001

C. No. VI(ST)Dem(12)-Adj- 52/2012/ Dated:- 26 .11.2013

OIO No. (ST- 21 /2012) 67 of 2013 Dated:- 26 .11.2013

Brief facts of the case:

These proceedings are initiated against M/s Aakay Associates, D-4, Birla Market,
Renukoot, Sonebhadra (U.P.) - 231217 (hereinafter referred to as the party). The party are
registered under Section 69 of the Finance Act, 1994 (hereinafter referred to as the Act) read
with Rule 4 of the Service Tax Rules, 1994 (hereinafter referred to as the Rules) with the
Department under Service Tax Registration No AEZPB0583JST001 for “Maintenance & Repair
Service”, “Manpower Recruitment & Supply Agency service” and “Construction Service” and
are falling under the jurisdiction of the Central Excise and Service Tax Range-II, Renukoot,
Division Mirzapur and have undertaken to abide by all the provisions of the Act and the Rules
made there under.

Section 68 of the Act read with Rule 6 of the Rules stipulates that every assessee shall
pay Service Tax on the value of taxable services received during any calendar quarter/month, to
the credit of the Central Government by 05th of the month immediately following the said
quarter/month. Failure to pay Service Tax in due time is liable to imposition of penalty under
Section 76 of the Act.

On being asked by the department, M/s Hindalco Industries Ltd., Renukoot, vide their
letter reference No. KNP/GEN/0037 dt. 02.11.2011 furnished details of gross value of services
paid to the party during the period 2010-11.

On scrutiny of records of the party available with the office of the Superintendent Central
Excise & Service Tax, Range-II, Renukoot, Sonebhadra as well as the details provided by the
M/s Hindalco Industries Ltd., Renukoot, it appears that the party have received total of Rs.
6845593/- as gross value of services against taxable services provide to M/s Hindalco Industries
Ltd., Renukoot, & have to pay Rs. 639253/- as Service Tax including Ed. Cess & S&H Ed. Cess.
But they have suppressed the gross value of services & paid Rs. 87248/-Service Tax including
Ed. Cess & S&H Ed. Cess. Thus party have made short payment of Service Tax by Rs. 552005/-
during the relevant period, to the credit of Central Government, thereby contravening the
provisions of Section 68 of the Act read with Rule 6 of the Rules. By doing so, they have made
themselves liable for penalty under Section 76 of the Act.

Thus party have suppressed the material facts from the department by way of not
showing the correct amount of gross value received in lieu of providing taxable services and by
not paying due service tax. The party have never disclosed these facts to the department and have
made willful mis-statement suppressing the material facts with intention to evade payment of
Service Tax. By doing so, they have made themselves liable for penalty under Section 78 of the
Act. Thus the provisions as contained in proviso to section 73(1) are invoked and the demand is
extended for the period for the last five years.

It appears that the party have not paid due service tax amounting to Rs.552005/- to the
credit of Central Government by willful suppression of the facts contravening the provisions as
contained in Section 68 of the Act read with Rule 6 of the Rules. By doing so, they have made
themselves liable for penalty under Section 76 of the Act and Section 78 of the Act.

Case for the Department:

A Show Cause Notice No. 28/ Joint Commr./Alld/2012 dated 16.04.2012 [issued vide
C.No. VI(ST)Dem(12)Adj.-52/2012/456-58 dated 16.04.2012] was issued by the Joint
Commissioner, Central Excise & Service Tax, Allahabad, requiring the party to show cause as to
why:-
(i) Service tax amounting to Rs. 552005/- should not be demanded and recovered
from them alongwith appropriate interest under the proviso to Section 73(1) of the Act
r/w Section 75 of the Act.
(ii) Penalty should not be imposed upon them under section 76 of the Act for
violation Section 68 of the Act read with Rule 6 of the Rules.
(iii) Penalty should not be imposed upon them under Section 78 of the Act.

Case for the Party:

Consequent upon issuance of the show cause notice, the party have filed their defence
reply, inter alia, stating therein that out of the total value of Rs. 6845593/-, they have provided
Construction services valued at Rs. 2826126.17 on which service tax payable amounts to Rs.
99858.32 after taking abatement of 67% on the said value. The remaining amount of Rs.
4019466.92 received from M/s. Hindalco relates to other services on which service tax payable
amounts to Rs. 382840.06. Thus the total liability comes to Rs. 482698.38 which the party have
stated to have deposited alongwith interest. The party have also submitted copies of relevant
challans. Personal hearing in the case was granted to the party on three occasions but the party
did not avail any of the opportunities granted to them.

Discussion & Findings:

I have carefully gone through the facts of the case and evidence available on record. It is
not in dispute that the party have provided various taxable services to M/s Hindalco Industries
Ltd., Renukoot. The party have received amounts in lieu of providing such services as per the
terms of the contract entered into between them and the service receiver. It has been revealed
during the course of investigation that the party have not paid service tax on the gross amount of
service consideration received by them from the service receiver. The show cause notice,
impugned herein, seeks to recover service tax short paid by the party.

Contrary to the charges made in the show cause notice, the party have contended that out
of the total value of Rs. 6845593/-, they have provided Construction services valued at Rs.
2826126.17 on which service tax payable amounts to Rs. 99858.32 after taking abatement of
67% on the said value. The remaining amount of Rs. 4019466.92 received from M/s. Hindalco
relates to other services on which service tax payable amounts to Rs. 382840.06. Thus the total
liability comes to Rs. 482698.38 which they have deposited alongwith interest.

With a view to verify the contentions made by the party in their defence reply, a letter
C.No. VI(ST)Dem(12)-Adj- 52/2012/8625 dated 02.08.2013, was sent to the jurisdictional
Assistant Commissioner, Central Excise & Service Tax Division, Mirzapur. The Assistant
Commissioner was directed to send a detailed report with regard to the facts of the case and the
submissions made by the party. In compliance of the above directions, the jurisdictional
Superintendent, Central Excise & Service Tax Range-II, Renukoot, vide letter C.No.ST/RKT-
II/ST Verification Report/49/2013/626 dated 27.08.2013, reported as under:

“….that party’s submission that he have received Rs. 6845593.00 including service tax
from M/s. Hindalco is correct. Party’s version that they have provided construction
services valued at Rs. 2826126.17 on which service tax has been paid after taking
abatement on 67% on the said value has been verified from records and found in order.
Service Tax on remaining amount Rs.4019467.00 received from M/s. Hindalco comes to
Rs. 382840.00 and the same has been paid by the party. Total tax liability thus comes to
Rs.482698.00 which has been paid by the party alongwith interest. All the challans
submitted by the party have been verified and found in order.”

In view of the facts narrated above, the only question before me to decide is with regard
to imposition of penalty on the party. The show cause notice impugned herein seeks to impose
penalty on the party under Section 76 and 78 of the Act. As regards imposition of penalty under
Section 76 and 78 of the said Act is concerned, I observe that Section 78 has been amended and
proviso has been inserted in the said Section 78 to the effect, that the provision of Section 76
shall not apply, if penalty is payable under Section 78. I also observe that the amended
provisions of Section 78 shall apply to the subject case. I therefore, do not impose any penalty
under Section 76.

As regards imposition of penalty under Section 78 of the Act, it is imperative to revisit

the facts of the case. The demand pertains to the period 2010-11. Initially, it has been alleged that
the party have received value of taxable amounting to Rs. 6845593/- during the said period. The
party were liable to pay service tax amounting to Rs. 639253/- accrued thereon. The party,
however, paid service tax amounting to Rs. 87248/- only during the said period. The differential
amount of service tax Rs. 552005/- has been sought to be recovered vide the impugned notice.
However, on subsequent inquiry from the jurisdictional Range office, it has been observed that
out of the taxable value of Rs. 6845593/-, the party have provided construction services valued
at Rs. 2826126.17 on which the party are eligible to avail abatement on 67% on the said value.
The remaining amount Rs.4019467.00 has been received by the party from M/s. Hindalco in lieu
of providing other taxable services. Total tax liability thus comes to Rs.482698/- instead of Rs.
639253/- as alleged in the show cause notice. Out of the said tax liability of Rs.482698/- accrued
during the period 2010-11, the party have paid service tax Rs. 87248/- only during the said
period. Thus there has been short payment of service tax amounting to Rs. 395450/- during the
relevant period. The party have however, paid the said amount alongwith interest. However, I
find from case records that the said short payment of service tax amounting to Rs. 395450/-
accrued on services rendered by the party during the period 2010-11 would have escaped but for
the investigation conducted by the department at the end of the service receiver ie. M/s.
Hindalco. It was only through the letter dated 02.11.2011 from M/s. Hindalco, that the short
payment was detected. I find that the party has consciously and deliberately suppressed the value
of taxable service and never disclosed the payment received or services rendered by them. As I
have observed herein above, in this case the party was conscious that services provided by them
are taxable and liable to service tax but did not deposit with in clear disregard to the statutory
provisions of the law. Hon’ble Tribunal in the case of Mett Mac Donald Ltd. vs. CCE reported
in 1994-2006-STT 239 (Tri.-Delhi), Suhita Ethanic marketing Service (Pvt.) Ltd. vs. CCE
reported in 2005 (2) STT 222 (Tri.-Mumbai) & ACME Tele Power (Pvt.) Ltd. Vs. CCE,
Chandigarh reported in AIT 2008 13 (Tribunal) it has interalia held that when the amount of
service tax has been determined by the department during the course of investigation then the
levy of penalty is justified. In view of the facts and circumstances of the case the proposal for
imposition of penalty under Section 78 of the finance Act, 1994 is justified and accordingly I
uphold the same.

In view of the above discussion and finding, I pass the following order:

ORDER

1. I confirm the demand of service tax amounting to Rs. 395450/- under the proviso to
Section 73(1) of the Act alongwith appropriate interest under Section 75 of the Act.
However, since the party have deposited the said amount alongwith interest, I order for
appropriation of the same against the determined liability and interest.
2. I impose a penalty of Rs. 395450/- under Section 78 of the Act. However, the penalty
shall be reduced to 25% if the reduced amount of penalty is deposited within thirty days
of receipt of this order.

(Somesh Tiwari)
Additional Commissioner
Central Excise & Service Tax
Allahabad.
To,
M/s Aakay Associates,
D-4, Birla Market, Renukoot,
SONEBHADRA (U.P.) – 231 217

OFFICE OFTHE COMMISSIONER , CUSTOMS, CENTRAL EXCISE & SERVICE

TAX 38, M.G.MARG CIVIL LINES ALLAHABAD

C. No. VI(ST)Dem(12)-Adj- 52/2012/ Dated:- 26 .11.2013

Copy forwarded for information and necessary action to:-

1. The Commissioner, Central Excise Allahabad

2. The Assistant Commissioner Central Excise Division-Mirzapur.
3. The Superintendent, Central Excise Range-Renukoot-II, Division-
Mirzapur.
4. Guard File

Superintendent (Adj)
Central Excise Allahabad