OFFICE OF THE COMMISSIONER, CENTRAL EXCISE & SERVICE

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

C. No. VI(ST)Dem(12)-Adj- 147/2011/ Dated:- .11.2012

OIO No. (ST- /2011) of 2012 Dated:- .11.2012

Brief facts of the case:

These proceedings are initiated against M/s Arvind Erectors [Propreitor – Shri Deen Dayal
Yadav], Quarter No. 3-AET-5, Obra Colony, Obra, Sonebhadra (U.P.) – 231219 (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
AAIFM8188KSD001 for “Maintenance & Repair 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 05 th 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. Section 70 of the Act read with Rule 7 of the Rules prescribes half yearly
return to be submitted by the assessee in form ST3, failure to comply shall also attract penalty.

On being asked by the department, M/s Obra Thermal Power Station, Obra vide their letter
reference No. 1033/P&AD/BTPS dt. 16.05.2011, 261/P&AD/BTPS/29.06.2011 &
2782/CPAD/ATPS dt. 11.08.2011 furnished details of gross value of services paid to the party
during the period 2006-07 to 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
service receiver, it appears that the party have received total of Rs. 1,24,60,388/- as gross value of
services against taxable services provide by them and have to pay Rs. 12,78,270/- as Service Tax
including Ed. Cess & S&H Ed. Cess. But they have suppressed the gross value of services and have
paid Rs.1,15,164/- Service Tax including Ed. Cess & S&H Ed. Cess. Thus party have made short
payment of Service Tax amounting to Rs. 11,63,106/- 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.

The party were asked by the Range Superintendent vide letter C.No.ST/Misc/RKT-
II/08/2011/553 dated 09.04.2011; C.No.ST/Misc/RKT-II/08/2011/Pt-I/972 dated 23.06.2011 and
C.No.ST/Misc/RKT-II/08/2011/1171 dated 18.07.2011 to clarify the same but they failed to clarify
it due to reasons best known to them.

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. 11,63,106/- 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.

It also appears that the party has not shown actual taxable value in the half yearly return in
form ST-3 to the Superintendent, Central Excise Range-II, Renukoot contravening the provisions of
Section 70read with rule 7 of the Rules. Hence the party are liable for imposition of penalty under
section 77 of the Act.

Case for the Department:

A Show Cause Notice No. 75/ Joint Commr./Alld./2011 dated 05.10.2011 [issued vide
C.No. VI(ST)Dem(12)Adj.-147/2011/7975 dated 05.10.2011] was issued by the Joint
Commissioner, Central Excise & Service Tax Commissionerate, Allahabad, requiring the party to
show cause as to why:-
(i) Service tax amounting to Rs. 11,63,106/- 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 77 of the Act for violation
of Section 70 read with rule 7 of the Rules.
(iv) Penalty should not be imposed upon them under Section 78 of the Act.

Case for the Party:

Inspite of having been granted enough time to file their defence reply against the above
show cause notice, the party did not file any reply for reasons best known to them. For the purpose
of imparting natural justice, the party were granted opportunity to be heard in person on 11.04.2012;
11.05.2012 and 18.06.2012. The party, vide their letter dated 18.06.2012, sought adjournment on
the ground that they have sought certain information with regard to payment of service tax from the
department (service receiver) and sought three months time to file reply. Personal hearing was again
fixed for 19.07.2012.

The party, vide their undated letter, submitted their defence reply, on grounds mentioned as
under:

(i) that we are registered under STC Code No. AAIFM8188KSD001 for management,
maintenance and repair service. This service is being rendered to M/s. Obra Thermal Power Station.
The payments towards services rendered have been received strictly as per agreement.

(ii) that the figures of receipts shown in the show cause notice do not exactly tally from the
actual receipts from the said parties.

(iii) that assessee is providing maintenance and repair services which involves supply of material
which is out of purview of service tax. Major part of contract comprises of supply of material. In
every contract, the ratio of material and services are different. The material is also supplied by the
contractor and service tax has to be calculated excluding the material portion. Since it is not
practically possible to specify the exact amount of material in water tight calculation hence
percentage of the gross amount is considered as services on which the service tax is paid. We have
paid entire amount received from the contractees without withholding any amount.

(iv) that as per Notification No. 24/2012 dated 06.06.2012, it has been stated that in case of
composite contract, service tax shall be payable at the rate of 40% of the gross amount charged.
While extending such analogy to this case, we have paid service tax on gross contract value which
is more than determined by the department.

(v) that in light of the aforesaid facts, practical view of the case may be taken. We have acted in
a bonafide manner where correct amount of tax has been paid. We may be granted another
opportunity of personal hearing.

In view of the fact that enough opportunity having been granted to the party to defend their
case and in terms of the provisions contained in Sec. 33A of the Central Excise Act, 1944, as made
applicable to service tax matters vide Sec. 83 of the Finance Act, 1944, I proceed to adjudicate the
case on the basis of facts of the case and evidence available on record.

Discussion and 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 “management, maintenance and repair” services to M/s.
Anpara and Obra Thermal Power Station. The party have themselves obtained service tax
registration under the said service category. 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.

To proceed any further, it is imperative to visit the relevant provisions contained in the
Finance Act, 1994 and the Rules framed thereunder as they existed at the material time.
“Management, maintenance and repair services have been defined under sub-section (64) of Sec. 65
of the Act. The taxable service relating to management, maintenance and repair have been defined
in Sec. 65(105)(zzg) of the Act. Furthermore, Sec.66 of the Act, interalia, envisages that there shall
be levied service tax at specified rate on the value of taxable service referred to in sub-clause (zzg)
of clause (105) of Sec. 65 of the Act. The mechanism for valuation of taxable services for charging
service tax has been provided in Sec. 67 of the Act. The said provision, interalia, envisages that
where the provision of service is for a consideration, received wholly in money, the value for
charging service tax, shall be the gross amount charged by the service provider for provision of
service. On applying the provisions contained in Sec.67 of the Act in respect of the “management,
maintenance and repair” services provided by the party, it is amply clear that the value of taxable
service shall be the gross amount charged, for the purpose of determining their service tax liability.

On examining the documents available on record, it is revealed that the liability has been
worked out by the department on the basis of payments made by the service receiver to the party.
The service receiver has also submitted copies of TDS certificates issued by them to the party
during the relevant period. This establishes that the amounts charged by the party in lieu of
providing taxable services, have been paid to them by the service receiver. The party ought to have
paid service tax on such gross value and not on the value determined on their own ascertainment. It
is pertinent to mention herein that during the course of investigation, the party were asked by the
jurisdictional Range Superintendent vide letters mentioned above to clarify with regard to the
information provided by the service receiver but they failed to clarify it due to reasons best known
to them. On examining the documents available on record, it is revealed that the liability has been
worked out by the department on the basis of payments made by the service receiver to the party. In
the scheme of the above referred provisions of Service Tax Law, it is immaterial as to whether the
party have received service tax from their service receiver on the gross value of taxable service or
not. I hold that service tax has been rightly demanded from the party on the said gross value.

The party have raised a contention that they are providing maintenance and repair services
which involves supply of material which is out of purview of service tax. Major part of contract
comprises of supply of material. In every contract, the ratio of material and services are different.
The material is also supplied by the contractor and service tax has to be calculated excluding the
material portion. Since it is not practically possible to specify the exact amount of material in water
tight calculation hence percentage of the gross amount is considered as services on which the
service tax is paid. They paid entire amount received from the contractees without withholding any
amount. The party have further contended that as per Notification No. 24/2012 dated 06.06.2012, it
has been stated that in case of composite contract, service tax shall be payable at the rate of 40% of
the gross amount charged. While extending such analogy to this case, we have paid service tax on
gross contract value which is more than determined by the department.

I have examined the above contention of the party in great detail. Having held that the
mechanism for valuation of taxable services for charging service tax has been provided in Sec. 67 of
the Act. The said provision, interalia, envisages that where the provision of service is for a
consideration, received wholly in money, the value for charging service tax, shall be the gross
amount charged by the service provider for provision of service. I find that the party have wrongly
placed reliance on the purport and import of Notification No.24/2012-ST dated 06.06.2012,
inasmuch as, firstly, the said notification seeks to amend the Service Tax (Determination of Value)
Rules, 2006. Secondly, the said notification seeks, interalia, to provide a mechanism for valuation of
services related to “works contract service”, which have been specifically and separately defined in
the Finance Act, 1994, and thirdly the application of the said notification has been specifically
notified with effect from 1st day of July, 2012, thereby having no implication on the party’s case
which relates to the period 2006-07 to 2010-11. In the said view, I hold that the contention of the
party in this regard is invalid.

With regard to the applicability of extended period of limitation envisaged in proviso to Sec.
73(1) of the Act, it is revealed that the party have not shown the gross value of taxable service
provided by them in any of the ST-3 returns. The party have suppressed and mis-declared the actual
gross value with intent to evade payment of service tax. The party have thereby contravened the
provisions contained in Sec. 68 of the Act read with Rule 6 of the Rules.

Now I take up the proposal for imposition of penalty under Section 76, 77 and 78 of the
Finance Act, 1994.

As regards imposition of penalty under Section 76 and 78 of the said Act is concern, 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 notice issued
earlier as per explanation. I therefore, do not impose any penalty under Section 76.

As regards imposition of penalty under Section 77 of the said Act for failure to comply with
the statutory provisions of the Service Tax Act and Rules made thereunder, I find that the party has
failed to comply with the provisions and therefore for their act of omission and commission, I hold
the penalty under Section 77 of the Finance Act, 1994.

As regards imposition of penalty under Section 78, I observe 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 the Services being provided by them are Taxable Services liable to Service Tax but did not
deposit in clear disregard to the law. Hon’ble Tribunal in the case of Suhita Ethnic Marketing
Services Pvt Ltd. Vs. CCE [2005] 2 STT 222 (Mumbai-CESTAT), Mett MacDonald Ltd. Vs.
CCE [1994-2006] STT 239 (New Delhi-CEGAT) and ACME Tele Power Pvt. Ltd. Vs. CCE,
Chandigarh AIT-2008-13 (CESTAT) it has been 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 under
Section 78 of the Finance Act, 1994 is justified.

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. 11,63,106/- under the proviso to
Section 73(1) of the Act alongwith appropriate interest under Section 75 of the Act.
2. I impose a penalty of Rs. 10,000/- under Section 77 of the Act for violation of Section 70
read with rule 7 of the Rules.
3. I impose a penalty of Rs. 11,63,106/- under Section 78 of the Act.
The party are directed to deposit the said amounts forthwith.

(Somesh Tiwari)
Joint Commissioner (Adj.)
Central Excise Allahabad.
To,
M/s Arvind Erectors [Propreitor – Shri Deen Dayal Yadav],
Quarter No. 3-AET-5, Obra Colony,,
Obra, SONEBHADRA (U.P.) – 231 219

OFFICE OFTHE COMMISSIONER , CUSTOMS, CENTRAL EXCISE & SERVICE TAX

38, M.G.MARG CIVIL LINES ALLAHABAD

C. No. VI(ST)Dem(12)-Adj- 147/2011/ Dated:- .11.2012

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. The CAO, Central Excise Allahabad
5. Guard File

Superintendent (Adj)
Central Excise Allahabad