Ahm-Stx-003-Adc-032-12 Dtd

Ahm-Stx-003-Adc-032-12 Dtd

V.ST/15-58/Off/OA/2010

AHM-STX-003-ADC-032-12 DTD. 13.03.2012

Brief facts of the case:

M/s.J.J. Engineers, 9, Umiya Park Soceity, Near St. Annes School, Kalol-382 721, and Dist. Gandhinagar (herein after referred to as “the said assessee”) are engaged in the business of Laying of Pipelines etc. to their clients viz. ONGC etc. as per the contracts and agreements entered into with their clients.

2.On the basis of intelligence gathered that the said assessee is evading payment of service tax, an inquiry was initiated against the said assessee and accordingly information and documents were called upon by the officers of Central Excise, Preventive Section, Ahmedabad-III. Scrutiny of records submitted by the said assessee revealed that they are engaged in the work of laying of gas and water pipelines, fabrication etc. as per contract agreements with M/s.ONGCL etc. for which they had obtained Service Tax Registration No.AAXPJ3006GST001 under the category of “Erection, Commissioning or Installation Service’ on 26.06.2006.

3.It also appeared that the activity undertaken by them is correctly covered under the definition of “Commercial or Industrial Construction Service”, as defined under Section 65 (25b) of the Finance Act, 1994 and not under the category of “Erection, Commissioning or Installation Service”. For ease of reference, Section 65(25b) of the Finance Act, 1994 is reproduced below.

a)Construction of a new building or a civil structure or a part thereof; or

b)Construction of pipeline or conduit; or

c)Completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

d)Repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is —

(i)used, or to be used, primarily for; or

(ii)occupied, or to be occupied, primarily with; or

(iii)engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

4.Further, it appeared that the said assessee is not eligible to claim exemption under Noti. No.15/2004-ST dated 10.09.2006, as amended, as they have not included the value of the goods and materials supplied by their clients in the gross value of service, which has resulted into short payment of service tax. Accordingly, the inquiry initiated against the said assessee was culminated into issuance of show cause notice F.No.V.ST/15-58/Off/OA/2010 dated 04.08.2010 whereby the said assessee was asked to show cause as to why :

  1. The service provided by them should not be classified under the category of “Commercial or Industrial Construction services” and the service tax paid under the category of “Erection, Commissioning or Installation Service” should not be confirmed under the category of “Commercial or Industrial Construction Services”.
  1. The benefit of Noti. No.15/2004-ST dated 10.09.2004, as amended, and Noti. No.1/2006-ST dated 01.03.2006 should not be denied and service tax should not be charged and recovered on the full value received by them.
  1. The service tax amounting to Rs.33,22,965/- (inclusive of Cess) escaped on account of non-payment of service tax as well irregular availment of benefit of Noti. No.15/2004-ST dated 10.09.2004, as amended, and Noti. No.1/2006-ST dated 01.03.2006 should not be demanded and recovered from them under the proviso to Section 73(1) of the Finance Act, 1994, as amended, by invoking the larger period of five years, and the amount of Rs.4,25,693/- already paid by them should not be appropriated against the aforesaid demand.
  1. Interest at the prescribed rate on the service tax of Rs.33,22,965/- as above should not be charged in terms of the provisions of Section 75 of the Finance Act, 1994.
  1. Penalty under Section 76 of the Finance Act, 1994, as amended from time to time, read with Section 68 of the said Act and Rule 6 of the Service Tax Rules, 1994, as amended, should not be imposed upon them in as much as they have failed to pay service tax within the stipulated time frame as mentioned in the notice.
  1. Penalty should not be imposed upon them under Section 77 of the Finance Act, 1994, as amended from time to time, in as much as they failed to file the prescribed ST-3 returns in respect of the service rendered by them within the stipulated time frame in terms of the provisions of Rule 7 of the Service Tax Rules, 1994.
  1. Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 for suppressing and not disclosing the correct value of the taxable services provided by them before the Department with intent to evade payment of Service Tax.

Defence reply and personal hearing :

5.The said assessee was required to file their defence within 30 days of receipt of the show cause notice, which was delivered to them on 16.08.2010. Since the assessee has not filed their defence/ written submissions, letters were issued to them on 17.08.2010, 13.09.2010, 24.09.2010, 20.10.2010, 19.11.2010, 21.12.2010, 01.12.2011, 16.12.2011 and 04.01.2012 requesting them to file their defence reply, if any, and attend the personal hearing fixed and communicated vide said letters. Even though sufficient time and opportunities were granted to the said assessee to defend/explain their case, the said assessee has neither filed any reply nor availed the personal hearing granted to them. Since the case is pending for quite a long time, I take-up the show cause notice for adjudication on the basis of evidences available on record.

Discussion and findings:

6.I have carefully gone through the facts of the case and the evidences available on record. From the record, I find that the show cause notice was delivered to the said assessee on 16.08.2010 and the case is pending for quite a long time. The said assessee has not come forward with any defence against the action proposed under the impugned show cause notice, even though they have been given sufficient opportunities. Therefore, I proceed to decide the case on the basis of evidences available on record.

7.I find that laying of pipeline is specifically covered under the category of “Commercial or Industrial Construction Services” as defined under Section 65(25b) of the Finance Act, 1994 and there is no dispute on this count. I find that Shri Jacob John, Proprietor of the said assessee, in his statements recorded on 28.05.2009 and 19.02.2010 had admitted that the service provided by them falls under the category of “Commercial or Industrial Construction Services”. Accordingly, the said assessee had paid service tax amounting to Rs.425,693/- under “Commercial or Industrial Construction Services” pertaining to the years 2005-06 & 2006-07, after commencement of inquiry initiated by the Department. Since the impugned activity is correctly classifiable under the category of “Commercial or Industrial Construction Services” and the same has been admitted by the said assessee, I would not like to discuss the issue further.

8.The notice seeks recovery of service tax amounting to Rs.33,22,965/- (inclusive of Cess) not paid by the said assessee during the period 2005-06 to 2008-09, which includes the service tax of Rs.425,693/- paid by them during the course of investigation. While calculating the service tax liability, the amount of Rs.36,41,803/- received by them towards hiring/renting of equipments and Rs.29,64,050/- received towards the service rendered prior to the imposition/levy of service tax w.e.f. 16.06.2005 has already been excluded from the gross taxable value. Therefore, the differential demand of Service Tax amounting to Rs.28,97,272/- is on account of irregular availment of exemption benefit under Noti. No.15/2004-ST dated 10.09.2004, as amended. According to the said assessee, they are entitled for exemption upto 67% of the gross value and were required to pay service tax on the remaining 33% of value, as per Noti. No.15/2005-ST dated 10.09.2004, as amended.

9.I find that the benefit of Notification No.15/2005-ST dated 10.09.2004 and 1/2006-ST dated 01.03.2006 are available subject to compliance of the conditions specified therein. The said notifications categorically state that the “gross amount” charges shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service. Admittedly, in the instant case the said assessee had used the goods and material provided by their clients free-of-cost in providing the impugned service and the value of such goods and material have not been included in the gross value of service. Therefore, it is explicitly clear that the said assessee is not entitled for the exemption benefit under Noti. No.15/2005-ST dated 10.09.2004 and 1/2006-ST dated 01.03.2006 and accordingly, they were required to pay service tax on the gross value received by them. I further find that the issue in the present case is fully covered by the decision of Hon’ble Tribunal in the case of M/s.Jaihind Projects Ltd. Vs. Commissioner of Service Tax, Ahmedabad [2010 (18) STR 650 (Tri-Ahmd)] wherein it was held that if the value of the pipes, which are supplied by the service receiver, is not included in the gross value, the service provider is not eligible for abatement as per Noti. No.15/2004-ST dated 10.09.2004, as amended. I find that the ratio of above case law is squarely applicable to the instant case. Therefore, I hold that the assessee is not eligible for the benefit of abatement as per Noti. No.15/2004-ST dated 10.09.2004, as amended.

10.Moving forward to the other allegations and proposals made in the notice, I find that as per Section 69 of the Finance Act, 1994, provider of taxable service is required to obtain service tax registration within 30 days of such service becoming taxable. In the instant case, the assessee were providing the taxable service since 2005-06 but obtained the service tax registration only on 26.06.2006 that too under a different category. By the above acts of commission and omission on the part of the said assessee, it is proved beyond doubt that they have contravened the provisions of Finance Act, 1994 and the Rules made thereunder. It is also on record that they have failed to submit the statutory return in Form ST.3 to the department periodically even after obtaining the Service Tax registration and accordingly suppressed the facts of providing taxable service and receiving value thereof from the department with intent to evade payment of service tax. Under the circumstances, extended period of limitation as provided under Section 73(1) of the Finance Act, 1994 is correctly invoked for recovery of the service tax not paid by them.

11.From the foregoing discussions, I find that the assessee has contravened the provisions of Section 69, 68 and 70 of the Finance Act, 1994 and Rule 4, 6 & 7 of the Service Tax Rules, 1994 in as much as they have failed to obtain service tax registration within the stipulated time, failed to pay applicable service tax and file the service tax returns. Therefore, I hold that the assessee is liable for penal action as provided under Section 76, 77 and 78 of the Finance Act, 1994. Regarding the proposal for recovery of interest, I find that statute made under Section 75 of the Finance Act, 1994 is categorical regarding recovery of interest, once the applicable Service Tax is not paid within the stipulated date.

12.In view of the above findings, I pass the following order :

O R D E R

(i)I hold that the service provided by M/s.J.J. Engineers, Kalol is classifiable under the category of “Commercial or Industrial Construction Service” as defined under Section 65 (25b) of the Finance Act, 1994 and I confirm the service tax paid by them in the category of “Erection, Commissioning or Installation Service” under the category of “Commercial or Industrial Construction Service”.

(ii)I deny the benefit of Notification No.15/2004-ST dated 10.09.2004, as amended, to M/s.J.J. Engineers, Kalol and hold that they are liable to pay service tax on the gross value received by them.

(iii)I confirm and order recovery of Service Tax amounting to Rs.33,22,965/- (inclusive of Cess) [Rupees Thirty three lacs twenty two thousand nine hundred sixty five only] escaped on account of non-payment of service tax as well as irregular availment of benefit of Noti.No.15/2004-ST dated 10.09.2004 and 1/2006-ST dated 01.03.2006, under the provisions of Section 73 (1) of the Finance Act, 1994 by invoking the larger period of limitation. The amount of Rs.4,25,693/- paid by them during the course of investigation should be appropriated against the demand confirmed.

(iv)I order recovery of Interest, at the applicable rate, on the amount of Service Tax confirmed at (iii) above, under Section 75 of the Finance Act, 1994.

(v) I impose a penalty of Rs.200/- per day from the date when the service tax was due until the date of payment of the same or penalty @ 2% of such tax per month, whichever is higher, uptil the date of the payment of the demanded amount by M/s.J.J. Engineers, Kalol, subject to a ceiling of Rs.33,22,965/-, under section 76 of the Finance Act, 1994. Since the assessee has not yet paid the differential service tax amounting to Rs.28,97,272/-, the actual amount of penalty shall be computed only on the date of payment.

(vi)I impose penalty of Rs.5,000/- (Rupees Five thousand only) on M/s.J.J. Engineers, Kalol, under Section 77 of the Finance Act, 1994 for their failure to obtain Service tax registration within the specified time as well as for their failure to submit the ST.3 return with complete and correct details regarding the taxable service rendered by them.

(vii) I impose penalty of Rs.33,22,965/- [Rupees Thirty three lacs twenty two thousand nine hundred sixty five only] on M/s.J.J. Engineers, Kalol under Section 78 of the Finance Act, 1994. However, if they pay the entire amount of service tax confirmed at (iii) and interest confirmed at (iv) above, within 30 days of the receipt of this order, they shall be entitled to pay penalty @25% of Rs.33,22,965/- in terms of proviso to Section 78 of the said Act, provided the said 25% of penalty is also paid by them within 30 days of the receipt of this order.

(Sameer Chitkara)

Additional Commissioner,

Central Excise & Service Tax,

Ahmedabad-III

BY R.P.A.D/ HAND DELIVERY

F.No.V.ST/15-58/Off/OA/2010 Date : 13.03.2012

To,

M/s.J.J. Engineers

9, Umiya Park Society

Near St. Annes School

Kalol-382 721

Dist. Gandhinagar

Copy to :-

  1. The Commissioner of Central Excise, Ahmedabad-III [Attn : A.C. (RRA)]
  1. The Deputy Commissioner, Central Excise & Service Tax, Division-Kalol
  2. The Assistant Commissioner (Prev), Central Excise, Ahmedabad-III
  3. The Superintendent, Service Tax Range, Division-Kalol

5. Guard File.

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