F. NO. STC/4-7/O&A/DGCEI/2012-13
BBRIEF FACTS OF THE CASE :-
M/s. Mahalaxmi Infracontract Pvt. Ltd., (formerly known as M/s. Mahalaxmi Engineering Company) having office at B-21, Corporate House, Opp. Pakwan, S. G. Highway, Bodakdev, Ahmedabad – 380 054 (herein after referred to as “M/s. Mahalaxmi” for the sake of brevity) is engaged in providing services of Cargo Handling service, Transport of Goods by Road Service, Mining Services, Work Contract Service, Supply of Tangible Goods Service and Site Formation and Clearance, Excavation and Earthmoving and Demolition Services and they hold Service Tax registration No. AAGCM4615ESD001. Initially M/s. Mahalaxmi obtained serviced tax registration No. AR/GIM/MNG-032/07-08 dated 24-01-2008 from Service Tax Office at Gandhidham. Later on, they shifted their office from Gandhidham to B-21, Corporate House, Opp. Pakwan-II, S.G. Highway Road, Ahmedabad and obtained centralized registration No. AAGCM4615ESD001 dated 10-06-2010 from Service Tax Office, Ahmedabad.
2.1Intelligence gathered by the Directorate General of Central Excise Intelligence, Ahmedabad Zonal Unit, Ahmedabad (here-in-after referred to as ‘DGCEI’ for the sake of brevity) indicated that M/s. Mahalaxmi executed works of mining as sub-contractors to main contractors but they did not pay service tax in the years 2006-07 and 2007-08. In furtherance of intelligence, search was conducted in the office premises of M/s. Mahalaxmi at B-21, Corporate House, Opp. Pakwan, S. G. Highway, Bodakdev, Ahmedabad on 23-01-2012. Relevant documents were withdrawn under Panchnama dated 23-01-2012 (RUD NO. 1).
2.2Several incriminating documents such as agreements entered with main contractors, income ledger accounts of the years 2006-07 to 2010-11, copies of invoices / bills issued, copies of bank statements were withdrawn under panchnama dated 23-01-2012 for further examination.
3.STATEMENT DATED 23-01-2012 OF SHRI HIRALAL DHOLU, DIRECTOR OF M/S. MAHALAXMI:
3.1Statement of Shri Hiralal Dholu, Director of M/s. Mahalaxmi was recorded on 23-01-2012 (RUD NO. 2) wherein he deposed as under: -
He stated that M/s. Mahalaxmi Engineering Company was started as infrastructure service providing company in the year 1994 at Bhuj as a partnership company. He was one of the partner. They were in the business activity of undertaking various works relating to mining, construction of canals, hiring of equipments for mining and construction related works, etc. In April, 2010, their company was converted in to a private limited company and shifted their office to Ahmedabad. Name of their company was renamed into M/s. Mahalaxmi Infracontract Pvt. Ltd since then and functioning from B-21, Corporate Office, Opp. Pakvan, S. G. Highway, Bodakdev, Ahmedabad.
He stated that their company got registered with service tax department in Gandhidham Service Tax Office under Mining of minerals, oil and gas service and held service tax registration No. AR/GIM/MNG-032/2007-08 dated 24-01-2008. However, after shifting of office to Ahmedabad, they had obtained centralized registration from Service Tax Office at Ahmedabad and hold Service Tax registration No. AAGCM4615ESD001 dated 10-06-2010 for the services of Cargo Handling service, Transport of Goods by Road Service, Mining Services, Work Contract Service, Supply of Tangible Goods Service.
He stated that they obtained contracts for mining activities from other main contractors and provide services to such main contractors as sub-contractors. In these type of activities, their role was restricted to supplying of equipment to the main contractors for carrying out mining activities. They raised bills for hiring of equipments. In the years 2006-07 and 2007-08, they had provided mining equipments such as dippers, tippers, showels, bulldozers, etc on hire. Since the service of hiring of equipments were not taxable to service tax in these years, they did not charge and did not pay service tax. He submitted that in the years 2006-07 and 2007-08, their company did not executed any mining work as a main contractor.
He stated that from 2008-09 onwards, their company was paying service tax on the mining activities carried out as main contractor as well as sub-contractors.
He stated that in the year 2006-07 and 2007-08, they had hired mining equipments to M/s. Ranjit Construction Co, Ahmedabad for mining activities carried out at Bikaner Site, Rajpardi (Gujarat). Work in these sites were still in progress.
On being asked as to how they could claim that initially in the years 2006-07 and 2007-08, their company had only hired equipment of mining and from 2008-09, for the same field, their company claims the activities under mining, he stated that in the year 2006-07 and 2007-08, they were not much aware about provisions of service tax on the business activities of their company. Thus, they were showing description of hiring of equipments in the bills. However, after knowing levy of tax on mining activity specifically, they had come to know about the exact nomenclature of activity. Accordingly, they started paying service tax from March, 2008 onwards.
He stated that as soon as they came to know about the levy of service tax on mining services, they took legal opinion and as per the advice given by their consultant, they had started paying service tax under mining services from March, 2008 onwards.
On being asked if their view were to be true, service tax on mining services was taxable from 01-06-2007. Why did not their company pay service tax from June, 2007 onwards. He stated that they were informed by their main contractor that they had paid service tax on entire amount and therefore they were not required to pay service tax. Thus, they were under bonafide belief they did not pay service tax.
On being asked that as per the provisions of the Finance Act, 1994, service tax is to be paid by the service provider. There is no provision exempting sub-contractor from payment of service tax. CBEC vide Circular No. 96/7/2007-ST dated 23-08-2007 has clarified that sub-contractors are also liable to pay service tax. How could they claim there was no service tax liability as sub-contractor. He stated that he did not have expertise to comment on this legal issue.
He stated that he remained present during the search proceedings conducted in their office. Panchnama was recorded in cordial manner and no untoward incident took place.”
3.2Shri Hiralal Dholu, Director of M/s. Mahalaxmi stated that his company was engaged in mining activities as sub-contractor of main contractors and as main contractors. M/s. Mahalaxmi was functioning from 102, Shanti Chambers, Near Bank of Baroda, Station Road, Bhuj and obtained service tax registration No. AR/GIM/MNG-032/2007-08 dated 24-01-2008 from Service Tax Office at Gandhidham. Their company name was changed from M/s. Mahalaxmi Engineering Co to M/s. Mahalaxmi Infracontract Pvt. Ltd in April, 2010. Subsequently they shirted their office from Bhuj to Ahmedabad at B-21, Corporate House, Opp. Pakwan, S.G. Highway, Bodakdev, Ahmedabad and obtained centralized registration No. AAGCM4615ESD001 dated 10-06-2010 for the services of Cargo Handling Service, Transport of Goods by Road Service, Mining Services, Work Contract Service and Supply of Tangible Goods Service. On being asked as to why they did not pay service tax, he replied that they were providing mining services which was brought under service tax net w.e.f. 01-06-2007. In the years 2006-07 and 2007-08, they were providing mining services to main contractors. Besides, he also justified non-payment of service tax by saying that they had only hired mining equipments to the contractors. Hiring of equipments has become taxable w.e.f. 16-05-2008. Further, they were informed by their main contractors that they had paid service tax on the entire amount and therefore M/s. Mahalaxmi was not required to pay service tax. Under this bonafide belief they did not pay service tax.
3.3He was confronted with the CBEC Circular No. 96/7/2007-ST dated 23-08-2007 wherein it is clarified that sub-contractors are also liable to pay service tax. After specifically informed about their liability to pay service tax, they agreed to pay service tax under mining services w.e.f. 01-06-2007.
4.FURTHER STATEMENT DATED 13-03-2012 OF SHRI HIRALAL DHOLU, DIRECTOR OF M/S. MAHALAXMI:
4.1Further statement of Shri Hiralal Dholu, Director of M/s. Mahalaxmi was recorded on 13-03-2012 (RUD NO. 3). He submitted as follows :-
He perused his earlier statement dated 23-01-2012. He put his dated signature on it in token of confirmation.
He submitted the following information / documents:-
1) Copy of agreement dated 09-06-2006 entered with M/s. Sadbhav Engineering Ltd, Ahmedabad for “Hiring of heavy earth moving equipment for excavation and allied work at GHCL Lignite mine, Khadsaliya, Bhavnagar;
2) Copy of agreement dated 21-09-2006 entered with M/s. Ranjit Construction Co, Ahmedabad for carrying out mining work at Barsinagar Lignite Mine Project, Rajasthan along with copies of RA bills;
3) Copy of agreement dated 18-12-2006 entered with M/s. Ranjit Construction Co, Ahmedabad of check-dam at Nana Bhadhia, Kutch.
He stated that their main activity was relating to mining of coal/lignite. In the years 2006-07 and 2007-08, they were working as sub-contractor of M/s. Ranjit Buildcon Ltd and M/s. Sadbhav Engineering Ltd. The details of works undertaken by their company was briefed as under: -
a) They had entered into an agreement with M/s. Ranjit Buildcon Ltd for mining work at Barsinagar Lignite Mine Project, Bikaner, Rajasthan as sub-contractor and commenced mining works from 07-08-2006 onwards. This project was still in progress.
b) They had entered into agreement dated 20-09-2007 with M/s. Ranjit Buildcon Ltd, Ahmedabad for mining of lignite at Amod Lignite Mine, Rajpardi Project, District-Bharuch, Gujarat. They had started mining activity from September, 2007 onwards. Initially they were of the view that as the main contractor was paying service tax, their company was not required to pay service tax on the activity carried out as sub-contractor. Therefore there was no mention about service tax liability in their agreement. However, after they realized the liability to pay service tax as sub-contractor, they had the original agreement dated 20-09-2007 amended vide Supplementary agreement dated 01-07-2008 to the effect that the contract value did not include service tax. That is, the main contractor would reimburse the value of service tax paid by their company.
c) They had undertaken mining work at Khadsalia Lignite Mines, Bhavnagar as sub-contractor from 01-04-2006 and this project was concluded in August, 2008.
d) They have carried out mining activity at Bina Extension OCP of M/s. Northern Coalfield Ltd as sub-contractor of M/s. Sadbhav Engineering Ltd. This project was started in November, 2007 and completed in November, 2010.
He further state that they had obtained service tax registration on 24-01-2008 and started paying service tax forthwith. That is from January, 2008 onwards, they have been regularly paying service tax under mining services and GTA services. They were under bonafide belief about non taxability for the past period to their company because they were undertaking mining activity as sub-contractors. Their main contractors were paying service on the entire value of services which included the value of services provided by their company as sub-contractors. Therefore, they were of the view that if they pay service tax then it would become double taxation on the same transaction. There cannot be double taxation on any service. He produced copies of challans evidencing service tax payment made by their main contractor viz., M/s. Ranjit Buildcon Ltd for their Rajpardi and Bikaner sites.
It was only during officers’ visit to their office on 23-01-2012, they realized their liability to pay service tax in the past period also. Upon taking legal opinion, they had realized that service tax was to be paid on the income derived from mining income from 01-06-2007. But only for the services where their company executed work as main contractor.
He further state that their company has been paying service tax appropriately from January, 2008 onwards. However, due to clerical error, on some bills, service tax was not paid in the year 2008-09. The details of service tax left out was as under: -
(Amount in Rs.)Sr. No. / Date of bill / RA No. / Issued to whom / Site / Value / Amt. of Service Tax
1 / 21-04-2008 / 3 / Ranjit Buildcon Ltd / Rajpardi / 2,07,20,395 / 25,61,041
2 / 21-04-2008 / 40 / Ranjit Buildcon Ltd / Bikaner / 1,08,24,328 / 13,37,887
3 / 04-05-2008 / 4 / Ranjit Buildcon Ltd / Rajpardi / 1,68,57,498 / 20,83,587
4 / 12-05-2008 / 41 / Ranjit Buildcon Ltd / Bikaner / 1,29,56,974 / 16,01,482
5 / 15-05-2008 / 5 / Ranjit Buildcon Ltd / Rajpardi / 1,90,25,866 / 23,51,597
6 / 06-06-2008 / 42 / Ranjit Buildcon Ltd / Bikaner / 1,38,18,890 / 17,08,015
7 / 09-07-2008 / 43 / Ranjit Buildcon Ltd / Bikaner / 2,26,800 / 28,032
8 / 10-07-2008 / 44 / Ranjit Buildcon Ltd / Bikaner / 24,38,579 / 3,01,408
TOTAL / 9,68,69,330 / 1,19,73,049
Their company has started depositing service tax as stated above and paid service tax of Rs. 75,00,000/- through e-payment till 29-02-2012. They were committed to pay remaining amount of service tax along with interest.
However, he reiterated that their company was not liable to pay service tax on the income earned from mining activity before 01-06-2007. Therefore no liability lies on their company.
On being asked to give the authority under which exemption was provided for the services provided as sub-contractors he stated that Tribunal in various judgments held that when main contractors pay service tax on entire value, sub-contractors needs not to pay service tax. He produced copy of Tribunal, Ahmedabad’s order dated 26-10-2009 in case of M/s. Urvi Construction Vs. Commissioner of Service Tax, Ahmedabad, Tribunal, Bangalore’s order dated 26-10-2007 in the case of M/s. Evergreen Suppliers Vs. CCE reported at 2008 12 STJ 297 CESTAT Bangalore and a copy of clarification dated 31-01-2006 issued by the Joint Commissioner, Service Tax, Ahmedabad regarding non taxability of service provided by sub-contractors to the main contractors.
He stated that they were informed by their main contractors (M/s. Ranjit Buildcon Ltd) that they had obtained clarification from the department that no service tax was payable by the sub-contractors because main contractors were paying service tax on the full value. Therefore they did not pay service tax.
As abundant precaution, they had also consulted with their tax consultant regarding their service tax liability on mining services provided by their company as a sub-contractor after mining services is brought under service tax net. It was advised to obtain service tax registration and pay service tax. After this, they approached their main contractors for reimbursement of service tax separately in addition to bill value. Their company had also obtained service tax registration in January, 2008 and since then, they have been paying service tax on the value of taxable services provided either as sub-contractor or main contractor.
He was asked to refer to CBEC’s Circular No. 96/7/2007-ST dated 23-08-2007 wherein it is specifically clarified, “A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor. Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided”. He was asked to clarify why cannot their services be taxed to service tax. He reiterated that service tax was not payable in view of the judgements of Tribunal as stated above.
He was asked to peruse CBEC’s Circular No.232/2/2006-CX dated 12-11-2007 wherein it is clarified that prior to 01-06-2007 a) Excavation / drilling and removal of overburdens are classifiable under site formation service; b) activities of coal cutting and mineral extraction and lifting upto pit head are exempt; and c) activities handling and transportation of coal / mineral from pit head to a specified location within the mine / factory or for transportation out side the mines are chargeable to service tax under cargo handling service or under transport of goods by road service. Why not activities (a) & (c) carried out by their company not liable for service tax?
He stated that the above cited circular was applicable only for the cases where separate contracts / agreements were executed for different activities. But in their case, they had entered into a composite contract for carrying out mining activities with main contractors. Their was a single contract entered and bills were also raised showing description of “Removal of over burden of first dig (solid by hiring of HEMM such as Excavators, dumper, drills, dozer, graders and water tankers for composite work consisting of blast hole drilling, blasting, excavation, loading, transportation of broken rock / soil / earth, dumping, spreading etc by mechanical means as per instruction of Engineer Incharge at specified places”. It can be seen that in all their bills, they had shown mining as a composite work and paid service tax accordingly. They had never entered into contract for different activities of removal of overburden and excavation, coal cutting and mineral extraction and lifting upto pit head and transportation of coal from pit head to a specified location separately.