CESTAT Weekly Round-Up

This weekly round-up analytically summarises the key stories of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) reported at taxscan.in, from February 27^th to March 5^th, 2023.

Relief to ITC: CESTAT sets aside Demand for Excise Duty and Penalty (ITC Limited vs Commissioner of Central Excise, 2023 TAXSCAN (CESTAT) 249)

As a relief to ITC, the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of Chennai Bench, has set aside the demand for excise duty and penalty.

Similar issue being already decided by the Larger bench of the tribunal  vide Interim Order No. 37/2014 dated 11.02.2014, wherein it was held that in the case of Inter-unit transfer of goods for captive consumption, the actual cost of production (100% of the cost of production), of the raw material procured from the Bhadrachalam unit of the appellant, is the cost of raw material in the hands of the Chennai unit for determining the cost of production of packaging material manufactured by the Chennai unit, and that the percentage of loading on such cost of production, mandated by provisions of Rule 8 for remittance of excise duty by the Bhadrachalam unit, cannot however be considered as comprised in the cost of the raw material consumed for the manufacture of packaging material and thus constituting the cost of production at the Chennai unit; the Tribunal comprising of Ms Sulekha Beevi C S, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical), relying upon the aforementioned larger bench decision, thus  set aside the demand, interest and penalties.

No Service Tax on Repair and Maintenance Work carried out in Non-Designated Areas: CESTAT (M/s. Aban Infrastructure Pvt. Ltd. vs The Commissioner of GST & Central Excise, 2023 TAXSCAN (CESTAT) 248)

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of Chennai Bench, has held that service tax can’t be demanded on repair and maintenance work carried out in non-designated areas.

With the Tribunal allowing the appeal, holding that when the drill ship is located in an area which is outside the territorial purview of the Finance Act 1994, the demand cannot sustain, a Coram comprising of Ms Sulekha Beevi C.S, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical) observed:

“The repair works were performed in the nondesignated area of the continental shelf and exclusive economic zone.  The provisions of Chapter V of the Finance Act, 1994 can only apply to the areas to which the Act is specifically extended.”

Service Tax leviable on Right to Use of Mining of Natural Resources (Sand), No Tax Exemption after 01.04.2016: CESTAT (Commissioner of CGST & Excise vs M/s Broad Son Commodities Private Limited, 2023 TAXSCAN (CESTAT) 247)

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Kolkata Bench, has observed that service tax is leviable on right to use of mining of natural resources (Sand) and noted that there is no tax exemption after 01.04.2016.

With the Authorised Representative for the Revenue submitting that in terms of Rule 7 of Taxation Rules, 2011, the liability of the respondents for the settlement amount payable for the period from 01.01.2017 to 30.06.2017, arose on 06.01.2017 and that in those circumstances, the respondent is not entitled to claim the benefit of exemption Notification Sl.No. 61 dated 13th April 2016, the Coram consisting of Ashok Jindal, Member (Judicial) and Kanpazhakan, Member (Technical) observed:

 “On examination of the said Notification, right to use assigned by the Government or the local authority before the 1st April 2016, is entitled to exemption from payment of service tax. Admittedly in the instant case, the right to use natural resources (Sand) was assigned on 29.12.2014, which has no concern with the terms of payment.”

No Service Tax on Reimbursable Expenses: CESTAT (Benchmark Consultants vs Commissioner of GST & Central Excise, 2023 TAXSCAN (CESTAT) 246)

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of Chennai Bench has held that there is no service tax on reimbursable expenses.

Hearing the opposing contentions of either side a Coram comprising of Ms Sulekha Beevi C S, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical) observed that the demand is made for the non-inclusion of reimbursable expenses in the taxable value for discharge of service tax liability. In light of the case of UOI Vs Intercontinental Consultants and Technocrats (supra), the Tribunal held that the demand cannot sustain and set aside the impugned order.

CESTAT quashes Service Tax liability on Miscellaneous Income treated as Receipts towards Construction Services (M/s. Jain Housing & Construction Limited vs The Commissioner of Service Tax, 2023 TAXSCAN (CESTAT) 238)

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), has quashed service tax liability on miscellaneous income which was treated as receipts towards construction services.

With the Counsel relied on the orders of the Bangalore Bench and the Ahmedabad Bench of the CESTAT respectively, in the cases of M/s. Synergy Audio Visual Workshop P. Ltd. v. Commr. of S.T., Bangalore and M/s. Reynolds Petro Chem Ltd. v. Commissioner of C.Ex. & S.T., Surat-I, to buttress the arguments that the Revenue cannot simply rely on TDS/26AS Statement under the Income Tax Act 1961 to fasten Service Tax liability, the Bench comprising P Dinesha, Judicial Member and M Ajit Kumar, the Technical Member noted:

 “We are of the clear view that the issue of Service Tax liability on the miscellaneous income is not justified as the same is answered by the rulings of the CESTAT Benches.”

Non-Reliance on Documentary Evidence in SCN amounts to serious Violation of Natural Justice Principles: CESTAT quashes Service Tax Demand (R.S. Constructions Vs R.S. Constructions, 2023 TAXSCAN (CESTAT) 234)

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), has recently in an appeal filed before it, quashed the service tax demand as there was non-reliance on documentary evidence in Show Cause Notice, and observed that the amounts to a serious violation of natural justice principles.

The Coram consisting of P Dinesha, Judicial Member and M Ajit Kumar, Technical Member observed:

 “It is clear to us that even on merits, the demands proposed in the Show Cause Notice, which thereafter have been confirmed in the impugned Order-in-Original, are without any basis or without any documentary evidence and that there is a serious violation of the principles of natural justice and hence, no part of the demand can be sustained.”

Undue Sympathy to Impose Adequate Penalty would Undermine Efficacy of Law: CESTAT Confirms Service Tax Demand (M/s. Nebula Computers Pvt. Ltd. vs Commissioner of GST & Central Excise, 2023 TAXSCAN (CESTAT) 229)

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has, while confirming the service tax demand, commented that undue sympathy to impose adequate penalty would undermine the efficacy of the law.
With Coram comprising P Dinesha, Judicial Member and M Ajit Kumar, Technical Member observed that undue sympathy to impose an adequate penalty would undermine the efficacy of the law and encourage other taxpayers to avoid paying taxes on time while waiting for it until they have been found to have evaded duty by the department to pay their taxes,  the Tribunal noted:

“No substantive reasons have been demonstrated by the appellant to show that they were facing financial hardship. In the circumstances, the subjective satisfaction of the original authority in coming to his conclusion is not found to be perverse”.

Bonafide belief on Non-Liability of Sub-Contractor When Main Contractor is liable to discharge full-Service Tax: CESTAT notes extended Period of Limitation not attracted (Shanti Construction Co vs C.C.E. & S.T, 2023 TAXSCAN (CESTAT) 230)

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), comprising Ramesh Nair, the Judicial Member and Raju, the Technical Member, has noted that the extended period of limitation is not attracted when there was a bonafide belief on non-liability of sub-contractor when main contractor is liable to discharge the full-service tax.

With Jigar Shah and Ambar Kumrawat, the Counsels appearing on behalf of the appellant, submitted that the demand of Service tax is raised under the category of Commercial or Industrial construction services and that since the work performed by the Appellant was along with material, the demand of Service tax should have been raised under the taxable category of works contract services, the Bench noted:

“There is a reason for a bona fide belief in such arrangement regarding non-liability of sub-contractor when the main contractor is liable to discharge the full-service tax. Though the said principle is not applicable against the tax liability the question of invoking an extended period is to be answered in favour of the appellant.”

Bonafide doubt as to Service Tax liability and No Intentional evasion of Service Tax: CESTAT deletes Penalty under Finance Act (M/s. Cable Vision vs The Commissioner of Central Excise and Service Tax, 2023 TAXSCAN (CESTAT) 232)

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), has recently, deleted the penalty under the Finance Act on the ground that there was bonafide doubt as to Service Tax liability and no intentional evasion of Service Tax.

Hearing the contentions of either side the Coram comprising P Dinesha, the Judicial Member and M Ajit Kumar, the Technical Member observed:

“The appellant had entertained a bona fide doubt as to the Service Tax liability and there is also no finding that the appellant had intentionally evaded the payment of Service Tax. Moreover, from the facts which have been brought on record, there is no scope for any fraud or intent to evade the payment of Service Tax.”

“Hence, we deem it proper to delete the penalty levied under Section 78 of the Finance Act, 1994 by invoking the provisions of Section 80 of the Finance Act, 1994”, the Tribunal noted.

Service Tax Credit should not be denied merely because Invoices are Computer generated, which did not have Signatures: CESTAT (M/s. Cable Vision vs The Commissioner of Central Excise and Service Tax, 2023 TAXSCAN (CESTAT) 232)

In a recent ruling, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal, has ruled that service tax credit should not be denied merely because invoices are computer generated, and did not have signatures.

With the Counsel for the appellant argued that the Commissioner has arbitrarily restricted the same to Rs.4 lakhs, it was contented by him that various Benches of the CESTAT, have taken a consistent view that, in respect of computer-generated invoices, that signature is not required and consequently, have thereby directed the authorities not to deny the input Service Tax credit based on the same.

Hearing the contentions, the Coram comprising P Dinesha, the Judicial Member and M Ajit Kumar, the Technical Member noted:

“Following the ratio of the above orders, we are of the view that the input Service Tax credit should not be denied merely because the invoices are computer generated, and did not have signatures. Consequently, to this extent, the impugned order is set aside.”

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