In a recent case, the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of New Delhi remanded a case concerning service tax exemption claim under the 2010 notification back to the original adjudicating authority for re-examination.
The case involves the appellant, M/s RYB Transformer, a Jabalpur-based proprietorship firm, who challenged a demand for service tax amounting to Rs. 8,96,643 for services rendered to Madhya Pradesh Poorva Kshetra Vidyut Vitaran Co. Ltd. ( MPPKVVCL ), a government-owned company responsible for the transmission of electricity in several districts of Madhya Pradesh.
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The issue dates back to a contract between the appellant and MPPKVVCL, where the former was engaged in the repair and maintenance of electrical transformers. This contract was classified as composite, involving both the supply of materials and labor for transformer repairs. During the repairs, several parts of the transformers were replaced. The Directorate General of Central Excise Intelligence ( DGCEI ) conducted a search at the offices of MPPKVVCL and collected information regarding the services provided by the appellant. This prompted the department to issue a show cause notice to the appellant, seeking records from the financial years 2012-13 to 2015-16.
The original adjudicating authority, after reviewing the documents and findings of the investigation, confirmed the service tax demand, along with penalties and interest. The appellant however, contended that the services it provided were exempt from service tax, citing Notification No. 11/2010-S.T. dated 27.02.2010. According to the appellant, the notification exempted services related to the transmission of electricity, which included the repair and maintenance of transformers, as they are essential instruments for electricity transmission. The appellant-company argued that the authorities overlooked this critical exemption, leading to an erroneous demand for service tax.
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Dissatisfied with the ruling of the adjudicating authority, the appellant the. filed an appeal before the Commissioner (Appeals). However, the Commissioner upheld the original order, maintaining that the appellant’s activities were subject to service tax. The appellant, in response, brought the matter before the CESTAT for further adjudication.
During the proceedings, counsel for the appellant argued that the authorities had misinterpreted the scope of the contract and failed to acknowledge that the supply of materials had already been subjected to VAT. Furthermore, the appellant asserted that the adjudicating authority had exceeded the bounds of the show cause notice, making its decision arbitrary and unjust. The appellant-company also claimed there was no intent to suppress facts, and that it had acted under the belief that the services provided were exempt, as per the 2010 notification.
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The department’s authorized representative, however, contended that the contracts in question were composite, involving both goods and services, and the appellant had artificially bifurcated the value of the labor and materials in its billing. This, according to the department, was an attempt to evade full service tax liability.
The representative also pointed out that the appellant had not provided adequate documentary proof to establish that VAT had been paid on the materials used. Additionally, the department argued that the appellant had failed to properly account for Goods Transport Agency ( GTA ) services, which were taxable under section 65(105)(zzp) of the Finance Act, 1994. The department accused the appellant of failing to declare the full value of services and suppressing information with the intent of evading taxes.
The Bench of Ms Bintu Tamta and Ms Hemambika R Priya, after reviewing the records and hearing submissions from both sides, observed that the appellant had failed to file any written response to the original show cause notice or appear for hearings at the initial stages of the case. The Tribunal noted that despite the appellant’s participation in the hearing before the CESTAT, significant gaps remained in the documentation provided to support their claim of VAT payment and service tax exemption.
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As the case hinged on critical questions of fact, including the appellant’s handling of VAT and the service tax liability for GTA services, the Tribunal concluded that a thorough re-examination was necessary. Thus, the CESTAT remanded the case to the original adjudicating authority, instructing it to reassess the matter after allowing the appellant an opportunity to submit all relevant documents, including VAT returns, invoices, and contracts, to substantiate their claims. The Tribunal further directed the appellant to ensure its participation in future hearings to prevent a repeat of the previous lapses in procedure.
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