18. Whether Works Contract Tax is payable for own construction of resi-dential houses and flats and sale thereof following decision of K. Raheja Development Corporation vs. State of Karnataka

Held on facts : No

A writ petition was filed before the Allahabad High Court against the order of assessment seeking levy of tax on value of material used in construction, holding it as Works Contract. Allotment letter indicated specific payment schedule decided by the constructor and it also empowered him to mortgage land and apartment. The allotees do not get the right in apartment till execution and registration of sale deeds. The payment is made by instalment by the prospective purchaser without transferring any right, title or interest.

Under the UP Trade Act, 1948 section 2(c) defines dealer wherein clause (7) reads "every person who carries on the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract."

Section 2(m) defines Works Contract as under "works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair, or commissioning of any movable or immovable property."

The charging section 3(f) reads as under:

(1) Notwithstanding anything contained in section 3A or section 3AAA or section 3D but subject to the provision of sections 14 and 15 of the Central Sales Tax Act, 1956l, every dealer shall, for each assessment year, pay a tax on the net turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, at such rate not exceeding fifteen per cent as the State Government may, by notification, declare and different rates may be declared for different goods or different classes of dealers.

The hon'ble court after dealing at lengths from the agreements of the assessee dealer and the decision of M/s. K. Raheja held that in K. Raheja’s case, the agreement provided that K. Raheja Development Corporation, as developer on its own behalf and as developer of such person, would construct the flats as a unit, ultimately to belong to such person. In the aforesaid case, K. Raheja Development Corporation were constructing the unit for and on behalf of the person who had agreed to purchase the flats. In the present case, we find that the assessee dealer is constructing the flats/apartments not for and on behalf of the prospective allottees but otherwise. The payment schedule would not alter the transaction. The right, title and interest in the construction continue to remain with the assessee dealer. It cannot be said that the construction were undertaken for and on behalf of the prospective allottees and, therefore, the constructions in question undertaken by the assessee dealer would not fall under clause (m) of Section 2 read with section 3F of the Act and are outside the purview of the provisions of the Act. In other words, they cannot be subjected to tax under the Act and the action in imposing tax on such constructions treating them to be works contract is wholly without jurisdiction.

The writ petition of the assessee dealer was allowed.

Assotech Reality Pvt Ltd. vs. State of Utter Pradesh 7 Service Tax Review 129 Allahabad High Court.

19. Whether service tax is payable by courier agency on international consignment during the period 15-3-2005 to 15-6-2005 whether exemption is available under the Export of Services Rules, 2005?

Held – Exemption available

The assessee dealers are providing taxable services under the category of "Courier Agency Service". Revenue proceeded against them on the ground that they did not pay Service Tax for the period from 15-3-2005 to
15-6-2005 on international consignments. According to be the assessee dealer, the international consignments during the relevant period were exempted under Rule 4 of Exports of Services Rules, 2005. The Commissioner held in the present case the service provider viz, the appellant is in India and the service receiver who hands over the consignment is also in India. In such circumstances there is no question of any export of services as held by the assessee. In such circumstances there is no question of any export of service as held by the assessee. Taking such a view, he confirmed a demand of Rs. 2,97,10,762/- towards the service tax payable for the said period under section 73 of Finance Act, 1994. Interest under section 75 of the Finance Act was also demanded. A penalty of Rs. 200/- per day was imposed under section 76 of Finance Act, 1994 and penalty of Rs. 4,50,00,000/- has been imposed under section 78 of the Finance Act, 1994. The assessee dealers being highly aggrieved with the impugned order went before the Tribunal.

The Tribunal went through the provisions of Export Service Rules, 2005 during the relevant period and held that if taxable services specified in sub-rule (2) of Rule 3 are partly performed outside India, such service shall be deemed to have been performed outside India. Courier Agency is one of the services specified in Rule 3(2) as the said service falls under section 65(105) (f). In the case of international courier service, the consignment obviously has to be delivered abroad. In the light of Rule 3(2) it is to be considered as performed outside India. When the service is performed outside India, there cannot be any Service Tax Liability in terms of Rule 4 as such a Service is deemed to be exported. The performance of the service is completed only when the courier is delivered outside India to the consignee. It is not correct to say that the transportation is merely incidental in providing courier service as held by the Adjudicating Authority. In fact transportation is very crucial to the courier service and courier agency rendering taxable service is entitled to Cenvat credit on the duty paid on motor vehicles. The Adjudicating Authority cannot go simply by the clarification of the Ministry, which is contrary to law. Ministry’s clarification ignores Rule 3(2), according to which when a service is partially performed outside India, it will be deemed to be performed outside India. The fact that the service provider and service receipt are in India is not relevant while considering whether there is export of service receipt are in the light of the deeming provision in Rule 3(2). All the other points, such as contractual relationship between service provider and service recipient, the status of the person receiving the courier, the fact that transportation is merely incidental in providing courier service are not all relevant in the light of Rule 3(2). In our view, the clarification dated 3-10-2005 issued by the Ministry with regard to international courier agency is contrary to Rule 3(2) of Export Service Rules, 2005.

They noted that w.e.f. 15-6-2005 Rule 3(2) of the Export of Service Rules, 2005 had been amended by insertion of the second proviso due to which the assessee dealer would be liable to pay Service Tax, as service would be considered as export of service only if payment would be received in convertible foreign exchange. Hence by the period prior to this amendment the assessee dealers would be entitled to the exemption.

TNT India Private Ltd vs. CCE 7 Service Tax Review 142 (TRI – Bangalore)

20. Whether services of cleaning and gardening liable to Service Tax

Held : No

Whether on the amount deposited into government account on the above demand, section 11(D) of Central Excise pertaining to collection of taxes is applicable ?

Held : No

The appellants provide the taxable services under heading Security Agency and Manpower Recruitment Agency. In addition, they also render service of cleaning and gardening etc. which are not taxable services. In respect of their taxable services, there has been demand of service tax interest and imposition of penalty. The same is not in dispute. The dispute relates to certain amount collected by the appellants in respect of non taxable services representing service tax and the department seeks to recover the same in terms of section 11D of the C.E. Act,1944 which are made applicable to Service Tax matters with effect from 16-8-2002.

The Tribunal after considering the rival submission held it is not in dispute that services of cleaning and gardening are not liable for service tax. In respect of these services it cannot be held that these appellants are liable to pay any duty. It is also admitted fact that in most of the case, the Invoices raised by the appellants to the service receivers do not indicate any amount as representing duty of service tax. Therefore, it is not proper to hold that they have collected amounts as representing Service Tax, from the service receivers.

The Tribunal agreed with the reasoning of the Commissioner appeal as under:

"in case of providing of non taxable service in most of the cases appellants have mentioned total amount payable on the invoice including service tax which is though not mentioned separately on the invoices, the same is shown separately on letter/worksheet attached to the invoice and therefore it was evident that the value of taxable service shown on the invoices was inclusive of Service Tax and appellants have received the payment of said billed amount including Service Tax on worksheets. I find that mere mention in worksheet/letters is not enough to prove that the appellants have recovered the amounts towards Service Tax. Specifically when the same is not shown separately in invoices. As per provisions of section 12A the assessee is lawfully required to show the tax amount separately. Further the present proceedings are said to be outcome of the case booked against the appellants and on the basis of records seized. I find that no enquiries have been made at their customer’s end as to whether the appellants have charged Service Tax on non-taxable Services. No Purchase Orders/agreement or other documents have been relied to show that customers have agreed to pay Service Tax on these Services. The charge of 11D is not proved."

"I find that even otherwise the provisions of section 11D are applicable to only those persons who are liable to pay duty under the Central Excise Act or the Rules made thereunder. Other requirements mentioned in section 11D is that the persons who have collected an amount in excess of the duty assessed or determined and paid on any excisable goods under the Act or the Rules, from the buyers representing in any as duty of Excise, are required to pay the said amount to the credit of the Central Government. Both the requirements for attracting the provisions of section 11D are not satisfied in case of the appellants. Firstly they are not liable to pay Service Tax on the said non taxable service under the Act, as the services provided by them do not fall under the category of taxable services. Once these are not under the gamit of Service Tax the question of satisfying requirement of Section 11D does not arise, as it cannot be said that they have collected any amount in excess of the tax assessed and paid."

The appeals of the department were rejected.

CCE ,Pune vs. Jayashree Suraksha Rakshak Sahakari Sanstha Maryadit. 7 Service Tax Review 147 (Tri-Mumbai)

21. Whether reimbursable expenses incurred by a consulting engineers while rendering a service liable to payment of Service Tax.

Held – Prima facie not liable in stay matter

The issue involved in this case is regarding the taxability of the amount which has been engineer. The contract entered into between the assessee/dealer and the NHAI for the services to be provided categorically indicates that, the assessee dealer is required to provide the consultancy services to NHAI and for which NHAI will provide some basic facilities. Under the contract/agreement the assessee/dealer was given liberty to procure the same and claim the expenses as reimbursement. It is on this part of the expenses that the Revenue is seeking the tax.

It was observed that the expenditure on which payment of service tax has been made and reimbursed, are basically to be incurred by NHAI, but because the assessee is spending it at the first instance and then recovering from NHAI, it is not from a part of any compensation received by the assessee under the contract. The equipment and appliances as well as vehicle etc. purchased by the assessee, and reimbursement claimed from NHAI become the property of NHAI at the completion of the project. It means, NHAI is providing the facilities of the site office, office equipments, telephone, utilities etc. to the consultant, because the consultant is organizing these facilities at the first instance and is paying for them, the same is being claimed as reimbursement from NHAI. The assessee himself stated in reply that he never acquired any ownership for such items.

A complete waiver of pre-deposit of service tax was made as the assessee dealer made out a prima facie case.

Scott Wilson Kirkapatrick India Pvt Ltd. vs. CCE Jaipur 7 Service Tax 149 (Tri - Delhi).

22. Whether for the purpose of valuation of service of clearing and forwarding agent amount received for other element like godown rent and salary paid to clerk would be included.

Held – No.

The Commissioner appeals held that gross amount paid towards godown rent and clerk salary should be included in clearing and forwarding agent services for the purpose of levy of service tax.

The Tribunal held that Service Tax has to be collected only on amount received for rendering services towards cleaning and forwarding agents and other elements like godown rent and salary paid to clerk are required to be excluded. The Tribunal relied on the following judgments:-

1. CCE, Mumbai vs. Top Detective & Security Services Pvt Ltd. -2006 (3) STR 443 (T) = 2005 (180) ELT 363 (Tri- Mumbai).

2. Catalyst Capital Services Pvt. Ltd. vs. CCE, Mumbai-IV-2006 (3) STR 582 (T) = 2005 (184) ELT 34 (Tri – Mumbai).

3. CCE, Bangalore-III vs. Impress Ad-Aids & Display – 2006 (3) STR 385 (T) = 2004 (173) ELT 137 (Tri – Bang).

The appeal of the assessee dealer was allowed.

K.D. Associates vs. CCE, Belgaum 7 STR Page 6 (Tri–Bangalore).

23. Whether Service Tax payable on the service of erectioning and commissioning of elevators/lifts?

Held – No in a stay matter

The appellant dealer contended that the Supreme Court in the case of Kone Elevators India Ltd, 140 STC 22 held the activity of erectioning and commissioning of elevators as sale and not a work contract. They also relied on the Tribunal decision of Turbotech Precision Engineer Pvt. Ltd. 3 STR 765 wherein it was held that works contract cannot be vivisected to levy Service Tax on different activities.

The Tribunal held that a prima facie case is made out in favour of the assessee and granted full waiver of pre-deposit and stayed the recovery of demand.

Easso Lifts vs CCE, Hyderabad 7 STR 22 (Tri - Bangalore)