9. Whether transport of employees from different places to a common destination like place of work and back on daily basic amount to planning, scheduling, organizing and arranging of tours taxable under the category of tour operator.

Held – No, in a stay matter

The appellant dealer M/s. Tamil Nadu State Corporation Ltd. were issued a show cause notice under the category of tour operator for entering in to a contract with M/s. BHEL to transport their employees to factory and back. Transport of BHEL staff takes place in trips scheduled by the appellant dealer to suit the requirement of BHEL staff.

The Commissioner Appeals gave a finding that from 10th September, 2004 any person engaged in the business of planning, scheduling, organizing or arranging tours any mode of transport was cored within the preview of tour operator service and since the appellant did the activity of scheduling the transport for the staff of BHEL they were liable under the service of tour operator.

The appellant dealer contended before the Tribunal that the CBEC in para 20 of Circular No. 80/10/04 ST dated
17-9-2004 had clarified that prior to the amendment, the service had covered package tour operators, which involved package tours covering mode of transport other than road. Levy on tour operators engaged in operating tourist vehicles continued even after amendment. The scope of levy was expanded by removing the limitation regarding transportation by tourist vehicles only in the case package tours. The Ld. Counsel submitted that the appellants were not operating tourist vehicles but employed regular public transport buses for transport of BHEL employees. The above activity did not come within the scope of the levy as amended.

The Tribunal held that when the revised definition of tour operator was brought into force, the CBEC had issued the following clarification.

"At present, tour operator service covers package tour operators also. However, under present definition, such package tours attract service tax only if such tours involve modes of transport other than road (say a combination of air-rail-cab travel). The definition of tour operator has been suitably expanded. While the existing levy on tour operators engaged in operating tours in tourist vehicles remains as such, in case of a package tour (which are planned, scheduled, organized or arranged by tour operators), the scope of levy is being extended by removing the limitation regarding transportation by tourist vehicles only. Such tourist operators would be subjected to service tax irrespective of the mode of transport used during such tours. The abatements (Notification No. 39/97- ST) in case of package tour operators (providing transportation and accommodation) would remain at 60%."

As per the clarification, the tax till then had not applied to package tours, which involved transport by road alone. The revised definition made the tax applicable as regards package tours organized also with vehicles other than tourist vehicles. A perusal of the definition and clarification does not appear to bring the activity of the appellants under the coverage of tour operator service. Transport of employees from different places to a common destination like a place of work, such as a factory in the instant case and bringing them back on a daily basis does not appear to be planned, scheduled, organized, arrangement of tours using the buses of the appellants. The appellants have therefore made out a prima facie case against the demand and penalties imposed on them. Accordingly, there will be complete waiver of pre-deposit and stay of recovery of the dues and penalties affirmed in the impugned order till final disposal of the appeal.

Tamil Nadu State Transport Corporation Ltd. vs. CCE, Chennai 2007 [6] Service Tax Review 322 (Tri. – Chennai)

10. Whether an agreement for transfer of exclusive licence [Technical Information] and assistance for manufacture and sale of CNC internal grinding machine of Polar model amount to consultancy taxable under the service head of consulting engineering.

Held – No.

The refund was denied to the appellant dealer rejecting the contention of the appellant that the agreement did not consist of any consultancy but was a purchase of technical know-how.

On hearing both sides the Tribunal noted the following undermentioned portion of the agreement to come the conclusion "AND WHEREAS it is the mutual desire of the parties hereto that Licensor should grant exclusive license, provide technical information and assistance, provide the complete design documentation besides training to enable licensee to manufacture and sell CNC Internal Grinding Machines of Polar model and its variants".

"The Licensor for the period of this agreement, grants to the Licensee under its Technical Information and Improvement furnished by the Licensor to the Licensee pursuant to this agreement as well as under relevant patents of the Licensor which the Licensor has filed or file for said Technical Information, exclusive, transferable right to manufacture Contract Products in India and to sell Contract Products in accordance with Article 7.2.

The Licensee shall make arrangement for the selling of Contract Products in India and export thereof to other countries all over the world, except Europe where sales can only be made after entering into a specific written agreement with the Licensor. The Licensor shall also provide to the Licensor with the names of all the customers where the machines are sold and installed".

"In consideration of the documentation prepared and transmitted, rights and licences including use of patent /trademark for the design documentation and of the technical information and training to be provided, the Licensee shall pay to the Licensor a lump sum payment of technical know-how (Royalty) fees of Indian Rs. 68,75,000/- (Rupees Sixty Eight Lakhs Seventy Five Thousand) subject to the applicable withholding and other taxes applicable from time to time in the instalments".

The Tribunal on perusal of the above provision of the agreement held that it is for transfer of exclusive License, technical information and assistance for manufacture and sale of CNC internal grinding machine of Polar model and its various and there is no element of consultancy.

Micrometric Grinding Technology Ltd. vs. CCE Noida 2007 [6] Service Tax Review Page 329 (Tribunal)

11. Whether input service in terms rate 2(I) if CENVAT Credit Rules, 2004 covers outward transportation up to the place of customer premises

Held – No.

The Delhi CESTAT recently held the following in the case of Gujarat Ambuja Cement Ltd.

Whether Cenvat Credit covers Cenvat credit of duty paid on input materials as well as tax paid on services used in or in relation to manufacture of final product.

Held – Yes.

Whether, therefore, extending the said credit beyond point of duty paid on removal of final product would be contrary to the Scheme of Rules.

Held – Yes.

Whether two clauses in Rule 2(1) take care to circumscribe input credit by stating that service used in relation to clearance from place of removal and service used for outward transportation up to place of removal are to be treated as input service.

Held – Yes.

Whether when these two clauses are read together, it becomes clear that transportation service cannot go beyond ‘transport up to place of removal’.

Held – Yes.

Whether thus the Revenue was justified in holding that Service Tax credit is available only in respect of inward / outward transportation of final products up to place of removal and that where goods were removed for sale from factory, Service Tax paid on transportation cost from factory to buyer’s premises would not be available as credit.

Held – Yes.

Gujarat Ambuja Cements Ltd vs. CCE, (2007) 8 STT (New Delhi – CESTAT).

Decision Courtesy BCA Journal

12. Whether assurance of the appellant dealer to pay duty can be a basis for sustaining time bared demand.

Held – No.

The appellant dealer is before the Tribunal in respect of the order confirming the demand solely on the ground that the appellant had agreed before the issue of show cause notice to pay the duty if they are not able to find buyers of machinery which was received by them. In fact the Commissioner Appeals clearly noted that the demands were not sustainable as the same has been raised after 3 to 4 years.

It was contended before the Tribunal that the demands are barred by time. The demand under the Central Excise Act is always subjected to the provision of time limit stipulated under section 11A of the Act. The CENVAT Credit was taken on the basis of invoices under Rule 16 of Central Excise Rules and department was fully aware of the facts. It was further submitted that there was no liability to pay the duty but agreement to pay was done because of the pressure brought by departmental officials.

The Tribunal held that the department was fully aware of the fact that the show cause notice done after the lapse of 4 years was time barred. The Commissioner Appeals has also agreed that the demand is time barred and has confirmed the orders only because the assurance was given by the dealer. The demand is not backed by any legal support and hence the relief was granted to the appellant dealer.

Triveni Engineering & Indus Ltd. vs. CCE Mysore, 2007 [6] Service Tax Review Page 353 [Tri – Bangalore]

13. Whether CENVAT Credit of Service Tax on input credit can be claimed on

Held – No, in a stay matter

The applicant is a manufacture of cement and clinker and has availed CENVAT Credit of duty on inputs, capital goods and input services, under Rule 3 of the CENVAT Credit Rules, 2004. On scrutiny by the Department, it was noticed that the appellant had availed the credit of service tax paid on certain services including the services of Custom House Agent/Shipping Agent/Port Services for export of finished goods from the ports, which could not be considered as input services as defined under Rule 2 of the said Rules. These services were received and utilized by the applicant in respect of export of finished products and they were taken and used at a place beyond the place of removal after completion of the manufacturing activity and clearance of the excisable goods from the factory gate. Even the service of Mobile/landline telephones installed in the premises of the applicant and the residential premises of the employees, service of insurance of residential colony etc. and also charges paid for power supply were, according to the Revenue, not admissible as input services.

The learned commissioner gave a finding that "clearance of final product from place of removal would mean that credit of services used in the clearance of final product was restricted to the place of removal and not beyond. Thus the services would not qualify as inputs services.

On behalf of the appellants it was contended before the Tribunal that services of Customs House Agent/ Shipping Agent/Port Service, which were availed by the appellant, were the services in relation to business and therefore, input services. He argued that the categories, which were enumerated in the inclusive part of definition, need not have any nexus with the manufacture and clearance of the product from the factory. He submitted that the inclusive part of the definition will stand on its own and the variety of the activities, were included, for making them eligible input services. He pointed out that the services, such as modernization, renovation or repairs of a factory, advertisement, market research, accounting, auditing, financing, recruitment, training, which had no direct nexus with manufacture or clearance would still be input services, because, these activities are related to business. He submitted that the inclusive part of the definition should be given a wide meaning, and relied upon the decision of the Hon'ble Supreme Court in the case of CIT, Andhra Pradesh vs. Taj Mahal Hotel reported in 1971 (3) Supreme Court Cases 550, in which it was held that the word ‘plant’ was given an enlarged meaning within the definition under section 10(5) of the Income-tax Act, 1922.

The department contended before the Tribunal that ‘Input Service’ has been defined under clause (1) of Rule 2, which read as follows:—

"Input service" means any service:—

(i) used by a provider of taxable service for providing an output service, or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place or removal.

The definition of inputs service fixes the meaning of that expression and such services used by the manufacturer, are required to have a nexus with the manufacture of the final product and clearance of the final product from the place of removal. Place of removal is well defined in section 4(3)(c) and admits no extension of its meaning to the place of shipping port. The services which are enumerated in the inclusive clause, which applies both, in the context of the provider of output services as well as the manufacture, cannot be read de hors the meaning of inputs service under Rule 2(1). Therefore, all the activities relating to business, which are input services used by the manufacturer in relation to the manufacture of final product and clearance of the final product from of removal alone would be eligible. After the final products are cleared from the place of removal, there will be no scope for subsequent use of service to be treated as input. Prima facie, therefore, services beyond the stage of manufacturing and clearance of the goods from the factory could not be input services.

The tribunal held that the commissioner does not appear to have committed any error in disallowing the CENVAT Credit on this ground and fixed the part payment accordingly.

Ultra Tech Cement Ltd. vs. CCE Bhavnagar 2007 [6] STR 364 (Tri – Ahmedabad)

14. Whether hydraulic fluids used in hydraulic press which is intern used in production of finished goods eligible for MODVAT Credit for capital
    goods.

Held: Yes

The goods on which CENVAT Credit for capital goods is claimed are hydraulic fluids which are used in hydraulic press.

The commissioner appeal denied the credit for capital goods on the ground that the product is primarily a fluid and lubrication is a secondary function and hence credit for credit for capital goods cannot be allowed.

The Tribunal observed that the goods are used in hydraulic press for manufacturing press component from CRCA sheets and these components are subsequently used in two wheelers and three wheelers which are final products for the appellants.

The Tribunal further held that even if the contention of the department were to be accepted the goods are still used in the production of finished goods and hence the same should be eligible for MODVAT Credit.

Bajaj Auto Limited vs.CCE Aurangabad 199 ELT 308 (TRI Mumbai)

15. Whether a civil contractor engaged in the manufacture of curtain walls and other structural works is liable to excise duty.

Held – No.

The appellant dealer undertook important projects like providing, fixing and erecting of aluminium doors, windows, curtain walls on big commercial building like ‘Signature Tower’ and ‘Global Business Park’ at Gurgaon and ‘Capital Court’ at Delhi. The construction of curtain walls etc. are at site on already completed buildings. The metal elements required for construction are prepared in the appellant’s factory.

The appellant took the Central Excise registration for the factory and cleared the elements on payment of the central excise duty. The duty paid clearances went on from 1997-98 to 2000.

On being advised that its activity is not excisable and no duty payment was required to be made, the appellant addressed a letter in this respect to the Jurisdictional Deputy Commissioner. Within a span of ten days the appellant’s premises were searched and a show cause notice was issued dated 12th December 2002.

The Commissioner Appeal, held that the appellant had evaded duty by undervaluing the product cleared by it. He took the total receipts disclosed by the appellant in balance sheet as value of goods manufactured in the factory and confirmed the order.

The appellant contended that the activity undertaken by it was not excisable at all. It was further pointed out that non-duty ability of civil construction like curtain walls remains settled by the decision of the Tribunal in case of AGV Alfab Ltd. vs. CCE Delhi 186 ELT 451 and Lokhandwala Hotels Ltd. vs. CCE Mumbai 182 ELT 188.

The Tribunal’s attention was drawn to the fact that before the commissioner appeals, detailed explanation was given that the civil construction involved design. Supervision and technological support and therefore the appellant held paid duty only on the items prepared in the factory. A certificate from cost accountant was submitted certifying that cost of construction at site was in the range of 50% of the total project contract. Despite the legal and factual position the Commissioner Appeals took the total annual receipts in the balance sheet and subjected it to excise duty.

The Tribunal observed that the appellant tendered for and obtained contracts for civil construction works. The contracts were for civil works and not for supply of elements which go into the construction. This is made clear by the contracts themselves, inasmuch as rate of payment is per sq.metre. From this, it is clear that neither tender amounts nor income from construction works stated in the balance sheet relate to the cost of the elements (for construction) prepared in the appellants factory. Therefore, the Central Excise authorities could not at all have treated those amounts as constituting the cost of goods manufacture in the factory. The appellant’s contention that a big part of the cost relates to activities at construction sites are also right inasmuch as these projects involved sophisticated design, control and supervision in addition to cost of materials. The costing produced by the appellant before the authorities showed that about half the costs related to items other than elements prepared in the factory.

It is clear from the above, that the method of assessment and the valuation carried out in the impugned order is not sustainable on the facts of the case or in law.

The demands have been raised by invoking the extended period allowed under provision to Section 11A of the Central Excise Act. That provision permits of raising demand during the extended period only in case involving suppression of facts or misstatement of facts with intent to evade payment of duty. In the present case, the appellant had obtained Central Excise license and was removing the consignment after discharging duty liability. It was continued for several years and the Central Excise authorities raised no objection whatsoever about the correctness of the costs mentioned in the invoices of the clearance (and payment of duty). In the present order also there is no finding that the cost of any of the items cleared on payment of duty was incorrect or it has been understated. In fact the costing statement produced by the appellant brings out that the appellant had made a reasonable apportionment towards the materials cleared from the factory and other costs. In these circumstances, the allegation of suppression of facts or misstatement with intent to evade payment of duty is also not maintainable. Therefore, that part of the demand which raised beyond the normal period fails on the ground of limitation.

In regard to the demand which falls within the permissible period also, the appellant has many objections starting with excisability. Those objections are required to be considered afresh and adjudicated upon by the competent authority. There are also instructions of the Board relating to valuation of captively used goods. Those instructions would be relevant to the valuation of the goods, in case the items are held to be excisable.

In the view we have taken above, the duty demand made for the extended period is set aside and the demand raised for the normal period remanded to the original authority for fresh adjudication after giving the appellant an opportunity to file reply and hearing.

[Alkarama vs. CCE, Delhi 199 ELT 472 (Tri – Del)]