ANNUAL RETURN MAY BE A BASE TO ESTABLISH COMMERCIAL ACTIVITY OF A COMPANY FOR LEVY OF SERVICE TAX.

[Mr. M. GOVINDARAJAN]

Case law referred to: ‘Godavari Khore Cane Transport Co. (P) Limited V. Commissioner of Central Excise, Aurangabad’ –(2012 (6) TMI 43 (Tri)).

                        The appellant supplied sugar cane to the Sugar factory.  The harvested sugar cane was transported and supplied to the sugar factory for which the factory paid the appellant a monetary consideration on the basis of the bill raised by the appellant.  The department conducted an investigation in the appellant company.   During the course of investigation the Assistant Manager stated the following in his statement given under Sec. 14 of Central Excise Act, 1944:

• The company was not registered with the department as a service provider under the head ‘Manpower Recruitment or Supply Agency’s services’ defined under Section 65 (105) (k) of Finance Act, 1994 and they are going to register with the department;
• The company received an amount Rs.9,62,98,816/- from M/s Kopargaon SSK Limited for the period from 16.6.2005 to 31.5.2007 for which service tax is payable;
• It was agreed to pay the service tax;
• A detailed worksheet for the same was prepared and the service tax liability was calculated to the tune of Rs.1,10,78,910/-;
• The appellant company was not providing any service to any other commercial concern except to the above named sugar factory

The appellant company paid the service tax under protest.  A show cause notice was issued to the appellant company to appropriate the above amount towards demand of service tax along with interest under Section 75 of the Finance Act and also penalties under Sections 77 and 78 of the Finance act.  In reply to the show cause notice the appellant contended that they were not liable to pay service tax under the head ‘Manpower Recruitment or Supply Agency’s Service’ as they were not a commercial undertaking/concern.  They did not make any profit out of their activities and could not be reckoned as ‘commercial concern’ for the purposes of taxable service.  Since they have paid the service tax before the issuance of show cause notice no interest and penalty is liable to be paid by the company.  The demand of service tax was also challenged as time bar.   It was further alleged that the statement of the Assistant Manager was obtained under compulsion and hence the said statement is not relevant to this case.  It was further alleged that natural justice had been violated inasmuch as no copy of the investigating officer’s report was supplied.  However the Commissioner confirmed the demand of service tax.

                        The appellant filed the present appeal before the Tribunal.   The appellant has moved application under Rule 23 of CESTAT (Procedure) Rules for permissions to bring on record certain documents as additional evidence to prove that the appellants were not liable to pay service tax during the disputed period under the head ‘Manpower Recruitment or Supply Agency’s Service’.  The Department raised an objection in this regard.   The appellant had categorically admitted tax liability under Section 14 of the Central Excise Act read with Section 83 of the Finance Act, 1994.  In the absence of challenge to the demand of service tax the required documents are unnecessary. 

                        The Tribunal considered the submissions of both the parties.  The Tribunal observed that there is no reference to tax liability in the grounds of appeal except in ground No. 1 which states that the Commissioner erred in confirming the demand of service tax.  There is no answer to this crucial question –How did the Commissioner err in confirming the demand of service tax? – anywhere in the grounds of appeal.  The Tribunal has taken the stand of the appellant that the statement obtained from the Assistant Manager was not voluntary.  The Tribunal found that there is nothing on record to show that the confessional statements given by the appellants were retracted at any stage.  The statements are clearly in the nature of admission of tax liability.   Even the amounts of service tax were also estimated and mentioned in those statements.   Readiness to pay the tax was categorically expressed in those documents.   The subsequent conduct of the appellants paying the service tax under protest was consistent with the confessional statement given by them.

                        The Department has also pointed out that the burden of service tax was paid by the appellants  was passed on to the sugar factories through cenvatable invoices and that credit thereof was taken by the sugar factory, the facto of which was accepted by the appellant.  This also established the admitted tax liability of the appellants.

                        Another point stressed by the appellant is that they are not commercial concern and hence did not have liability to pay service tax.  The Tribunal found that the Adjudicating Authority has recorded finding to the effect that the appellants were engaged in commercial activities and well within the ambit of commercial concern – an expression used in the definition of ‘Manpower Recruitment or Supply Agency’s Service’.  This finding was challenged by the appellant.   The Tribunal further found out that the Adjudicating Authority arrived at the above findings after examining the Annual Reports of the company, wherein profits arising out of the commercial activities were recorded.  Therefore the objections raised by the appellants cannot hold ground.

                        The demand of service tax is not under any serious challenge, as held by the Tribunal, it observed that the serious challenges relate to interest liability and penalty liability.   The appellant contended that the service tax was paid before the issuance of show cause notice they are not liable to pay interest and penalty.  Admittedly, the service tax amounts were paid belatedly and that too, when the default was noticed by the department.   It is settled law that interest is payable on any amount of duty or other tax belatedly paid.   The Tribunal held that the demand of Commissioner has to be sustained.  In ‘Union of India V. Rajasthan Spinning & Weaving Mills’ 2009 (5) TMI 15 (SC) THE Supreme Court held that payment of duty whether before or after the issue of show cause notice, could not alter penal liability under Section 11AC of the Central Excise Act.  Section 11AC of the Central Excise Act and Section 78 of the Finance Act, 1994 are pari materia provisions and therefore the ratio of ‘Rajasthan Spinning Mills’ case is applicable to the present case.  The Tribunal, therefore, held that the appellants were liable to pay the penalties imposed on them.