Demand of Service Tax – Wrong classification by the department in the SCN – Big boon to the assessee

Various times it happens that the assessee fails to pay service tax on taxable services either due to ignorance or otherwise. In such circumstances department asks the assessee to pay service tax with interest and penalty?

As we advise in most cases, assessee should insist issue of Show Cause Notice before depositing the amount of service tax.

In the instant matter department raised a demand of Rs. 68,50,147 and  penalty of Rs. 1,37,00,000 against the appellant.

The appellant was engaged in the business of repairing, chipping, cleaning and painting of the vessels of Coast Guard, Naval Dock and ONGC.

While raising the demand, department has classified the activity of appellant as "Port Service".

In this matter (Re. Homa Engg. Works Vs. Commissioner of Central Excise, Mumbai reported in 2007 -TMI - 1524 - CESTAT, MUMBAI) honorable tribunal has held that:

The correct classification is maintenance and repair services. Demand is not sustainable.

There are no positive allegation of suppression or any mis-statement on the part of appellant with an intention to evade the duty. The extended period of limitation is not applicable in the instant case.

Further, the lower authorities also relied upon the Board's Circular No.67/16/2003- ST, dated 10-11-03, clarifying that ship repair activities at the dry docks would be taxable under the port services.

Honorable Tribunal held that, the said clarification, though may be binding on the department officers, is not binding on the assessee. Having held, after examination of the relevant provisions of law that such activity would not be included under the expression 'port services', we hold that above circular issued by Board is not in accordance with the law.