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2015 (4) TMI 705 - DELHI HIGH COURT

2015 (4) TMI 705 - DELHI HIGH COURT - 2015 (38) S.T.R. 673 (Del.) , [2015] 82 VST 133 (Del) - Transfer of burden to discharge of service tax liability to another person - extended period of limitation - bondafide belief - Sale of space or time for advertisement service to several advertising agencies - Held that:- We do not agree with the views of CESTAT that the service tax liability could not have been transferred by way of a contract. The reliance of DTC on the ruling in Rashtriya Ispat Nigam .....

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actual arrangement to the other party. But, on account of such contractual arrangement, the assessee cannot ask the Revenue to recover the tax dues from a third party or wait for discharge of the liability by the assessee till it has recovered the amount from its contractors. - The fastening of liability on such account by such order on the contractors is, thus, a matter restricted to claims of the appellant against such parties. It would have no bearing insofar as the claim of the Revenue again .....

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appellant is an assessee, and statutorily bound to not only get itself registered but also submit the requisite returns as per the prescription of law and rules framed thereunder. - Imposition of the service tax liability under Section 73 read with Sections 68 and 95 of Finance Act, 1994 and the levy of interest thereupon in terms of Section 75 of the Finance Act, 1994 cannot be faulted. For the same reasons, the penalties imposed under Sections 76 and 77 of the Finance Act, 1994 also must be up .....

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ising bills on the contractors also to claim the service tax dues in terms of the contractual terms, and - there is no dispute raised in this regard - the collections made from the contractors on account of service tax chargeable were deposited in the government account from time to time. The insistence of the appellant that it would deposit the service tax with the government only when the contractors discharged their liability on this account may not have been a proper stand. But, from this, i .....

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n 35G of the Central Excise Act, 1944 has been preferred by Delhi Transport Corporation (DTC), a Central public sector undertaking, to assail the order dated 25.04.2014 passed by the principal bench of Custom Excise and Service Tax Appellate Tribunal (hereinafter referred to as the CESTAT ), dismissing the appeal Nos. 174- 176 of 2010, thereby confirming the liability of the appellant to service tax, interest and penalties assessed/imposed by the Commissioner (Adjudication) through order dated 0 .....

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aai Industries Pvt. Ltd (SIPL), 2305, Dharampura, Chawri Bazar, Delhi-110006 (service tax registration No. DL-1/ST/RII/ADV/SIPL/1921/06) and the other M/s International Avenues (IAV), A-1, Community Centre, C-Block, Naraina Vihar, New Delhi-110028 (service tax registration No. DL-1/ST/R-II/ADVIA/1907/06). It appears that both the said contracts contained similar stipulations including clause No. 9 which would read as under:- "It shall be responsibility of the contractor/Advertiser to pay di .....

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One Thousand Two Hundred & Forty Two only) during the period 01.04.2007 to 30.09.2007, and ₹14,74,04,453/- (Rupees fourteen Crore Seventy Four Lacs Four Thousand Four Hundred & Fifty three only) during the period 01.10.2007 to 31.03.2008. According to the claim of the respondent-revenue, the aforesaid receipt on account of sale of space or time for advertisement gave rise to service tax liability (inclusive of Service Tax @ 12% & Education Cess @ 2% and higher Education Cess a .....

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ng the contracts, service tax registration certificate and payments made on such account. Since the response received from DTC, inter alia, by letter dated 29.03.2007 and the documents furnished therewith, would not indicate requisite compliance, it was advised by letter dated 05.07.2007 of Joint Commissioner, Service Tax to apply for service tax registration and also to depute an officer conversant with the facts, inter alia, for purposes of assessment. Reminders were sent on 08.10.2007 and 20. .....

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3(1) read with Section 68 of the Finance Act, 1994 and Rule 6 of Service Tax Rules, 1994 and education cess under Section 95 of Finance Act (no.2) 2004 read with Section 66 of the Chapter - V of Finance Act, 1994; (ii) Interest at the appropriate rates on the said amount of ₹7,19,01,91 0 t - (three SCNs) which they have not paid during the period May, 2006 to March, 2008, should not be recovered under Section 75 of the Finance Act. 1994; (iii) Penalty should not be imposed under Section 76 .....

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had been rendered and intentionally contravening of provisions of service tax law & rules with intent to evade payment of duty and thereby evading Service Tax amounting ₹7,19,01,910/- on the said services as stated herein above. 7. DTC submitted replies by letters dated 03.07.2008, 07.11.2008 and 13.12.2008, inter alia, seeking to explain that it is an autonomous body of Govt. of NCT of Delhi created under the Road Transport Act and had no intention to violate the provisions of the tax .....

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osses and consequently depended on grants from the government and for this reason it was moving the Central Government to grant exemption. DTC further stated that in terms of the contractual arrangement, the liability towards statutory taxes, including service tax, was to be borne by the contractors engaged by it and that all such contractors, except the two mentioned above, had been paying the service tax chargeable in their respect pursuant to supplementary bills raised from time to time and f .....

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s (i.e. Shivaai Industries and Intentional Avenues) had taken a stand contradictory to the contractual terms in such regard, failing to abide by their obligation in terms of clause 9 (as quoted earlier), in spite of directions of this court on the petitions under Section 9 of Arbitration and Conciliation Act, 1996 by orders dated 20.02.2007 and 18.01.2008 in OMP Nos. 465-466/2005. DTC informed the Revenue that it intended to institute contempt/execution proceedings against the contractors for fa .....

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with Section 68 and 95 of the Finance Act, 1994, and Section 140 of the Finance Act, 2007, directing interest (at appropriate rate) to be charged under Section 75 and imposing penalties of ₹1,000/- under Section 77 of Finance Act for failure to file ST-3 returns for each of the three periods, ₹5,000/- under Section 77(1) for not obtaining the registration in accordance with Section 69, ₹5,000/- under Section 77(2) generally for the contravention of the statutory provisions rela .....

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s thereby indulging in suppression of material facts . Penalty under Section 77 of the Finance Act was imposed for the reason the assessee had not got itself registered for purposes of service tax and had also failed to file the requisite returns in such regard respecting the value of the taxable service provided. Penalty was imposed under Section 78 of the Finance Act, declining benefit of Section 80, referring in this context to the facts that the assessee had neither applied for service tax r .....

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of) the impugned order, DTC did not assail the conclusion of the adjudicating authority as to the classification of the service nor impeached the quantum of service tax that had been confirmed. Its contentions were restricted to the following effect:- 5. ... that since under agreements with advertisers, the reciprocal obligation of the parties covenanted that the recipient of the service would be liable for tax, the appellant was under a bona fide belief that the liability to remit service tax s .....

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am Saran (2012) 5 SCC 306 to urge that having entered into the contracts in the nature mentioned above, it was a legitimate expectation that the service tax liability would be borne by the contractors/advertisers and, thus, there was no justification for the appellant being held in default or burdened with the penalty under Section 78 of the Finance Act. It was argued that in the wake of orders dated 20.02.2007 and 18.01.2008 of this court on the applications of the two contractors under Section .....

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by observing that:- 6. A bona fide belief is a belief entertained by a reasonable person. The appellant is a public authority and an instrumentality of the State and should have taken care to ascertain whether it was liable to tax in terms of the provisions of the Act. There is neither alleged, asserted nor established that there is any ambiguity in the provisions of the Act, which might justify a belief that the appellant/service provider, was not liable to service tax. It is axiomatic that no .....

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he core and essential obligations the appellant should have complied with. We therefore find no basis for the claim that the appellant harboured a bona fide belief. [emphasis supplied] 14. While dismissing the appeals, the jurisdictional commissioner was directed to give credit for remittance, if any, made on such account. 15. Service tax was introduced, for the first time, by Chapter V of the Finance Act, 1994 and has continued to be enforced in terms of such legislation, though amended several .....

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is the value of the service for purposes of calculating the levy of service tax. Section 69 of the Finance Act, 1994 stipulated that every person liable to pay service tax must mandatorily make an application to get itself registered for purposes of service tax within the period prescribed in the rules. Rule 6 of the Service Tax Rules, 1994 prescribe that a person liable to pay service tax is required to deposit the service tax chargeable on the services provided in the bank designated by the C .....

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dvertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization. 17. There is no dispute that services provided are taxable within the meaning of Section 65 (105) (zzzn) and that the appellant is liable to pay service tax thereupon. We, however, do not agree with the views of CESTAT that the service tax liability could not have been transferred by way of a contract. The reliance of DTC on the ruling .....

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abilities in connection with discharge of his obligation . The contractor had invoked the arbitration clause for raising a dispute as to its liability to pay service tax. The claim petition was dismissed by the arbitrator which award was challenged by a petition under Section 34 of Arbitration and Conciliation Act before a Single Judge of Bombay High Court. The Learned Judge held that insofar as the service liability is concerned, the appellant (Rashtriya Ispat Nigam Limited) which had given the .....

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passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. 38. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the Sales Tax from the buyer, and to pass on the tax burden to him. Therefore, though there is .....

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etermine the rights and liabilities between the appellant and the respondent as agreed in the contract between two of them. There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent under the contract would be borne by the respondent. 20. The above ruling of Supreme Court in the case of Rashtriya Ispat Nigam Limited (supra), however, cannot detract from the fact .....

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ions of this court on the two petitions under Section 9 of Arbitration and Conciliation Act (instituted by the two contractors) would only govern the rights and obligations arising out of the contracts entered upon by DTC with the contractors. It may be that in terms of the said orders, DTC would be in a position to recover the amount of service tax paid by it to the Revenue respecting the services in question. The fastening of liability on such account by such order on the contractors is, thus, .....

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greed to bear the burden of taxation, there was no need for any further action on its part. For purposes of the taxing statute, the appellant is an assessee, and statutorily bound to not only get itself registered but also submit the requisite returns as per the prescription of law and rules framed thereunder. 23. For the foregoing reasons, the imposition of the service tax liability under Section 73 read with Sections 68 and 95 of Finance Act, 1994 and the levy of interest thereupon in terms of .....

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ent relevant, and the provision contained in Section 80, as they stood at the relevant point of time (i.e. prior to amendments) may be extracted as under:- 78. Penalty for suppressing value of taxable service. Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of - (a) fraud; or (b) collusion; or (c) willful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the r .....

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rtain cases. Notwithstanding anything contained in the provisions of section 76 or section 78, no penalty shall be imposable on the assessee for any failure referred to in said provisions, if the assessee proves that there was reasonable cause for the said failure. [emphasis supplied] 27. It is plain and clear from the reading of the bare text that in order to invoke the penalty under the above-noted clause, the Revenue must make out a case of intent to evade payment of service tax , which may m .....

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