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2015 (10) TMI 859 - CESTAT AHMEDABAD

2015 (10) TMI 859 - CESTAT AHMEDABAD - 2016 (41) S.T.R. 872 (Tri. - Ahmd.) - Valuation - Job work - manufacture of Alcoholic Beverages (i.e., Beer) - inclusion of surplus/profit retained by the Brand owners (BO, M/s UBL) - Held that:- the amount returned to BO is in so far as “surplus/profit” of BO, cannot be included in the taxable value. The amount “surplus/profit retained by BO” as claimed by the appellant, had been returned to BO and therefore such amount cannot be included in the taxable va .....

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6 & 78 – Service rendered for manufacture of Alcoholic Beverages (i.e., Beer) - Held That:- while challenging constitutional validity of the levy before the Hon’ble High Court, they also paid their Service Tax alongwith interest as per their determination before issue of the Adjudication order. In such situation, the appellant shown the reasonable cause for waiver of penalty under Section 76 and 78. – Penalty waived. - Appeal No. : ST/10826-10829/2015 - Order No. A/ 11364-11367/2015 - Dated:- .....

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ed within the purview of the Schedule to the Central Excise Tariff Act, 1985. They were registered with the Service Tax Authorities for GTA Service. The appellants were manufacturing Beer on their account and also for M/s United Breweries Ltd (in short UBL) in terms of license agreement for manufacture and sale of Beer. By Finance (No.2) Act, 2009, the definition of Taxable Service, viz., Business Auxiliary Service (BAS) was amended. The activities of the appellant in so far as the manufacture o .....

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four show Cause Notices were issued proposing demand of Service Tax alongwith interest and to impose penalties for the period from 23.11.2009 to 30.12.2012. By the impugned orders, the Adjudicating authority confirmed the demand of Service Tax alongwith interest and also imposed penalties and also appropriated the amount as deposited by the appellant. 3. The Learned Advocate on behalf of the appellant submits that they have already challenged the constitutional validity of levy of tax on the act .....

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ubmits that it is a new levy and the appellant already paid the tax alongwith interest as per their calculation and therefore it is a fit case for invocation of Section 80 of the Finance act 1994 for waiver of the other penalties. 4. The Learned Authorised Representative on behalf of Revenue reiterates the findings of the Adjudicating authority. He strongly opposed the waiver of penalties. 5. Heard both sides and perused the records. 6. We find that CBEC Circular F. No 332/17/2009-TRU dtd 30.10. .....

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ncludes the following elements: i) Bottling/job charges - paid to CBU ii) Distribution costs including freight, transit insurance etc - paid to CBU iii) Other reimbursable - paid to CBU iv) Cost of raw materials - paid to CBU v) Cost of packing materials - paid to CBU vi) State excise duty and VAT - paid to State Government vii) Surplus/profit - retained by BO It was their plea that if the entire amount charged by CBU is subject to service tax, it would amount to charging tax on goods. The CIABC .....

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r allowing the deduction provided in the Notification. In short, they want to know as to how many of the above 7 elements (para 2 above) would be includible in the value for the purpose of charging service tax. 4. For removal of doubts and with a view to avoid disputes on valuation, it is clarified that: a) Service tax would be payable on the bottling/job charges, distribution costs and other reimbursable. b) So far as inputs ie., raw materials and packing materials are concerned, one of the con .....

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r by CBU, they have no nexus with the provision of service. As such, these levies will not be included for charging service tax. d) Similarly, the surplus/profit earned by the BO being in the nature of business profit (which falls within the purview of direct taxes), will not be chargeable to service tax. 5. This position may be clarified suitably to the field formations. 7. The Learned Advocate fairly submits that in the impugned Adjudication order, the Adjudicating authority while determining .....

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that as per Board Circular the surplus/profit amount of the principal cannot be included in the value of taxable service for the payment of Service Tax. The Learned Authorised Representative on behalf of the Revenue drew the attention of the Bench to the relevant portion of the Adjudication order. The Adjudicating authority observed that the quantum of business profit included in the business income of UBL is not provided by the appellant and in absence of which they have claimed for deduction .....

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ble value. The amount surplus/profit retained by BO as claimed by the appellant, had been returned to BO and therefore such amount cannot be included in the taxable value. 8. The other contention of the Learned Advocate is that the other reimbursable paid to CBU as mentioned in the Board Circular would cover under Rule 5(i) of Service Tax (Determination of Value) Rules 2006. The Hon ble Delhi High Court in the case of M/s Intercontinental Consultants and Technocrats Pvt Ltd vs UOI - 2013 (29) ST .....

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and Technocrats Pvt Ltd (supra) is in the context of the expenses such as telephone charges, air travel tickets, hotel accommodation etc. We find that the Hon ble High Court had given such illustration to show how the boundaries of Section 67 are breached by the Rule 5(i) of the Service Tax Valuation Rules. It is observed that apart from travelling beyond the scope and mandate of the section, the Rule may also result in double taxation. If the expenses on air travel tickets are already subject t .....

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ax on the said service. In case of M/s Intercontinental Consultants and Technocrats Pvt Ltd (supra), the Hon ble Delhi High Court held that Rule 5(i) is ultra vires. The relevant portion of the decision of the Hon ble High Court is reproduced below : 18. Section 66 levies service tax at a particular rate on the value of taxable services. Section 67(1) makes the provisions of the section subject to the provisions of Chapter V, which includes Section 66. This is a clear mandate that the value of t .....

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it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub-section (4) of Section 67 which enables the determination of the value of the taxable service in such manner as may be prescribed is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for c .....

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ncluding in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider in the course of providing taxable service . What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. It is no answer to say that under sub-section (4) of Section 94 of the Act, every rule framed by the Central Gover .....

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and therefore imposition of penalty cannot be sustained. The Learned Advocate submits that in respect of Show Cause Notice dtd 5.10.2010 penalty was imposed under Section 78 and 77 of the Act 1994. He further submits that in respect of the other three Show Cause Notices, penalty was imposed under Section 76 and 77. We find that it is a new levy introduced with effect from 1.9.2009. CBEC Circular was issued on 30.10.2009. The appellant had not registered with the Central Excise Authorities and c .....

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Rules, instead of they have filed writ petition just one day before of the issue of Show Cause Notice dtd 5.10.2010. Thus, it cannot be considered that the appellant was entertained bonafide belief of the levy of the tax. We find that the appellant filed writ petition challenging constitutional validity of the levy of tax, which was admitted by the Hon ble High court and therefore, it can be said that the appellant entertained the doubt of the levy of the tax. There is no material available of s .....

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sues can not be included in the taxable value. In our considered view, despite the fact that Writ Petition is pending before the High Court, the appellant paid tax with interest and there is reasonable cause to invoke the Section 80 for waiver of the penalty under Section 76 of the Act. 12. The Hon ble Karnataka High Court in the case of CCE, Bangalore vs. Motor World - 2012(27) STR.225 (Kar.) observed that even if ingredients of Section 76 and 78 of Finance Act 1994 exist, imposition of penalty .....

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the assessee proves that there was reasonable cause for the said failure. The relevant portion of the said decision in the case of Motor World (supra) is reproduced below: 13. Therefore, given the language of Section 80 of the Act, which confers discretion on the Service tax authorities not to impose penalty if there is reasonable cause in given case, the imposition of penalty under Sections 76, 77 and 78 is not automatic. The existence of grounds/ingredients postulated in the said provisions i .....

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to be exercised reasonably. Before levying penalty, the authority is required to find out whether there was any failure referred to in the concerned provision and the same was without a reasonable cause. The initial burden is on the assessee to shown that there existed reasonable cause, which was the reason for the failure referred to in the concerned provision. Thereafter the authority has to consider the explanation offered by the assessee for failure and whether it constitutes a reasonable c .....

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) STR.303 (Guj) held as under : 2. The short question is with respect to invocation of Section 80 of the Finance Act, 1994 by the Tribunal while deleting the penalty imposed on the respondent-assessee for short payment of service tax. The respondent is engaged in providing security services. For the period under consideration, he had short paid the service tax. The proceedings were initiated for recovery as well as penalty. The Commissioner holding that the respondent had manoeuvring intention i .....

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