damages deducted will form part of taxable value

L. Badrinarayanan, Adv. for the Appellant. V.K. Agarwal, Addl. Commissioner (AR) for the Respondent.

ORDER

S.S. Kang, Vice-President – Heard both sides.

2. Applicant filed this application for waiver of pre-deposit of total service tax of Rs. 27,17,23,700/-, interest and penalties.

3. The adjudicating authority confirmed demands of Rs. 43,13,176/-, Rs. 15,85,894/-, Rs. 51,535/-, Rs. 5,36,72,025/- and Rs. 32,09,061/- are confirmed with interest and penalties were imposed. The demand is made in the show cause notice that the applicant had provided Business Auxiliary Service.

4. The contention of the applicant is that the applicant had provided GTA services and not Business Auxiliary Service.

5. In respect of Rs. 41,23,176/-, though the demand is made in the show cause notice as Business Auxiliary Service, the adjudicating authority while confirming the demand treated the same as GTA. The adjudicating authority however denied the benefit of Notification No. 32/2004 on the ground that the applicant failed to show that the applicant fulfilled the condition of the Notification. The contention is that the applicant had entered into agreement with M/s. Maharashtra State Power Generation Co. Ltd. for transport of coal from mine to railway sidings and loading from siding to wagons. The applicant paid the service tax in respect of GTA service by availing the benefit of Notification No. 32/2004-S.T., and M/s. Maharashtra State Power Generation Co. Ltd. as the recipient of the GTA service is liable to pay service tax. The contention is that they have not availed any input or capital goods credit for providing GTA service. The applicant had not availed the benefit of Notification No. 12/2003 for arranging the transportation by engaging various truck operators. In view of this the demand is not sustainable.

6. In respect of other demands, the contention is that the applicant entered with various Power Generation Companies of States such as Karnataka Power Corporation Ltd. for supply of coal. In one case, the adjudicating authority held that the applicant collected service tax from the customers but had not paid. In the show cause notice there is no such allegation regarding recovery of service tax which also produced documents to show that service tax has not been recovered.

7. Similarly in respect of demand of Rs. 5,36,72,025/- and of Rs. 2,07,12,191/- the service recipient of service has paid the service tax in respect of GTA service and the applicant had paid appropriate service tax in respect of loading and unloading services.

8. In respect of demand of Rs. 32,09,061/- the contention is that the applicant received the consideration amount from the service recipient and the service recipient deducted the damage charges. As the applicant was not receiving the amount to the extent of the damage charges therefore the confirmation of demand by including the amount of damage charges is not sustainable.

9. In respect of the demand of Rs. 18,45,17,212/- the contention is that the demand is confirmed after including the freight paid to the railways in respect of transportation of coal. The actual freight was reimbursed by the Karnataka Power Corporation Ltd. and the applicant had already paid service tax on other taxable services provided to the Karnataka Power Corporation Ltd. As actual freight is reimbursed by Karnataka Power Corporation, hence the amount of freight cannot be considered as part of service provided by applicant.

10. During argument, the applicant relied upon the terms and conditions of the contracts entered into with the service recipient. The applicant also submitted that the demand is time barred as the allegation of suppression in the given circumstances cannot be made against the applicant. The applicant is registered with the Revenue and regularly paying service tax. All the agreements which are subject matter of the proceedings were submitted to the Revenue in January 2010. Hence the demand by invoking the extended period of limitation is not sustainable.

11. The learned AR on behalf of the Revenue took us through the various contracts and the agreements and submitted that abatement claimed by the appellant in respect of GTA service under Notification No. 32/2004 is not available. As the onus is on the applicant to show that the applicant fulfilled the conditions of the Notification. As per the conditions of Notification service provider has to give a declaration that no credit on input service is availed and the service provider has not availed the Notification No. 12/2003. In the present case, the applicant had not produced such a declaration. Therefore, the demand is rightly made.

12. The AR also submitted that the demand of Rs. 32,09,061/- and Rs. 18,45,17, 212/- is also rightly made. The contention is that as per the agreement entered with Karnataka Power Corporation Ltd., the applicants are liable to pay damage in respect of loss to the property of service recipient, property of railway and property of coal companies, as the deductions were made on account of damages. Therefore it cannot form part of gross consideration amount received by the applicant in respect of taxable service provided.

13. In respect of freight charges, the contention is that as per the terms and conditions of the agreement entered with M/s. Karnataka Power Corporation, the applicants are responsible for supply of coal of the agreed specification for delivery of coal by railways to thermal power station. As the applicant has to Undertake the activity of loading of coal from mines to railway sidings unloading the coal to the tipper and from tipper to the wagons at railway side and thereafter to arrange the continuous loading to wagons and thereafter transporting the coal to the thermal power station. The Revenue also relied upon the terms and conditions of the agreement. As per the agreement the applicants are responsible for damages or detention of the rake, freight loading etc. The contention is that as the applicant has provided the taxable service from coal mines to the power station which includes the transportation of coal by rail. Hence freight is the part of the consideration amount and the applicants are liable to pay tax on the gross amount received from the service recipient.

14. In respect of time bar aspect, the AR drew our attention to the fact that the applicant had not submitted copies of the agreements during investigation but the same was substituted subsequently. Therefore the demand is rightly made by invoking the extended period of limitation.

15. We find the applicant was providing various services under different Agreements entered with M/s. Maharashtra State Power Generation Co. Ltd. and M/s. Karnataka Power Corporation Ltd. and other service recipients.

16. In respect of the demand which is confirmed denying the benefit of Notification No. 32/2004-S.T., we find that in the show cause notice, the demand was made on the ground that the applicant had provided Business Auxiliary Service and the adjudicating authority treated the same as GTA Service and denied the benefit of the Notification on the ground that the applicant had not fulfilled the conditions of the Notification. As per the terms and conditions of the Agreement the applicant had arranged the transportation and the applicants are not having any trucks, dumpers, tippers etc. and the applicants arranged the same from various transport agencies. The applicant being service provider had not availed any credit in respect of capital goods credit or inputs credit for providing the taxable service. Prima facie in these circumstances we find merit in the contention of the applicant in this regard.

17. In respect of the demands of Rs. 15,85,954, Rs. 51,535/-, Rs. 5,36,72,025/- and Rs. 2,07,12,191/- we find the demand is confirmed on the ground that the applicants are providing Business Auxiliary Service. The applicants relies upon various terms and conditions of the Agreement entered into with the recipient which prima facie shows the activity undertaken by the applicant is GTA service. In view of this we find prima facie merits in the contention of the applicant.

18. In respect of the demand of Rs. 38,55,546/- the contention is that the amount had already been paid and the applicants produced copies of ST Returns and the statement showing payment of this amount. Therefore prima facie the applicants have made out a case for total waiver of this amount.

19. In respect of the demand of Rs. 32,09,061/- we find that the demand is confirmed after taking into consideration the amounts deducted by M/s. Karnataka Power Corporation Ltd. The contention of the applicant is that as the applicant had not received the amount therefore the applicants are not liable to pay service tax. We have gone through the terms and conditions of the Agreements entered into with M/s. Karnataka Power Corporation Ltd. and as per the Agreement the applicants are liable to pay damages caused to the property of the service recipient or property of railways or the property of coal companies or the property of any others on account of negligence or defective working on the part of the applicant. The deductions in respect of the damages caused to the properties and the deduction amounts were retained by the service recipient as per the terms and conditions of the Agreements. Hence these amounts will form part of the gross amount received by the applicant for the taxable service provided to the service recipient. In view of this prima facie the applicant had not made out a case for waiver of pre- deposit of the amount. The applicants are directed to deposit Rs. 32,09,061/- within eight weeks.

20. In respect of the demand of Rs. 18,45,17,212/- which is confirmed after including the freight paid by the applicant to the railways in respect of transportation of coal from the coal mine to the thermal power station, we have gone through the Agreement of M/s. Karnataka Power Corporation and as per the Agreement the applicants are responsible for supply of coal of agreed specification by delivery of coal by rail to thermal power station. The applicants are also responsible for damages on retention of racks, loading, unloading etc.. As the Agreement is for transportation of coal from the coal mines to the thermal power station, therefore, prima facie it cannot be said that the freight paid to the railway will not form the gross amount in respect of taxable service provided by the applicant. In view of the terms and conditions of the Agreement, the applicants have not made out a case for total waiver of pre-deposit of this amount. However, taking into the facts and circumstances of the case and the issue of limitation the applicants are directed to deposit 25% of the amount of Rs. 18,45,17,212/- within eight weeks. On deposit of the above mentioned amount the pre-deposit of remaining dues is waived and recovery of the same is stayed during pendency of appeal.

21. Compliance to be reported on 4-6-2014.