At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai
By, THE HONORABLE JUSTICE: SULEKHA BEEVI
By, MEMBER AND THE HONORABLE JUSTICE: B. RAVICHANDRAN
For Petitioner: V. Ravindran, Advocate And For Respondents: K.P. Muralidharan, AC (AR)
1. The above miscellaneous application has been filed by the department seeking amendment of the cause title on the ground that the department is shown in the above appeal with jurisdiction of the Commissioner of Service Tax, Chennai, whereas now the same has been changed as The Commissioner of GST & Central Excise, Chennai South Commissionerate, MHU Complex, 692, Anna Salai, Nandanam, Chennai 600 035. We find that the prayer for amendment of the cause title as also the address for communication of the department needs to be amended in accordance with the change of address/jurisdiction of the department. The amended address shall be noted in the ST-5 Form. After allowing the miscellaneous application for change of cause title, the appeal itself is taken up for hearing and disposal.
2. The appellant is aggrieved by the order dated 03.11.2010 of the Commissioner of Central Excise, Chennai-III.
3. The brief facts of the case are that the appellants were awarded contracts by various System Integrators like Wipro etc., in connection with the procurement and management of leased circuits for connectivity to various customers of such System Integrators. The Revenue entertained a view that the consideration received by the appellant for such activities are liable to be taxed under the category of Management, Maintenance or Repair services. The period of dispute is from July 2004 to March 2008. The proceedings initiated against the appellants to demand and recover service tax resulted in the impugned order. The original authority confirmed the service tax liability of Rs. 2,14,65,932/- and also imposed penalty of equivalent amount under Section 78 of the Finance Act, 1994.
4. Ld. Counsel appearing for the appellants submitted on the following lines:-
a) They are not involved in managing and maintaining any such circuits. These circuits are managed by the System Integrators who are providing service to various clients like Banks etc. The appellants were given work order which essentially relates to identifying possible areas of defect in such circuit which is brought to the notice of the System Integrators for further action. The appellants themselves are not engaged in management of such circuits.
b) Their clients as system integrators have paid service tax on the whole of their operation under different services which include the consideration now under dispute for service tax liability at the hands of the appellants. Hence it is submitted that there cannot be tax levy on the same consideration again as the appellants is only a sub-contractor.
c) The demand made for the extended period is not sustainable as the appellants bona fidely believed that the consideration being subjected to service tax as a whole at the hands of their clients (system integrators), they need not discharge service tax on the same. For the same reason penalty imposed also contested. A prayer was made for invoking Section 80 of the Finance Act, 1994 for setting aside the penalty imposed.
5. The Ld. AR contested the appeal and submitted that the terms of the work order are clear and simple. The appellants are engaged in procurement and management of such circuits. They were paid maintenance charges for leased lines per circuit per year. The work order is clear to this effect. The claim of the appellants that the system integrators to whom they have provided service have paid service tax on their overall activities which included the consideration now being taxed at the hands of the appellants, is not relevant to decide the service tax liability of the appellants. The appellants are registered with the department and were discharging service tax on some of their activities like maintenance of modem etc. under the category of Management, Maintenance or Repair service. As such they cannot take a plea of bona fideness for non-payment of service tax on certain other considerations which are now disputed.
6. We have heard both sides and perused the appeal records.
7.1 On the merits of the case, we have perused he sample work order dated 21.06.2000 awarded by Wipro to the appellants. The said work order clearly mentions the scope of work as procurement and management of such circuits, ISD connectivity for the customers of Wipro. Wipro is engaged in providing system networking and various activities of computer operations of their clients. Leased line circuit is one of the essential requirements for such service. The work order given by Wipro to the appellants stipulates that the appellant shall manage and maintain such lines for a consideration identified per circuit per year. On plain reading of the work order as well as the tax entry under Section 65(105)(zzg) which covers management, maintenance or repair service. The activities undertaken by the appellants in pursuance of the work order is clearly covered by the tax entry as they are involved in management, maintenance of such circuit for which they have obtained consideration from their clients. We have no reason to hold against the tax liability of the appellants. Accordingly, on merits the impugned order is upheld.
7.2 The appellants raised certain issues regarding their non-liability of service tax as of sub-contractor. Reference was also made on certain decided cases. We note the facts of the present case are that Wipro and other clients of the appellants are engaged in multifarious services to their clients. In order to render such services they have given some work orders to the appellants, which is apparently a part of the activities to help to execute the work of the system integrators. The present work order given to the appellants cannot be considered as a subcontract of such contract given to the main system integrators. As already noted, the system integrators are involved in various activities taxable under various tax entries. The details are not before us. As such, it will not be possible to come to a conclusion that the appellant has only executed the said contract work of a main contract of the same tax entry given to the system integrators. In any case, the legal position of tax liability has to be decided based on the statutory entries for tax levy and not based on quantity including the consideration which is now been subject of dispute. This aspect is well covered by the provisions of Cenvat Credit Rules, 2004, which allows the credit of input services in terms of the said Rules.
7.3. Regarding limitation pleaded by the appellant we note that the appellants are registered with the department and had discharged service tax on management, maintenance and repair service for some of their activities. However, no tax is paid on the present disputed activity. Extended period demand is sustainable and we are in agreement with the findings by lower authority. However, the plea of the app
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ellant for non-imposition of penalty under Section 78 by invoking Section 80 can be considered. Section 80 provides for waiver of penalty imposed under Section 78, if the appellants can show reasonable cause. The appellants have pleaded that Wipro has given a certificate of payment of service tax on the whole consideration which is inclusive of consideration paid to the appellants. Though on merit we hold that the tax liability cannot be determined on such criteria, the penal consequences of non-payment can be waived by invoking the provisions of Section 80 of FA. Accordingly while upholding the tax liability in full against the appellants, we waive the penalty in terms of Section 80 of the FA. 8. The appeal is disposed of in the above terms.