M/S. Gkn Sinter Metals Pvt. Ltd vs Commissioner Of Central Excise, Pune

(Arising out of Order-in-Original No. PI/COMMR/ST/27/2011 dated 18-10-2011 passed by Commissioner of Central Excise, Pune)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) and Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

====================================================== M/s. GKN Sinter Metals Pvt. Ltd. Appellant Vs. Commissioner of Central Excise, Pune-1 Respondent

Appearance: Ms. Padmavati Patil, Advocate for Appellant Shri D. Nagvenkar, Additional Commissioner (AR), for Respondent

CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing : 16/09/2015 Date of Decision : 16/09/2015

ORDER NO

Per: M.V. Ravindran

This appeal is directed against Order-in-Original No. PI/COMMR/ST/27/2011 dated 18-10-2011.

2. Heard both sides and perused the records.

3. The issue involved in this case is regarding the service tax liability which has not been discharged by the appellant in respect of services received by them from their associate companies situated abroad for advice received in the area of operations, purchasing, quality, sails and commercial, human recourses, finance, marketing, supply, information system & information technology and legal advice as a package. The appellant had paid an amount as consideration, to the associates for the services received by them which according the Revenue falls under the category of Management or Business Consultancy. The appellant during the investigation has discharged the entire service tax liability and also the interest.

4. Learned counsel would submit that the appellant has discharged the entire service tax liability and interest, in praying for setting aside the penalties imposed by the adjudicating authority. She would submit that the appellant had not discharged the service tax liability but is eligible to avail the cenvat credit of such service tax paid by them. She would submit that the service tax liability needs to be discharged by the appellant under Reverse Charge Mechanism and there is no dispute that appellant is utilizing the advice from their associates for manufacturing of products in their factory and also paying appropriate excise duty. She would submit that on the ground of revenue neutrality, the penalty to be set aside; as is held by the Tribunal in the case of Matrix Telecom P. Ltd.-2013 (32) STR 423 (T), Essar Steel Ltd.  2009 (13) STR 579 (T).

5. Learned departmental representative reiterates the findings of the adjudicating authority and submits that penalties need to be imposed as a deterrent.

6. On consideration of submissions made by both sides we find that the appellant has discharged the service tax liability and interest thereof during the proceedings before the lower authorities and such service tax liability has arisen of the appellant under reverse charge mechanism as provided under section 66A of the Finance Act, 1994. We find strong force in the contention raised by the learned counsel as to there was no intention to not to discharged the service tax liability, in as much that the services which was received by the appellant from their associates was utilized for manufacturing of final products on which the central excise duty is discharged. The appellant could have taken the credit of service tax paid under Reverse Charge Mechanism, is undisputed, in view of the forgoing, we find that in this case the penalties imposed are unwarranted and provisions of section 80 should have been invoked by the adjudicating authority for non-imposition of penalties. We find that this tribunal in case of Essar Steel Ltd. (supra) on similar set of facts held as under.

 - M/s. Essar Steel Ltd. had availed External Commercial Borrowings to the extent of US $ 120 million, $ 70 million and $ 190 million in Nov 2006, Feb 2007 and Sep 2007 respectively from non-resident lenders, who do not have any office in India and had paid certain fees/charges for arranging ECB. There is no dispute that the service received by the appellant is classifiable under the category of Banking and other Financial Services and appellant is liable to pay the service tax. The DGCEI called for details and the appellant submitted details of service received along with relevant agreements and other documents. Further they also intimated Revenue that they had made the service tax payment with interest after receiving the letter. Adjudicating authority confirmed the demand for service tax amounting to Rs. 2,06,80,113/- and interest thereon already paid and penalties were also imposed under Sections 76, 77 and 78 of Finance Act, 1994. Hence the present appeal.

2.?Heard both the sides. Ld. Advocate, Shri V.K. Jain on behalf of appellants submitted that the factory is located in Hazira, Surat and transaction relating to ECB was handled only by the headquarters of the company in Bombay and because of lack of coordination between the two offices, the omission to pay service tax occurred. He also submitted that the levy was also a new levy. Further, he submitted that there is no reason for them not to pay the service tax since as soon as they pay the service tax they were entitled to Cenvat credit and the company is paying more than Rs. 1,000 crores as Central Excise duty. Entire exercise was Revenue neutral and he also submitted that they have already taken credit of the service tax paid them in this case which also goes to show that there was no intention to evade payment of tax. Further, he drew our attention to Section 73(3) of Finance Act, 1994 which provides that where service tax is paid before issue of notice, the Central Excise officer shall not serve any notice. He also cited decision of the Honble Supreme Court in the case of Coca Cola India Pvt. Ltd. reported in 2007 (213) E.L.T. 490 (S.C.) in support of his contention that when the exercise is Revenue neutral, no purpose would be served in going into classification and other issues. He submits that this case is very relevant to the issue. On the other hand, ld. SDR on behalf of the Revenue submits that Revenue neutrality is not only criterion and what is required to be looked into is liability. He also submitted that the appellants explanation of lack of coordination is not convincing.

3.?Since a short issue is involved, with the consent of both the sides, appeal itself is taken up for disposal, waiving the requirement of predeposit. We find considerable force in the arguments advanced by the appellants, entire exercise is Revenue neutral and it was because of lack of coordination between Head office and the factory that the omission has occurred and in fact appellants have lost by making a mistake as they have paid more than Rs. 34 lakhs as interest which is not available to them as Cenvat credit. In view of above position, the contention of the Revenue that there was any intention to evade payment of duty and penalty under Section 78 of Finance Act, 1994 is imposable cannot be accepted. Further, the appellants are entitled to benefit of Section 80 of Finance Act, 1994, as regards penalty under other Sections of Finance Act, 1994. We agree with the appellant that this is a case where show cause notice need not have been issued as provided under Section 73, but since the notice has already been issued, what is required is examination of issue.

4.?In view of the above discussions, the duty and interest already paid by the appellant are confirmed and penalties imposed on them are set aside. Both the appeal and stay petition are disposed of. We find that the ratio of the above judgment of the Tribunal squarely covers the issue and the forceful submissions made by the counsel for setting aside penalties, merits acceptance.

7. For the foregoing reasons, in the facts of the circumstances of this case, we set aside the penalties imposed by the adjudicating authority, on invoking of the provisions of section 80 of the Finance Act, 1994.

8. The appeal is allowed to the extent of setting aside of the penalties imposed by the adjudicating authority.

(Operative portion of the order pronounced in court on completion of the hearing of case).

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

akp 1 6 APPEAL No.ST/682/11-Mum