lhek “kyd ,o dunzh; mrikn “kyd vk;drky;] dunzh; mrikn hkou ... · v.st/15-218/adj/09...

V.ST/15-218/Adj/09 Order-in-Original No.33/COMMR/2012 M/s. Tops Security Limited, Rajkot

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lhek “kqYd ,oa dsUnzh; mRikn “kqYd vk;qDrky;] dsUnzh; mRikn Hkou] jsl dkslZ] fjax jksM jktdksV-360001 CENTRAL EXCISE & CUSTOMS COMMISSIONERATE

CENTRAL EXCISE BHAVAN : RACE COURSE RING ROAD RAJKOT 360 001

Phone – (0281) 2442030, 2441980, 2441982 Fax – (0281) 2443313, 2452967 Email: [email protected] Qk- la- F.No. V.ST/15-218/Adj/09

By RPAD/HAND DELIVERY

vkns”k dh rkjh[k Date of order

17.05.2012 ewy vkns”k la- ORDER IN ORIGINAL NO.33/COMMR/2012 tkjh djus dh rkjh[k

Date of Issue 17.05.2012

vkns”kdrkZ Ordered by

ch- ds- caly vk;qDr

ds-m-“kq- vk;qDrky; jktdksV B. K. Bansal

Commissioner, Customs & Central Excise,

Rajkot. ds lanHkZ esa In the case of

M/s. Tops Security Limited, B-202, Pooja Complex, Near GPO Harihar Chowk, Rajkot-360001 (Now at: A-40, Aalap Avenue, Opp Radhe Hall, Nr. SNK School, University Road, Rajkot-360 005)

dkj.k crkvks la- ,oa frfFk Show Cause Notice No. & Date

No.V.ST/AR-I/RJT/RJT/COMMR/217/09 dated 23.10.2009

1. जस य (य ) को यह ित भेजी जाती है, उसे य गत योग के िलए िनःशु क दान क जाती है।

This copy is granted free of charge for private use of the person(s) to whom it is sent.

2. इस आदेश से असंतु कोई भी य इस आदेश क ाि से तीन माह के भीतर सीमा शु क, उ पाद शु क एवं सेवाकर अपीलीय यायािधकरण, अहमदाबाद पीठ को इस आदेश के व अपील कर सकता है। अपील सहायक र ज ार, सीमा शु क, उ पाद शु क एवं सेवाकर अपीलीय यायािधकरण,O-20, मेघाणीनगर, यु मे टल हॉ पीटल क पाउ ड, अहमदाबाद-380 016 को स बोिधत होनी चा हए। Any person deeming himself aggrieved by this Order may appeal against this Order to the Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad Bench within three months from the date of its communication. The appeal must be addressed to the Assistant Registrar, Customs, Excise and Service Tax Appellate Tribunal, O-20, Meghani Nagar, New Mental Hospital Compound, Ahmedabad-380 016.

3. उ अपील स वस टे स स, १९९४ के िनयम 9(1) के देहत ा प सं. एस.ट .5 म दा खल क जानी चा हए। उसपर के य उ पद शु क (अपील) िनयमावली, 2001 के िनयम 3 के उप य य ारा ह ता र कए जाएंगे। उ अपील को चार ितय म दा खल कया जाए तथा जस आदेश के व अपील क गई हो, उसक भी उतनी ह ितयाँ संल न क जाएँ


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(उनम से कम से कम एक ित मा णत होनी चा हए)। अपील से स बंिधत सभी द तावेज भी चार ितय म अ े षत कए जाने चा हए। The Appeal should be filed in form No. S.T.-5 specified in rule 9(1) of Service Tax Rules, 1994. It shall be filed in quadruplicate and shall be accompanied by an equal number of copies of the order appealed against (one of which at least shall be certified copy). All supporting documents of the appeal should be forwarded in quadruplicate. 4. अपील जसम त य का ववरण एवं अपील के आधार शािमल ह, चार ितय म दा खल क जाएगी तथा उसके साथ जस आदेश के व अपील क गई हो, उसक भी उतनी ह ितयाँ संलगन क जाएंगी (उनम से कम से कम एक मा णत ित होगी)।

The Appeal including the statement of facts and the grounds of appeal shall be filed in quadruplicate and shall be accompanied by an equal number of copies of the order appealed against (one of which at least shall be a certified copy.)

5. अपील का प अं ेजी अथवा ह द म होगा एवं इसे सं एवं कसी तक अथवा ववरण के बना अपील के कारण के प शीष के अंतगत तैयार करना चा हए एवं ऐसे कारण को मानुसार मां कत करना चा हए। The form of appeal shall be in English or Hindi and should be set forth concisely and under distinct heads of the grounds of appeals without any argument or narrative and such grounds should be numbered consecutively.

6. अिधिनयम क धारा 35 बी के उपब ध के अंतगत िनधा रत फ स जस थान पर पीठ थत है, वहां के कसी भी रा ीयकृत बक क शाखा से यायािधकरण क पीठ के सहायक

र ज ार के नाम पर रेखां कत माँग ा ट के ज रए अदा क जाएगी तथा यह माँग ा ट अपील के प के साथ संल न कया जाएगा। The prescribed fee under the provisions of Section 35 B of the Act shall be paid through a crossed demand draft, in favour of the Assistant Registrar of the Bench of the Tribunal, of a branch of any Nationalized Bank located at the place where the Bench is situated and the demand draft shall be attached to the form of appeal.

7. यायालय शु क अिधिनयम, 1970 क अनुसूची-1, मद 6 के अंतगत िनधा रत कए अनुसार संल न कए गए आदेश क ित पर 5.00 पया का यायालय शु क टकट लगा होना चा हए। The copy of this order attached therein should bear a court fee stamp of Re. 1.00 as prescribed under Schedule 1, Item 6 of the Court Fees Act, 1970. 8. अपील पर भी . 5.00 का यायालय शु क टकट लगा होना चा हए। Appeal should also bear a court fee stamp of Rs. 5.00.


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BRIEF FACTS OF THE CASE:

M/s. Tops Security Limited, having their head office and

registered office at 5, Royal Palms Golf & Country Club, Aarey Milk Colony,

Goregaon ( E), Mumbai-400065 and having status of a limited company,

(hereinafter referred to as the “Company”) are engaged in the business of

providing Security Services to various clients all over India and the security

services provided by them are chargeable to Service Tax under 'Security

Agency Services' as defined under Section 65(94) of the Finance Act, 1994

(hereinafter referred to as the “Act”). They are providing security services

through the network of branches which are controlled by its head office at

Mumbai and their all the branches are separately registered with the

jurisdictional Central Excise/Service Tax Offices for the purpose of

discharging of the Service Tax liability at various places in India. One such

their branch viz. M/s. Tops Security Limited, B-202, Pooja Complex, Near

GPO Harihar Chowk, Rajkot-360001 (hereinafter referred to as the

“Noticee”) are holding Service Tax registration No.AAACT0160FST009 from

the Central Excise Commissionerate, Rajkot.

2. On the basis of intelligence gathered by the Directorate General

of Central Excise Intelligence, Ahmedabad Zonal (for short, DGCEI) that the

branches of the Company, located in Gujarat had not discharged their

Service Tax liability properly, enquiries conducted with their said branches

revealed that due Service Tax was not being deposited by them.

3/- The Managing Director of the Company was issued with various

summons and in response to such summons, Shri Rahul Nanda authorized

different officials who gave different versions of the tax liability and the

Service Tax liability discharged by the Company.

4/- In response to summons, Shri Diwan Rahul Nanda, Global

Chairman and Managing Director of the Company appeared alongwith two

officials of the company viz. Shri Amar Panghal, Chief Financial Officer and

Shri Mukesh Jain, Corporate Manager(Taxation), who were stated to be for

helping him in providing the necessary details to DGCEI, and in his

statement dated 17.04.2009 (in questionnaire form) recorded under Section

14 of the Central Excise Act, 1994 as made applicable to Service Tax by

virtue of Section 83 of the Act, he stated as under:


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“Q.1. Please provide information about M/s Tops Security Limited, in which

you are acting as Global Chairman and Managing Director, viz its formation,

promoters, equity holders, other directors, its business, its incorporation.

Ans. M/s Tops Security Limited is having its registered and corporate office

at Mumbai. It was established in 1982 and was previously known as Tops

Detectives & Security Services Private Limited. The company was incorporated

as a company in 1995. The promoters of the company are my father Major R.C.

Nanda, and Myself.

Q.2. How the decisions are taken in the company?

Ans- The major policy decisions are taken by the board of directors and Indian

operations are handled by Shri Ramesh Iyer, Executive Director of the company.

Q.3. What is the accounting policy of the company?

Ans- The accounting of the company is de-centralized. The business of the

company is generated at the branch level, bills to the clients are generated at

the branch level. The revenue is deposited in the centralized account of the

company with the corporation bank. At the branch level trial balance is

generated. On the basis of trial balance, region wise balance sheets are

prepared. M/s Tops Security Limited is divided into following regions :- (i)

Central India Region, (ii) East India Region, (iii) Central Mumbai Region, (iv)

Mumbai western Region, (v) Western Region, (vi) Maharashtra Region, (vii)

North India Region, (viii) Punjab & East India Region, (ix) South India region.

On the basis of regional balance sheet consolidated annual report is prepared.

Q 4. The services provided by a security agency were brought under the purview

of Service Tax with effect from 16.10.1998. As per Section 65 (94) of the

Finance Act, 1994, the security agency is defined as under:

"Security agency means any [commercial concern] engaged in the business of rendering services relating to the security of any property whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity, whether of a personal nature or otherwise, including the services of providing security personnel".

Various branches of M/s Tops Security Limited are registered with

Service Tax department for providing Security Services. What do you know

about Service Tax and its various provisions?


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Ans- I state that our company is dealing with the Service Tax since its inception.

M/s. Tops Security Limited is engaged in the business of providing security

services on commercial scale. M/s Tops are rendering security to the properties

of their clients by way of providing trained security personnel. Therefore, M/s.

Tops is a security agency within the meaning of Section 65(94) of the Finance

Act, 1994. Therefore, the payments received by M/s. Tops from their clients in

respect of security services provided by them will be chargeable to Service Tax.

I also understand that as per the provisions of Section 67 of the Finance Act,

1994, the gross amount charged by the security agency from the service

recipient for rendering service is the taxable value. Thus abatements towards

administrative and office expenses incurred for rendering such services are not

allowed from the gross amount charged in respect of such service. I also

understand that every person providing taxable service to any person shall pay

Service Tax at the specified rate to the credit of the Central Government, by the

5th of the month, in which the payments are received, towards the value of

taxable services provided to the clients. I also understands that that every

person liable to pay the Service Tax shall himself assess the tax due on the

services provided by him and shall furnish to the Superintendent of Central

Excise, a half-yearly return in Form ST-3 along with a copy of the Form TR-6, in

triplicate for the months covered in the half-yearly returns. The half yearly

return is to be filed by the 25th of the month following that particular half-year.

Q.5. Whether any administrative set up has been made for fulfilling the

above provisions of law by you as a Chairman and Managing Director of the

company?

Ans- M/s Tops Security Limited had formulated a policy that Service Tax is

to be deposited at the branch where the bills are raised to the client. Thus our

branches were got registered with the local Central Excise/ Service Tax offices.

At the end of the month, these branches were to calculate Service Tax, and

were required to forward a cheque to the registered office, where it was passed

and was sent back to the branch office for deposit to the credit of central govt.

Q.6. Now your attention is drawn to the first summons dated 11.07.2007

along with letter dated 11.07.2007 wherein you were informed that Service Tax

though being collected from the clients is not being deposited by M/s Tops

Security Limited, please state what efforts have been taken by you to correct

the wrong practice and to deposit the entire amount of Service Tax so collected?

Ans- We have brought current Service Tax payments on track and we are in

compliance till March, 2009. As regards the old outstanding is concerned, we

have in addition paid five crores as was committed to this office. Remaining

Service Tax will be paid shortly.


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Q.7. How is Service Tax element reflected in the annual reports and is it

possible to figure out the total Service Tax which should have been deposited to

the credit of Central govt. in a financial year?

Ans- M/s Tops have been receiving the payments from their clients, at the

branch level. For this purpose, M/s. Tops have been raising bills to their clients

at the branch level and trial balance is generated at the branch level. On the

basis of these trial balances, Annual Audit Reports are prepared. The value of

security services [billed amount] provided by M/s. Tops are shown in the Annual

Reports, however the actual collection of Service Tax is not shown in the Annual

Reports.

I state that the collection amount can be ascertained from the billed

amount by simple calculation. Out of the billed amount of Security Agency

Service, the amount which has not been received in the current year, is

reflected under the heading "Sundry Debtors". However, the amount of sundry

debtors which is relating to the clients is to be considered as not received in the

year for the purpose of Service Tax [i.e. the amount of sundry debtors which is

relating to Security Agency Service is not to be considered]. The amount

reflected under the heading "Sundry Debtors" of the previous year is carried

forward to the current year. Therefore, the amount received in the current year

will be as under:

Amount received in the current year = Billed amount of security agency service

[minus] amount of sundry debtors relating to the clients of the current year

[plus] amount of sundry debtors relating to the clients of previous year. The

amount related to bad debts which are written off are also not to be considered

for arriving at the amount received during the current year for which

adjustments are to be made.

Q.8. As per the above formulae, Shri Amar Panghal and Shri Mukesh Jain

tried to work out the quantum of Service Tax which should have been deposited

by M/s Tops Security Limited during the year 2004-05, 2005-06, 2006-07 and

2007-08, the same is as under:-

A

A

Year Sum of the Gross

billing for the

year

Sum of collection

for the year

Service Tax payable

2004-05 1268269054 1180344021 100650512

2005-06 1622013756 1345172113 124507764 2006-07 2401642790 2071098262 214004477

2007-08 2595527241 2732361804 263447236

7887452841 7328976200 702609989


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As per above an amount of Rs.70,26,09,989/- was to be deposited by

M/s Tops Security Limited ? Please state as to how much amount of the above

has been deposited by your company?

Ans- I herewith produce four sheets which show the computation of Service

Tax liability and payment of Service Tax for the year 2004-05, 2005-06, 2006-

07 and 2007-08. The Service Tax liable to be paid on 31st March, 2008 is to the

tune of Rs. 23,99,29,816/-, out of which some more payments have been made

during the year 2008-09, the details will be submitted shortly. For the purpose

of further details I authorize, Shri Amar Panghal, Chief Financial Officer, of M/s

Tops Security Limited, Mumbai and Shri Mukesh Jain, Corporate Manager

(Taxation), M/s Tops Security Limited, Mumbai, the information provided by

them will be binding on the company.

Q.9. You are shown an e-mail written by Shri Abhaya Gandhi, General

Manager Finance of the company to branch heads in which he had stated that

Service Tax payments from April, 2008 onwards will be paid at headquarter

level. Please comment on the manner of discharge of Service Tax liability after,

April, 2008 to till date.

Ans- I state that though we have taken a centralized Service Tax registration

with Mumbai Service Tax Commissionerate, however we are paying/ depositing

Service Tax at the branch level only , as No objection certificate from the

jurisdictional central Excise offices could not be obtained. The Service Tax

payment will be made by us at the branch level only, for which 35 offices have

been nominated.

Q.10. Why the Service Tax being collected by your company is not still

deposited to the exchequer on due dates?

Ans- The Service Tax compliance after the 2005-06 was delayed, due to

rotation of funds. The due Service Tax is being deposited after investigation by

DGCEI.

Q.11. You are hereby informed that a bailable warrant issued by Additional

Chief Metropolitan Magistrate, Ahmedabad in Criminal case No. 235 of 2008 is

pending to be served upon you. Please Comment.

Ans- I am aware of the same and has been informed of the same by my

staff.”


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5/- The Company vide their letter dated 12.06.2009 further

submitted that the Service Tax calculation sheets provided by them on

17.04.2009 had some error and again submitted certified statement from

2004-05 to 2007-08 as per audited balance Sheet, containing summary of

their business conducted from different branches, collection and Service Tax

payable, paid and Service Tax pending to be deposited. The summary of the

same for the entire transactions of the Company has been tabulated as

below:-

Table-I

(Amount in Rs.)

Year Net Collection during the year

Service Tax payable for the year

Service tax payable in the beginning of the year

Service tax deposited during the year as reported by the Company

CENVAT claimed

Balance payable at the end of the year

2004-05 1184777934 108534814 21991663 80878787 32649 49,615,041

2005-06 1381537958 122512644 49615041 107736874 509737 34,703,458

2006-07 2143323399 220776449 34703458 122113708 8124971 125,965,400

2007-08 2778089330 286586177 125965400 167371431 2544515 239,929,814

Total 7487728621 738410084 478100800 11211872 Note :- During the year 2005-06, a sum of Rs.3,11,59,261/- was claimed towards Service Tax not accrued, which appeared to be incorrect hence, the Service Tax payable at the end of 2007-08 should be Rs.27,10,89,075/-

6/- Investigations for the company as a whole had revealed that the

Company had been providing security agency services to its various clients,

through its 44 accounting branches located at various places and they had

opted to be separately registered for payment of Service Tax at 35 places.

The Company had been issuing bills normally on monthly basis in respect of

security services provided by them.

6.1/- During investigations, several summons were issued to the

Company for providing details relating to security services provided by them.

However, the Company, every time authorized a person, who was new to

the company, and the details produced by them were incomplete and

incorrect. Even the information produced by their Managing Director during

recording of his statement on 17.04.2009, was subsequently corrected vide

their letter dated 12.06.2009 referred supra. The details produced by them

together with the details available in the audited Annual Audit Reports for

the years ended on 31.03.2005, 31.03.2006 & 31.03.2007 and 31.3.2008

along with the Service Tax calculation sheets produced by Shri Amar


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Panghal, Chief Financial officer of the Company had been relied for

computation of Service Tax on the security services provided by them.

6.2/- It further revealed that the Company had been charging Service

Tax from their customers, and the amount received by them was inclusive of

Service Tax. The payment was received at the branch level which was

deposited in their centralized account in the Corporation Bank. The amount

related to services rendered was reflected in their books of account.

However, the Service Tax paid by them during the corresponding period did

not commensurate with the amount received by them in respect of security

services provided by them. The summary in para 5 supra showed that

Service Tax of Rs.73,84,10,084/- + Rs.2,19,91,663/- = Rs.76,04,01,747/-

was to be deposited by them during the period 2004-05 to 2007-08. As per

their own submission Service Tax of Rs. 23,99,29,814/- was unpaid at

the end of March, 2008. They had submitted that Service Tax of

Rs.47,81,00,800/- had been deposited during 01.04.2004 to 31.03.2008 but

the same could not be tallied with the reports called for by DGCEI from the

jurisdictional Central Excise Offices, as the Company had not filed ST-3

returns. Thus, the Company were required to produce the proof of the

payments made by them before the adjudicating authority.

6.3/- They Company were registered at different places and were

required to file ST-3 returns to the department, however no such returns

had been filed with the jurisdictional Central Excise/Service Tax offices

within the due date.

7.1/- Investigation in respect of the Noticee revealed that the Noticee

had obtained Service Tax Registration No.AAACT0160FST009. The Company

vide their letter dated 12.06.2009 had submitted the sheets showing

computation of Service Tax for their various branches, however, it appeared

that the rate of Service Tax had not been correctly applied while computing

the total service tax liability. Therefore, after applying the correct rate of

Service Tax, Education Cess and Secondary & Higher Education Cess, the

year-wise summary of Service Tax payable in respect of the Noticee

appeared to be as under:-


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Table-II

(Amount in Rs.)



Service Tax payable in the beginning of the year

Service Tax deposited during the year as reported by the Company

CENVA T claimed

Short payment of Service Tax

2004-05 2262386 230763 49692 155147 125308

2005-06 4755011 485011 125308 321194 289125

2006-07 16308251 1996130 289125 364088 1921167

2007-08 22277904 2753549 1921167 963523 828 3710365

Total 45603552 5465453 1803952 Rate of Service Tax 2004-05 (upto 10.09.2004) : 8% 10.09.2004 to 17.04.2006 : 10% + 2% E.C. 18.04.2006 to 10.05.2007 : 12% + 2% E.C. 11.05.2007 to 23.02.2009 : 12% + 2% E.C. + 1% S & H.E. Cess

It appeared from the above summary that, for the period from

year 2004-05 to 2007-08, Service Tax of Rs.55,15,145/- (Rs.49,692/- +

Rs.54,65,453/-) was to be paid by them for the security services provided

by the Noticee for which they have obtained Service Tax registration at

Rajkot. The Company however claimed that they had deposited Service Tax

of Rs.18,03,952/- during the said period.

7.2/- Further, on being asked by the JRO vide letter F.NO.

SA/RAJKOT-1/20/TD&SS dated 16.07.2009 and 28.07.2009, the Noticee had

filed the ST-3 returns due for the period October, 2005 onwards upto March,

2009. During the scrutiny of the ST-3 return for the periods mentioned

below, it appeared that there was a short payment of Service Tax of

Rs.18,76,684/- as under:

Table-III

Period Value of Service

(Rs.)

Amount of Service Tax

payable (Rs.)

Amount of Service

paid (Rs.)

Amount of Service

Tax to be recovered

(Rs.)

Short Payment of Interest

Apr. to Sept-2008-09

8064450/- 996766/- 0 996766/- Rs. 996766/-to be recovered with interest

Oct. to Mar., 2008-09

9274283/- 1146301/- 266383/- 879918/- Rs. 879918/- to be recovered with interest

Total 17338733/- 2143067/- 266383/- 1876684/-


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It further appeared that an amount of Service Tax of

Rs.2,66,383/- paid against the total liability of Rs.11,46,301/- for the period

October, 2008 to March, 2009 was paid in three installments beyond the due

date, and after delay of 36 days, 66 days and 36 days, respectively.

Therefore, there appeared short payment of interest of Rs.4053/- which was

required to be recovered from the Noticee under Section 75 of the Act.

8/- As provided by Section 68 of the Act, ‘every person providing

taxable service to any person shall pay Service Tax at the specified rates

and in such manner and within such period as may be prescribed’. Further,

Rule 6 of the Service Tax Rules, 1994 (hereinafter referred to as the “Rules”)

stipulated that ‘Service Tax shall be paid to the credit of the Central

Government, by the 5th of the quarter immediately following the calendar

month, in which the payments are received, towards the value of taxable

services’. Section 70 of the Act provided that ‘every person liable to pay the

Service Tax shall himself assess the tax due on the services provided by him

and shall furnish to the Superintendent of Central Excise, a return in such

form and in such manner and at such frequency as may be prescribed’.

Further, Rule 7 of the Rules prescribed that ‘every assessee shall submit a

half-yearly return in Form ST-3 or ST-3A as the case may be, along with a

copy of the Form TR-6, in triplicate for the months covered in the half-yearly

returns’. Further sub-rule [2] thereto also stated that ‘every assessee shall

submit the half yearly return by the 25th of the month following the

particular half-year’.

9/- It appeared that the Noticee had been providing the security

agency services to various clients and had obtained service tax registration

for the said taxable service but they had not been filing the periodical ST-3

Returns. It, therefore, appeared that they had deliberately not declared the

correct value of the said service in their ST-3 returns with the intention of

evading the payment of Service Tax. The Noticee had thus contravened the

provisions of Section 68 of the Act read with Rule 6 of the Service Tax

Rules, 1994, in as much as they had failed to make the payment of Service

Tax to the credit of the Government, and the provisions of Section 70 of the

Act read with Rule 7 of the Rules, in as much as they had not declared the

correct value of taxable service in their periodical ST-3 Returns.

10/- It appeared that the Noticee had short paid Service Tax by way

of willful mis-statement, suppression of facts and in contravention of


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provisions of the Act/Rules relating to levy and collection of Service Tax with

an 'intent' to evade the payment of Service Tax. They intentionally did not

declare the proper value of such services in their ST-3 returns. Therefore,

the proviso to sub-section (1) of Section 73 read with Section 73A of the Act

appeared to be applicable to invoke the extended period of five years for the

recovery of Service Tax not paid. Since the Noticee had not paid the Service

Tax, therefore, they appeared to be liable for penal action under Section 76

of the Act. Further, they had not paid Service Tax even after collection of the

same from the service receivers by way of willful mis-statement,

suppression of facts and contravention of provisions of Act/Rules relating to

levy and collection of Service Tax with intent to evade Service Tax and

therefore, they appeared to be liable to penal action under Section 78 of the

Act.

11/- Shri Diwan Rahul Nanda, Chairman and Managing Director of the

Noticee was fully aware that they were providing taxable service and were

collecting Service Tax from their clients but were not depositing the same to

the Govt. Account. Shri Diwan Rahul Nanda was the persons in charge of the

Company when the said offence of evasion of Service Tax was committed by

the Noticee and was responsible for the conduct of the business of the

Company and Noticee. Therefore, he appeared to be liable to penal action

under Section 77 of the Act for not taking appropriate action to deposit the

Service Tax even though the same was being collected by them from their

clients, not filing Service Tax returns and not paying Service Tax by way of

fraud, willful mis-statement, suppression of facts and contravention of

provisions of the Act/Rules with an intent to evade payment of Service Tax.

12/- Hence, a Show Cause Notice No.V.ST/AR-

I/RJT/RJT/COMMR/217/09 dated 23.10.2009 was issued to the Noticee,

asking them to show cause to the Commissioner of Central Excise, Rajkot,

as to why:

(i) The Service Tax amounting to Rs.73,91,829/- (Rs.55,15,145/-+

18,76,684/-) (Rupees seventy three lakhs ninety one thousand

eight hundred twenty nine only ) should not be demanded and

recovered from them under proviso to sub-section (1) of Section

73 of the Act read with Section 73A ibid;

(ii) Interest for Rs.4,053/- for delayed payment of Service Tax,

should not be demanded and recovered from them under Section

75 of the Act;


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(iii) Interest at appropriate rate for delayed payment of Service Tax,

should not be demanded and recovered from them under Section

75 of the Act;

(iv) Penalty should not be imposed upon them under Sections 76 &

78 of the Act for contraventions mentioned in foregoing paras.

13/- Further, vide the said show cause notice followed by

corrigendum dated 16.04.2012, Shri Diwan Rahul Nanda, Chairman and

Managing Director of the Company was also called upon to show cause to

the Commissioner of Central Excise, Rajkot, as to why penalty should not be

imposed upon him under Section 77 of the Act.

DEFENCE AND PERSONAL HEARING:

14/- The Noticee, vide written submissions dated 27.10.2009 and

28.03.2011 while denying all the allegation raised in the show cause notice

made the following submissions:

15/- The Noticee submitted that they were limited company having

branch office at A-40, Aalap Avenue, Opp Radhe Hall, Nr. SNK School,

University Road, Rajkot-360 005 and head office and registered office at

5, Royal Palms golf & Country club, Aarey Milk Colony, Goregaon (E)

Mumbai 400 065 and were engaged in providing taxable services under

category ‘Security Agency Service’ and holding Service Tax registration

no.AAACT0160FST009. They submitted that periodical ST-3 Returns had

been filed up to date and the last such return for the half year ended

31.03.2009 was submitted on 31.08.2009.

16/- The Noticee contended that as per data provided in the

notice i.e. Table-II & III given hereinabove, the amount of collection of

service was inclusive of amount of Service Tax and to work out tax

liability the amount of Service Tax should be deducted from the total

amount of collection. Further, verification and scrutinization of the

Noticee’s records of the relevant period such as Bank Statement, books

of Account and Balance sheet and Profit & Loss A/c, showed as under:


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Table-IV

(Amount in Rs.)

Year Collection As per

account (Including

S. Tax)

As per ST-3 Difference S. Tax

Payable S. Tax Paid

Balance payable

Remarks

2004-05 2262386

Less S. Tax -197692

2064694 2009770 -54924 197692 188652 9040

2005-06 4755011

Less S. tax -440119

4314892 4138688 -176204 440119 422146 17973

2006-07 16308251

Bad Debt -1375868

Net collection 14932383

Less S. tax -1628406

13303977 15559660 2255683 1628406 1894494 -266088 Excess

2007-08 22277904

Bad Debt -4765515

Net collection 17512389

Less S. tax -1926425

15585964 15069242 -516700 1926425 1859450 66975

2008-09 17338733 17338733 NIL 2143067 337258 1805809

Total 54116093 1507855 6335709 4702000 1633709

They contended that it was cleared from the above table that

during financial year 2004-05 to 2007-08, the Noticee had deposited

Service Tax as per the collection received from the customer. They

further contended that during financial year 2008-09, the Noticee had

deposited Rs.3,37,258/- as against Service Tax payable Rs.21,43,067/-

and balance Service Tax payable was Rs.18,05,809/-, which was shown as

unpaid amount in relevant period of ST-3 without any malafied intension,


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due to financial problem and the same would be deposited by the them

within the short period.

17/- Further, they inter alia submitted that the levy of the Service

Tax was new for the Noticee; that no proper advice was available for

Rules and Regulation of Service Tax and taxability of Service Tax; that

accountant, who looked after the accounts and service tax matter, had

left the office since long; that no one was aware of the correct

procedure to be followed for the payment of Service Tax as well as

filling of return; that there was no malafide intention for non-payment of

Service Tax in the light of the provision of Section 80 of the Act.

18/- They contended that since ST-3 Returns were filed showing

correct value of security agency services, hence, there was neither willful

mis-statement nor suppression of facts and thus, there was no deliberate

intention of evading the Service Tax. The Noticee further submitted that they

had made payment of Service Tax as per the provisions of Section 68 of the

Act read with Rule 6 of the Rules subject to availability of the funds and had

also filed ST-3 returns upto 31.03.2009, with the late fee of Rs.2,000/- for

delayed furnishing of return, as required under Section 70 of the Act read

with Rule 7 of the Rules, and that they were willing to make the balance

payment of Service Tax with interest thereon as per Service Tax Returns

in form ST-3 filed up to 31-03-2009. They also submitted that due to financial

crisis, there were delayed in payment of Service Tax without willful mis-

statement and suppression of facts, relating to levy and collection of

Service Tax, and without intention to evade the Service Tax, and therefore,

proviso to sub-section (1) of Section 73 of the Act should not be made

applicable to invoke the extended period of 5 years for recovery of Service

Tax. They requested to take lenient view and not to initiate penalty

proceedings under Section 76 & 78 of the Act. They contended that since

they had taken registration, maintained books of accounts and records in

accordance with the provision of the Act, furnished the information called

for as when required and produce the document called for, appeared in

person before the prescribed authorities as when summons are received,

issued service invoices in accordance with the provisions of act, therefore,

penalty under Section 77 of the Act should not be imposed upon them.

They further argued that Shri Rahul Nanda was not the compliance officer

of the Noticee under the Act and hence, he was not liable for penalty under

Section 77 of the Act.


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19/- During the personal hearing in the matter held on 22.03.2011,

the Noticee’s representatives namely S/Shri Jayram Desai and Shailesh

Dodiya, C.A., appeared and sought adjournment in the matter by stating

that they had not been able to reconcile the demand amount with what was

already paid by them and accordingly, the case was posted for hearing on

28.03.2011. During further personal hearing held on 28.03.2011, S/Shri

Jayram Desai and Digvijay Chudasama, representatives of the Notice,

appeared and submitted that they had submitted separately a letter dated

28.03.2011 in reply to the notice and in their view, only an amount of

Rs.16,33,709/- was remained to be paid by them, which they would pay at

the earliest. During the personal hearing in the matter held on 17.01.2012,

S/Shri S. M. Dodiya and Jayram Desai appeared on behalf of the Noticee and

reiterated the contents of their written submission dated 28.03.2011 already

placed on record. Further, during personal hearing held on 16.05.2012 in

view of corrigendum dated 16.04.2012 to the show cause notice, Shri S. M.

Dodiya appeared on behalf of Shri Diwan Rahul Nanda, Chairman &

Managing Director of M/s. Tops Security Limited and reiterated the contents

of their written submission dated 27.10.2009 already placed on record.

DISCUSSION AND FINDINGS:

20/- I have carefully gone through the facts of the case and the

written and oral submissions made by the Noticee.

21/- The allegations against the Noticee and their counter

submissions against the allegations are discussed in detail in the foregoing

paragraphs. In short the issue to be decided in this case is whether amount

of Service Tax is payable by the Noticee under the service categories of

‘Security Agency Service’ as defined in Section 65 (94) readwith Section

65(105)(w) of the Act, with interest and consequential penalty as proposed

in the show cause notice.

22/- As per the show cause notice, inquiry conducted on the basis of

intelligence inter-alia revealed that the Company i.e. M/s. Tops Security

Limited were engaged in providing security services to various clients

through the network of their branches which were controlled by its head

office at Mumbai and their all such branches, including the Noticee, were

separately registered with the jurisdictional Central Excise/Service Tax


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Offices for the purpose of discharging of their Service Tax liability at

respective places; that the Company was having de-centralized accounting

system and the business of the Company and bills to the clients were

generated at branch level, however the revenue collected at branch level

was being deposited in the centralized account of the Company; that the

annual report of the Company was consolidated of the region wise balance

sheets which were prepared on the basis of trial balance generated at

branch level; that the Service Tax was to be deposited at the branch level

where the bills were raised to the clients; that the Company had been

charging Service Tax from their customers/clients, and the amount received

by them was inclusive of Service Tax; that they were required to file ST-3

returns with jurisdictional authority but no such returns had been filed by

them within the due date; that the Noticee being branch of the Company

had been providing security services and was accordingly holding Service

Tax registration under the taxable service category of ‘Security Agency

Service’ but they had not been filing the periodical ST-3 returns, however,

subsequently on being asked by the jurisdictional Range Officer, they filed

said returns due for the relevant period; that the Noticee had also made

short payment of interest of Rs.4,053/- on delayed payment of Service Tax

during 2008-09; that though the Noticee had charged and collected Service

Tax but they appeared to have short-paid/not-paid Service Tax amounting to

Rs.73,91,829/- for the said services provided by them during the relevant

period by way of willful mis-statement, suppression of facts and in

contravention of provisions of the Act/Rules with intent to evade the

payment of Service Tax, which has been proposed to be recovered from

them by invoking extended period under proviso to sub-section (1) of

Section 73 read with Section 73A of the Act along with interest under

Section 75 ibid with consequential penalty under Section 76 & 78 ibid.

23/- The Noticee inter alia contended that they had made payment of

Service Tax as per the provisions of the Act/Rules subject to availability of

the funds and had also filed ST-3 returns declaring correct value of the

services for the relevant period, with the late fee for delayed furnishing of

return, as required under the law; that the amount of collection of service

was inclusive of amount of Service Tax and according to them there

was short payment of Service Tax of Rs.16,33,709/- which would be

paid with interest by them shortly; that due to financial crisis, there were

delayed in payment of Service Tax but there was no malafide intention for

non-payment of Service Tax, therefore, proviso to sub-section (1) of


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Section 73 of the Act should not be made applicable to invoke the

extended period for recovery of Service Tax and accordingly, no penalty

should be imposed under Section 76, 77 & 78 of the Act.

24/- As regards the allegations against the Noticee and their counter

submissions against the allegations, on going through the case records and

as admitted by Shri Diwan Rahul Nanda, Global Chairman and Managing

Director of the Company in his statement dated 17.04.2009, it is observed

that the Company have been engaged in providing security services to the

properties of their clients by way of providing trained security personnel

through the network of its branches, including the Noticee, which were

controlled by its head office at Mumbai and their all the branches were

separately registered with the jurisdictional Central Excise/Service Tax

Offices for the purpose of discharging of the Service Tax liability at their

respective places.

25/- Further, as stated by Shri Diwan Rahul Nanda, Global Chairman

and Managing Director of the Company, it is also observed that the

Company was having de-centralized accounting system and the business of

the Company and bills to the clients were generated at branch level,

however the revenue collected by the branches was being deposited in the

centralized account of the Company and the annual report of the Company

was prepared on the basis of trial balance generated at branch level. It is

also a fact that the branches of the Company being holder of service tax

registration separately were charging Service Tax from their

customers/clients by raising bills to them for providing the services i.e.

security service, and accordingly, the Service Tax was required to be

deposited with Central Govt. account at their respective jurisdiction and

therefore, they were required to file ST-3 returns with jurisdictional

authority. In view of the above, the Noticee being branch of the Company

have been providing security services and were accordingly holding Service

Tax registration under the taxable service category of ‘Security Agency

Service’.

26/- The Noticee have claimed that they had filed ST-3 returns for the

relevant period and according to them they had received total amount of

Rs.5,68,00,902/- (inclusive of amount of Service Tax) towards value of the

taxable services provided by them and had already paid Service Tax of

Rs.47,02,000/- on the said value, however as per their own submission


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Service Tax of Rs.16,33,709/- was remained to be paid at the end of March,

2009 which was shown in the relevant ST-3 return. On verification of these

contentions of the Noticee with ST-3 returns, as reported by the

jurisdictional Assistant/Deputy Commissioner of Service Tax Division, Rajkot

vide his letters F.No.IV/15-180/ST/ADJ/2009 dated 08.04.2011 &

09.05.2011 and also appearing from the relevant ST-3 returns, the details

are found as per Table-V given below:

Table-V

(Amount in Rs.)

Period

Date of filing

of ST-3

return

Value of

taxable

service

Service

Tax

payable

Service

Tax paid

Service Tax to

be paid

1st Half 25.10.2004 2004-05

2nd Half 25.04.2005

1856921 171500 188652 Excess payment

17152

1st Half 21.11.2005 2005-06

2nd Half 31.08.2009

4138688 422146 384410 37736

1st Half 31.08.2009 2006-07

2nd Half 21.07.2009

15559660 1894493 1894494 Excess payment

1

1st Half 21.07.2009 2007-08

2nd Half 21.07.2009

15069242 1860276 1859450 826

1st Half 31.08.2009 2008-09

2nd Half 31.08.2009

17338733 2143067 337258 1805809

Total 53963244 6491482 4664264 1827218

From the above, it is clear that the figures furnished by them

vide their written submission dated 28.03.2011 do not match with the

figures shown in their ST-3 returns filed for the period 2004-05 to 2007-08,

as they claimed to have received total amount inclusive of Service Tax for

the said period and as per their own submission, after deducting Service Tax

of Rs.41,92,642/-the value should be Rs.3,52,69,527/- whereas, they had

shown the value of the service and Service Tax payable thereon as

Rs.3,66,24,511/- and Rs.43,48,415/- respectively in their said returns,

hence there is no correlation in the said figures.


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27/- It is observed that as can be seen from the data provided in tables

given hereinabove, the details submitted by the Noticee during the course of

adjudication proceeding do not match with the details furnished by the

Company during the investigations. In this regard, I find that during the

investigation, while submitting details for computation of their Service Tax

liability, Shri Diwan Rahul Nanda being the Global Chairman and Managing

Director of the Company in his statement supra clearly stated that for the

purpose of further details he authorized Shri Amar Panghal, Chief Financial

Officer and Shri Mukesh Jain, Corporate Manager (Taxation), both of the

Company and the information provided by them would be binding on the

Company. Subsequently, the Company vide its aforesaid letter dated

12.06.2009 duly signed by Shri Amar Panghal, by stating that the service

tax calculation sheets provided by them during recording of the statement of

Shri Diwan Rahul Nanda had some error, again submitted certified statement

from 2004-05 to 2007-08 as per their audited balance sheets. It is therefore

observed that the details produced by them during investigations were

incomplete and incorrect and even the information produced by their

Managing Director during recording of his statement on 17.04.2009

mentioned above, was subsequently corrected vide their said letter dated

12.06.2009 and therefore, the details along with the Service Tax calculation

sheets produced by them together with their audited balance sheets vide

their said letter dated 12.06.2009 is final and therefore, I take that as the

base for working out their Service Tax liability.

28/- As per the worksheets submitted by the Company vide their letter

dated 12.06.2009 showing the details of branch-wise income, Service Tax

payable and Service Tax paid etc., and as per scrutiny of ST-3 returns filed by

the Noticee for the period 2008-09 and as verified by the jurisdictional

officer, as have been provided in Table-II, III & V supra, the correct details

of taxable service and service tax liability of the Noticee are found as under:

Table-VI

(Amount in Rs.)


Value of service as per ST-3 returns

Differential value of service (Col.2-Col.3)


Actual amount of Service Tax paid during the year

Differential amount of Service Tax to be paid (Col.5-Col.6)

1 2 3 4 5 6 7


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2004-05 2262386 1856921 405465 280455 (including of Rs.49692 which was payable at the beginning of the year)

188652 91803

2005-06 4755011 4138688 616323 485011 384410 100601

2006-07 16308251 15559660 748591 1996130 1894494 101636

2007-08 22277904 15069242 7208662 2753549 1859450 894099

2008-09 17338733 17338733 0 2143067 337258 1805809

Total 62942285 53963244 8979041 7658212 4664264 2993948

Rate of Service Tax 2004-05 (upto 10.09.2004) : 8% 10.09.2004 to 17.04.2006 : 10% + 2% E.C. 18.04.2006 to 10.05.2007 : 12% + 2% E.C. 11.05.2007 to 23.02.2009 : 12% + 2% E.C. + 1% S & H.E. Cess

In view of above table, during the relevant period the Noticee have

received total Rs.6,29,42,285/- for providing the services under the taxable

category of ‘Security Agency Service’ and they should have deposited Service

Tax Rs.76,58,212/-, out of which Service Tax of Rs.2,66,383/- paid by them

during 2008-09 has already been deducted and thus, demand comes to

Rs.73,91,829/-, but they claimed to have deposited Service Tax Rs.47,02,000/,

whereas they were found to have paid Service Tax Rs.46,64,264/- which was

inclusive of Service Tax Rs.2,66,383/- i.e. already considered while issuing

show cause notice, hence payment made against demand of Rs.73,91,829/-

comes to Rs.43,97,881/-. Thus, there is still short payment of Service Tax of

Rs.29,93,948/- even though the Service Tax was being charged & collected by

the Noticee.

29/- Further, as regard allegation for short payment of interest of

Rs.4,053/- on delayed payment of Service Tax Rs.2,66,383/- against their total

liability of Rs.11,46,301/- for the period October, 2008 to March, 2009, the

Noticee have not submitted anything in their defence. In this context, I find

that the Noticee have made the said payment of Service Tax in three

installments after due date without interest as described in the notice and thus,

they have delayed in the said payment and therefore, the said amount of

interest is rightly recoverable from them under Section 75 of the Act.

30/- As regard their contention that the total amount received by

them for providing the service was inclusive of Service Tax, I find that on

being specifically asked regarding the collection of the Service Tax, Shri

Diwan Rahul Nanda, in his statement clearly described the formulae to work

out the quantum of Service Tax to be deposited by them and accordingly,


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vide their letter dated 12.06.2009, they have submitted final worksheets

showing branch wise details of income, service Tax payable and Service Tax

paid as discussed hereinabove, and the same has been relied upon for

demand under the present notice. On perusal of the said worksheets, it can

be seen that Service Tax has been calculated on net collection which was not

show as inclusive of Service Tax. Further, the Noticee have not produced the

relevant documents i.e. ledger account, invoices, etc., and in absence of the

supporting documents, their claim for value of the service to be inclusive of

Service Tax is not acceptable. Further, in respect of the period 2008-09, it is

observed that the figures claimed for value of the services and service tax

payable by the Noticee are tallied with the figures shown in their ST-3

returns filed for the said period, as can be seen from Table-IV & V supra,

and hence, consideration charged & received by them is not inclusive of

Service Tax. Therefore, it is not the position that the Service Tax has been

demanded on the amount which is inclusive of Service Tax.

31/- Further, it is observed that as per the provisions of Section 67 of

the Finance Act, 1994, the gross amount charged by the service provider

from the service recipient for rendering service is the taxable value. Further,

as provided under Section 68 of the Act readwith Rule 6 of the Rules, every

person providing taxable service to any person shall pay Service Tax at the

specified rate to the credit of the Central Government, by the 5th of the

month, following the month in which the payments are received, towards the

value of taxable services provided to service recipient. Further, in view of

the provisions of Section 70 of the Act readwith Rule 7 of the Rules, every

person liable to pay the Service Tax shall himself assess the tax due on the

services provided by him and shall furnish to the Superintendent of Central

Excise, a half-yearly return in Form ST-3 along with a copy of the Form TR-

6, in triplicate for the months covered in the half-yearly return, by the 25th

of the month following the particular half-year.

32/- It is clear from the Table-V supra that, the Noticee had not

filed ST-3 returns due for the period October, 2005 to March, 2009 before

initiating the enquiry in the present matter. However, subsequently on

being asked by the jurisdictional Range Officer the said returns were filed

on 21.07.2009 & 31.08.2009, that too with incomplete & incorrect details

of the service provided by them and their Service Tax liability, as is

evident from the Table-V & VI above. It is also an admitted fact that

though the Noticee had charged & collected Service Tax from their clients


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even then they have short paid Service Tax and whatever amount of

Service Tax has been paid by them was delayed. Further, as stated by Shri

Deewan Rahul Nanda, I find they were fully aware of the law and

procedure and further, there is no ambiguity in law regarding taxability of

the service and procedure for payment of Service Tax and filing of ST-3

return as relevant provisions are clearly provided in the Act/Rules. It

clearly shows that they have not declared actual value of the services

provided by them as well as Service Tax liability thereon, and thus, they

have willfully mis-stated the said facts in their ST-3 returns by way of

suppressing of actual value of taxable services alongwith Service Tax

payable thereon, and by contravening the aforesaid provisions of the

Act/Rules, with sole intention to evade the payment of the Service Tax.

33/- As regard the Noticee’s argument on time bar, I find that in

terms of the provisions of the Act and the Rules, every person providing

taxable service & liable to pay Service Tax is required to get himself

registered under Section 69 of the Act reawith Rule 4 of the Rules, and to

pay Service Tax as per the provisions of Section 68 of the Act readwith Rule

6 of the Rules and file returns under Section 70 of the Act reawith Rule 7 of

the Rules. The Service Tax law provides self assessment and it was

responsibility of the Notice to disclose all material facts to the department at

the relevant time. As discussed in foregoing paragraphs, the Noticee had

not filed ST-3 returns due for the period October, 2005 to March, 2009

before initiating the enquiry in the present matter, however, subsequently

on being asked by the jurisdictional Range Officer the said returns were

filed that too with incomplete & incorrect details of the service provided by

them and their Service Tax liability. Though the Noticee were fully aware

of the law and procedure and they had charged & collected Service Tax

from their clients but they have short paid Service Tax and whatever

amount of Service Tax has been paid by them was delayed. They have not

declared actual value of the services provided by them as well as Service

Tax liability thereon, and thus, they have willfully mis-stated the said facts

in their ST-3 returns by way of suppressing of actual value of taxable

services alongwith Service Tax payable thereon, with sole intention to

evade the payment of the Service Tax. I find that there was ample

opportunity for them to bring these facts to the notice of the department at

the time of obtaining registration, furnishing information/details under Rule

4 readwith Rule 5 of the Rules, filing returns, but it is seen that these facts

were not properly reported/reflected in ST-3 returns filed and the Noticee on


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his own have not brought the relevant material facts to the notice of the

department at any point of time before the present investigation. Therefore,

I find that they had to themselves assess their liability in terms of the

provisions of the Act and Rules, but, they had acted in the manner discussed

in foregoing paras, the facts of which were revealed during the present

investigation only. Further, as mentioned hereinabove, the Noticee have

admitted that though they have collected Service Tax from their clients but

they have delayed in paying Service Tax due to financial crises and they

were ready to pay balance amount of the Service Tax, however the same

has not been paid so far. Therefore, I find that they have knowingly

suppressed the facts involved in the present case and also willfully mis-

stated the facts and tried to mislead the department by way of not

reporting/reflecting actual facts in ST-3 returns just to escape from the

payment of Service Tax with intent to evade the Service Tax, even after the

same was collected. Thus they have evaded the Service Tax on the

consideration charged/received for the services as mentioned herein above.

Therefore, in view of above finings, I hold that the Noticee has

violated/contravened provisions of Section 67, 68 and 70 of the Act

inasmuch as they failed to consider correct taxable value and escaped from

the assessment of tax, to credit appropriate Service Tax to the Government,

and to furnish correct returns in respect the said services, for reasons stated

above and thus, they deliberately mis-stated and withheld the full facts of

their said activities/services with an intent to evade the payment of Service

Tax due thereon. Therefore, I find that the said contention of the Notice is

not tenable and thus, extended period of limitation is invokable in the

present case.

34/- As regard their contention of bonafide belief, I find that in view

of my findings that the Noticee had intentionally/knowingly suppressed/mis-

stated the facts, they cannot escape from their liability on the ground of one

or other reasons put forth without supportive evidences. I further observe

that, though there was no ambiguity in the relevant provisions of the

Act/Rules, the Noticee had acted in conscious disregard of its obligation and

also acted deliberately in defiance of the Act/Rules with sole intent to evade

the payment of Service Tax due, which clearly shows mens rea in this case

and thus, I do not find any bonafide belief by them in the instant case.

35/- Therefore, I find that this is a fit case for invoking extended

period of limitation for demand under proviso to Section 73(1) of the Act. In


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view of the above, the Noticee is rightly required to pay an amount of the

Service Tax to the tune of Rs.73,91,829/- as demanded in the notice. I

further find that out of the said demand, an amount of Rs.43,97,881/- has

already been paid by the Noticee which is required to be appropriated

against the demand and balance amount of the demand is still liable to be

recovered from the Notice.

36/- As regard their contentions for not levying interest Section 75 of

the Act and non imposing penalty Section 76 and 78 of the Act, I have

already held that the demand under the notice is recoverable by invoking

extended period of time under Section 73 of the Act and Section 75 of the

Act mandates levy of interest on delayed payment of Service Tax, therefore,

the demand is recoverable alongwith interest under the said Section.

Further, I find that during the relevant period, Section 78 of the Act provides

as follows:

“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 rules

made thereunder with intent to evade payment of Service Tax, the person, liable to pay Service Tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such Service Tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of Service Tax so not levied or paid or short-levied or short-paid or erroneously refunded;

Provided that where….. Provided further that….. Provided also that ….. Provided also that ….. Provided also that if the penalty is payable under this section, the provisions of section 76 shall not apply

Explanation - For the removal of doubts, it is hereby declared that- (1) the provisions of this section shall also apply to cases in

which the order determining the Service Tax under sub-section (2) of Section 73 relates to notices issued prior to the day on which the Finance Act, 2003 receives the consent of the President.

(2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.”


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It is observed that where any Service Tax has not been levied or

paid or has been short-levied or short-paid by the reason of suppression of

facts or fraud or collusion or willful mis-statement or contravention of any of

the Act or the Rules made thereunder with intent to evade payment of

Service Tax, Section 78 of the Act provides for mandatory penalty and the

person, liable to pay such Service Tax, shall also be liable to pay a penalty,

in addition to such Service Tax and interest thereon. The amount of penalty

leviable under this section is not less than the amount equal to Service Tax

and not more than twice the amount of Service Tax to be paid under Section

73 of the Act. However, a proviso to section 78 provides an opportunity to

the assessee to get the amount of penalty reduced to 25% of the amount of

Service Tax if he pays the amount of Service Tax determined under Section

73 plus interest thereon under Section 75 plus the reduced amount of

penalty within 30 days of communication of order under Section 73. It is

settled law that penalty is imposable on the basis of law operating on the

date on which the wrongful act is committed, and it is levied on the totality

of facts and circumstances of each case under the relevant provisions. In

view of the findings given in foregoing paras, as extended period of time for

demand under proviso to Section 73 of the Act is invokable in the present

case, I find that the Noticee has rendered themselves liable for penalty

under Section 78 of the Act for the various acts/commission committed by

them, as discussed in foregoing paras.

Further, as the Notice are found to have delayed the payment of

Service Tax which continued during the period covered under the notice,

they appear liable to be penalized under Section 76 of the Act also. The said

section provides penalty for failure to pay Service Tax in contravention of the

Act/Rules and it makes no mention of state of mind (it does not describe any

state of mind). As per provisions of the said section, the liability is absolute,

i.e. penalty is leviable for violation of Act/Rules irrespective of intention. This

penalty is over and above the amount of Service Tax due and interest

payable thereon. During the period covered by the impugned notice, the

penalty payable under section 76 of the Act was as follows:-

Sl. Period Provisions under section 76 of Finance Act, 1944 1. Upto

17.04.2006 Any person, liable to pay Service Tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of section 75, a penalty which shall not be less


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than one hundred rupees for everyday during which such failure continues but which may extend to two hundred rupees for every day during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of Service Tax that he failed to pay.

2.

With effect from 18.04.2006 (Change by Finance Act, 2006).

Any person, liable to pay Service Tax in accordance with the provisions of section 68 or the rules made under this Chapter, who fails to pay such tax, shall pay, in addition to such tax and interest on that tax in accordance with the provisions of section 75, a penalty which shall not be less than two hundred rupees for everyday during which such failure continues or at the rate of two percent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of Service Tax. Provided that the total amount of penalty payable in terms of this section shall not exceed the Service Tax payable.

As indicated hereinbefore, the rate at which penalty under

Section 76 is payable has varied from time to time during the period covered

by the impugned show cause notice. Therefore, quantification of penalty

payable by the Noticee under the said section will have to be done by

applying the rate of penalty as applicable up to 17.04.2006 for the period up

to 17.04.2006, and rate as applicable w.e.f. 18.4.2006 for the period

18.04.2006 onwards, as ordered in the latter part of this order.

Further, I find it relevant to refer to fifth proviso to Section 78 of

the Act, inserted by the Finance Act, 2008 w.e.f.10.05.2008, which provides

that if the penalty is payable under this section, the provisions of Section 76

shall not apply. Therefore, if penalty under Section 78 is imposed, penalty

under Section 76 is not imposable after said amendment. However, Section

76 does not contain such provision. Hence, it is not that these provisions are

mutually exclusive. Further, the period involved in the present case pertains

to prior and after to such amendment, as the impugned show cause notice

covers the period from 2005-06 to 2008-09. It means penalty under both

sections is applicable for the period prior to the said amendment. Therefore,

Section 76 as well as Section 78 would apply for the period upto 09.05.2008

and w.e.f. 10.05.2008, the provisions of Section 76 ibid, would not apply if

penalty is held payable under Section 78. I, therefore, find that since the

Noticee are held to be penalized under Section 78 even after the said

amendment, the penalty under Section 76 is not imposable upon the Noticee

for the period w.e.f.10.05.2008 onwards, and penalty under Section 78

alone shall be payable by the Noticee. Hence, the Noticee’s contentions are

not acceptable.


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37/- Further, as regard the contention of the Noticee for non-

imposition of penalty in view of the provisions of Section 80 of the Act, it is

observed that said section provides that notwithstanding anything contained

in the provisions of Section 76 and 78, no penalty shall be imposable on the

assessee for any failure referred to in the said provisions, if the assessee

proves that there was reasonable cause for the said failure. In this context, I

already recorded findings that the Noticee has knowingly suppressed the

facts involved in the present case and also willfully mis-stated the facts and

tried to mislead the department by way of not reporting/reflecting these

facts in ST-3 Returns just to escape the payment of Service Tax, with sole

intention to evade the Service Tax. They had continued with the same

manner during the relevant period. Hence, these acts of the Noticee can not

be considered as reasonable cause for any failure and thus, their contention

is untenable.

38/- As regard proposal for penalty upon Shri Diwan Rahul Nanda,

Chairman and Managing Director of the Company under Section 77 of the

Act, I find that during personal hearing held on 16.05.2012 Shri S. M.

Dodiya, C.A. on behalf of Shri Diwan Rahul Nanda has reiterated the

contents of the Noticee’s written submission dated 27.10.2009, wherein by

producing resolutions dated 20.10.2008 & 21.04.2009 duly signed by S/Shri

Diwan Rahul Nanda and Amar Panghal respectively the Noticee have argued

that Shri Diwan Rahul Nanda was not the compliance officer of them under

the Act and hence, he was not liable for penalty under said Section. It is

observed that Section 77 of the Act provides a residual penalty, which is for

breach of any rule, if no penalty has been prescribed. However, w.e.f.

10.05.2008, the Finance Act, 2008 has amended said section, prescribing

various quantum of penalty for specified offences. Prior to the amendments,

this section provided general penalty for contravention of any provision for

which no penalty was provided such as failure to take registration, to

keep/maintain books of accounts, etc.. In the present case also the Noticee

had failed to comply with provisions of the Act/Rules relating to levy &

deposit of Service Tax, assessment of taxable service & tax liability, filing of

returns, issue of invoice, etc.. In this context, it is observed that on being

summoned during the course of investigation in the instant case, Shri

Diwan Rahula Nanda appeared in the capacity of Global Chairman and

Managing Director of the Company before the investigating officer and

deposed in his statement dated 17.04.2009 referred to above. Vide his said

statement, he has authorized to their officials namely Shri Amar Panghal,


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Chief Financial Officer and Shri Mukesh Jain, Corporate Manager (Taxation)

for furnishing further details in the matter by stating that the information

provided by them would be binding on the company. I find that his status in

the company and authorization of said officials have not been disputed by

the Noticee at any time and further, resolutions are not pertaining to period

covered in his said statement. In view of above, I find that he was fully

aware of the law and procedure related to Service Tax and he was very well

aware that the Noticee were providing taxable service and were collecting

Service Tax from their clients but were not depositing the same to the Govt.

Account and he being the persons in charge of the Company when the said

offence of evasion of Service Tax was committed by the Noticee, was

responsible for the conduct of the business of the Company including

Noticee. Therefore, I find that he is liable to penal action under said section

for not taking appropriate action to deposit the Service Tax even though the

same was being collected by them from their clients, not filing Service Tax

returns and not paying Service Tax by way of fraud, willful mis-statement,

suppression of facts and contravention of provisions of the Act/Rules with an

intent to evade payment of Service Tax.

39/- In view of above discussion and findings, I pass the following order:

Order

(i) I confirm the demand of Service Tax of Rs.73,91,829/-

(Rupees Seventy Three Lakhs Ninety One Thousand Eight

Hundred Twenty Nine only) including Education Cess and

Secondary and Higher Education Cess, against M/s. Tops

Security Limited, B-202, Pooja Complex, Near GPO Harihar

Chowk, Rajkot-360001 under proviso to Section 73(1) of the

Finance Act, 1994 readwith Section 73A ibid and order for

recovery thereof from them. As, M/s. Tops Security Limited,

Rajkot has already paid an amount of Rs.43,97,881/-

(Rupees Forty Three Lakhs Ninety Seven Thousand Eight

Hundred Eighty One only) towards their said liability,

therefore, the same is appropriated and the balance amount

of Rs.29,93,948/- (Rupees Twenty Nine Lakh Ninety Three

Thousand Nine Hundred Forty Eight only) is ordered to be

recovered from them.


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(ii) I order for levy of interest under Section 75 of the Finance

Act, 1994 on the amount of Service Tax, as confirmed at Sr.

No.(i) above against M/s. Tops Security Limited, Rajkot.

(iii) I also order for levy of interest of Rs.4,053/- (Four Thousand

Fifty Three only) under Section 75 of the Finance Act, 1994

on delayed payment of Service Tax of Rs.2,66,383/-from

M/s. Tops Security Limited, Rajkot.

(iv) I impose penalty of Rs.73,91,829/- (Rupees Seventy Three

Lakhs Ninety One Thousand Eight Hundred Twenty Nine

only) on M/s. Tops Security Limited, Rajkot, under Section

78 of the Finance Act, 1994. However, as provided in proviso

to Section 78 ibid, if M/s. Tops Security Limited, Rajkot pays

the amount of Service Tax confirmed along with interest

thereon, within thirty days from the communication of this

order, the amount of penalty shall be twenty-five per cent of

the penalty imposed above. The benefit of reduced penalty

shall be available only if the amount of penalty so

determined has also been paid within thirty days from the

receipt of this order.

(v) I impose penalty on M/s. Tops Security Limited, Rajkot,

under Section 76 of the Finance Act, 1994 and accordingly

order that they shall pay in addition to Service Tax payable

upto 09.05.2008, out of the amount of Service Tax

confirmed at Sl. No.(i) above, and the interest on that tax

amount in accordance with the provisions of Section 75 ibid,

as ordered at Sl. No.(ii) above, penalty –

(a) For the Service Tax due and confirmed for the period upto

17.04.2006, at the rate of Rs. 100/- for every day during

which failure to pay such tax continues, provided that the

total amount of penalty shall not exceed the Service Tax

due and confirmed for the period upto 17.04.2006,

(b) For the Service Tax due and confirmed for the period from

18.04.2006 to 09.05.2008, at the rate of 2% of such

Service Tax, per month, starting with the first day after

the due date till the date of actual payment of the said


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outstanding amount of Service Tax due and confirmed for

the period from 18.04.2006 to 09.05.2008, provided that

the total amount of the penalty payable shall not exceed

the Service Tax due and confirmed for the period from

18.4.2006 to 09.05.2008, and

(c) For the Service Tax due and confirmed for the period from

10.05.2008 onwards, no penalty is imposed under Section

76 of the Finance Act, 1994, as amended, in view of

proviso V to Section 78 of the Finance Act, 1994, as

amended.

(vi) I impose penalty of Rs.5,000/- on Shri Diwan Rahul Nanda,

Chairman and Managing Director of M/s. Tops Security

Limited, under Section 77 of the Finance Act, 1994.

Show Cause Notice No.V.ST/AR-I/RJT/RJT/COMMR/217/09 dated

23.10.2009 issued by Commissioner, Central Excise, Rajkot, is decided in

above terms.

(B. K. Bansal) COMMISSIONER

F. No.: V.ST/15-218/Adj/09 Central Excise & Customs, Date: 17.05.2012 Rajkot By RPAD/Hand Delivery To,

1. M/s. Tops Security Limited, B-202, Pooja Complex, Near GPO, Harihar Chowk, Rajkot-360001

(New Address: A-40, Aalap Avenue, Opp Radhe Hall, Nr. SNK School, University Road, Rajkot-360 005)

2. Shri Diwan Rahul Nanda, Managing Director, M/s Tops Security Limited, 5, Royal Palms Golf & Country Club, Aarey Milk Colony, Goregaon (E), Mumbai - 400 065.

Copy to: 1. The Chief Commissioner, Central Excise, Ahmedabad Zone,

Ahmedabad. 2. The Additional Director General, Directorate General of Central

Excise Intelligence, Ahmedabad Zonal Unit, Ahmedabad 3. The Deputy Commissioner (Legal/RRA/Recovery), HQ., C. Ex., Rajkot. 4. The Deputy Commissioner, Service Tax Division, Rajkot. 5. The Superintendent, Service Tax Range-I, Rajkot. 6. Guard File.

lhek “kyd ,o dunzh; mrikn “kyd vk;drky;] dunzh; mrikn hkou ... · v.st/15-218/adj/09...

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