Madras High Court
M/S. K & K Contech Engineering Pvt. ... vs Customs Central Excise And ... on 28 June, 2021
W.A. No.2196 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 20.10.2021
Pronounced on : 18.02.2022
CORAM
The Hon'ble Mrs.Justice Pushpa Sathyanarayana
and
The Hon'ble Mr.Justice Krishnan Ramasamy
W.A. No.2196 of 2021
and
C.M.P.No.13897 of 2021
M/S. K & K Contech Engineering Pvt. Ltd.,
Rep. by its Director: Cheol Ho Kim
No.3203, 1st Floor, U.K.Towers,
Mount Poonamallee Road,
Kattupakkam,
Chennai 600 056. ... Appellant
vs
1. Customs Central Excise and Service Tax
Settlement Commission,
Additional Bench, II Floor, Narmada Block,
Custom House, No.60, Rajaji Salai,
Chennai 600 001.
2. The Commissioner of Service Tax,
Service Tax III Commissionerate,
Newry Towers, Plot No.2054,
12th Main Road, II Avenue, Anna Nagar,
Chennai 600 035.
3. M/S.Charoen Pokphand (India) Pvt.Ltd.,
F-2, No.40, II Street, Sparton Nagar,
Mogappair West,
Chennai 600 037. ... Respondents
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Page No.1 of 11
W.A. No.2196 of 2021
Prayer: Writ Appeal is filed under Clause 15 of the Letters Patent, against
the order of the learned single Judge dated 28.06.2021 passed in
W.P.No.727 of 2018.
For Appellant : Mr.Nagarajan Krishnamurthy
for Mr.K.Jeyachandran
For Respondents : Ms.R.Hemalatha
Senior Standing Counsel (Customs & Excise)
for R1 & R2
Ms.V.Pramila for R3
JUDGMENT
(Delivered by Krishnan Ramasamy, J.,)
This Writ Appeal has been directed against the order passed by the
learned Single Judge of this Court, dated 28.06.2021 in W.P.No.727 of
2018.
2. The above said Writ Petition was filed by the appellant herein,
seeking for the issuance of Writ of Certiorari, to call for the records relating
to the impugned order No.64/2017-ST dated 29.09.2017 passed by the 1st
respondent and quash the same.
3. The learned Single Judge, after hearing both the parties, vide order
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W.A. No.2196 of 2021
dated 28.06.2021, dismissed the Writ Petition. Aggrieved over the said
order, the appellant herein filed the present Writ Appeal.
4. The learned counsel appearing for the appellant contended that
the appellant undertook 'Works Contract Service' during the period from
October 2012 to December 2013 and paid a sum of rupees Rs.81,59,255/-
being 50% towards service tax in time. While so, the service Recipient also
paid a sum of Rs.81,59,255/- being the balance 50% of the service tax in
time directly to the Service Tax Department assuming that the reverse
charge mechanism is applicable.
4.1 The learned counsel for the appellant further contended that the
respondent-Department opined on 05.07.2014 that the payment made by
the Recipient is not proper, and therefore, the amount paid towards service
tax by the service Recipient under the reverse charge mechanism, was re-
credited in the appellant's account on 28.02.2014. Since the amount was re-
credited in the appellant's account only with effect from 28.02.2014, the
Department made a claim for interest from December 2013 to 28.02.2014.
4.2 The learned counsel for the appellant further contended that there
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W.A. No.2196 of 2021
was no due on the part of the appellant, the entire service tax (100%) was
paid on the due date itself, (i.e. 50% of the tax amount paid by the appellant
and the balance 50% by the service Recipient, the 3rd respondent herein).
The Department also subsequently re-credited the said 50% of the amount
in the appellant's account with effect from 28.02.2014 from the date on
which, original payment was made by the service Recipient, i.e. from
December 2013. There is no financial loss to the Government, as, it is only a
wrong payment made for the same transaction by the service Provider and
the service Recipient. However, this aspect was not considered by the
learned Single Judge and also by the Settlement Commission and wrongly
directed the appellant to pay the interest from the due date to till
05.07.2014. Therefore, the learned counsel for the appellant contended that
the appellant is not liable to pay the interest and to that extent, the order
passed by the Settlement Commission is liable to be set aside.
5. Per contra, the learned Senior standing counsel appearing for the
respondents contended that the appellant is liable to pay 100% of service
tax. In fact, the appellant raised invoices for 100%, however, remitted tax
only for 50%. He fairly admitted that the service Recipient has paid 50% of
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W.A. No.2196 of 2021
tax amount. However, the said 50% of the service tax paid on the
transaction cannot be booked in the appellant's account. It is only the
appellant, who is liable to pay the entire tax amount and not the service
Recipient. Normally, if there are any discrepancies with regard to the
remittance of the service tax by way of reverse charge mechanism, then, the
said amount will be lying to the credit of the Recipient, and, it will be
considered, as if, the balance 50% has not been paid by the service provider
and accordingly, the Department would charge interest and there can be no
challenge against the same. Both the Settlement Commission as well as the
Writ Court have rightly considered this aspect in a proper perspective and
passed the order and the same warrants no interference. Therefore, the
learned Standing Counsel prayed for dismissal of the Writ Appeal.
6. Heard the learned counsel for the parties and perused the entire
materials available on record.
7. The Settlement Commission after hearing both the parties, passed
an order, dated 29.09.2017, directing the appellant to pay the interest for
50% of the service tax from the month of December 2013 to 05.07.2014.
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W.A. No.2196 of 2021
This order was challenged before the Writ Court. The Writ Court also, after
hearing both sides, confirmed the said order.
8. The only issue that arises in this case is, whether the reverse
charge mechanism is applicable or not?
9. Admittedly, a sum of rupees 81,59,255/- being 50% of the service
tax was paid in time by the appellant, and the balance amount of 50% was
directly paid to the Service Tax Department by the service Recipient under
the premise that the reverse charge mechanism was applicable.
10. In the present case, as admitted by both the parties, the reverse
charge mechanism is not applicable to the appellant company. The reverse
charge mechanism is applicable only to the individuals, Hindu Undivided
Family, etc., where, the Department would normally adjust the amount paid
by the service Recipient and re-credit the same to the service provider's
account. Though it is strongly contended that the 50% amount paid by the
service recipient cannot be re-credited to the appellant, the fact remains that
the Department has re-credited the said amount from the service recipient's
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W.A. No.2196 of 2021
account to the appellant's account with effect from 28.02.2014.
10.1 Thus, when the service provider (appellant) has paid entire
50% of the amount towards service tax and the service Recipient also paid
the balance 50% of the service tax in time directly to the Service Tax
Department on the assumption that the reverse charge mechanism is
applicable, and when the Department also re-credited the said 50% of the
service tax from the service recipient's account to the service provider's
(appellant's account) with effect from 28.02.2014, instead of giving effect to
the same from the date, on which, original payment was made by the service
recipient, it is not open to the Department to turn down and say that reverse
charge mechanism is not applicable, thus, the appellant is liable to pay
interest on the belated payment.
10.2 That apart, the facility for payment of service tax for single
transaction both by the service recipient and service provider at 50% each is
meant only for the convenience of the assessee (both by the service recipient
and service provider). In the present case, as per the TNGST Act, 100%
service tax has to be paid by the service provider, but, there is no prohibition
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W.A. No.2196 of 2021
in the Act for the service recipient to pay the service tax liability directly to
the Department in the account of service provider and merely because, such
facility has not been extended to the Companies, and it was limited to the
individuals, Hindu Undivided Family, etc., it does not mean that there was
complete bar for the service recipient to remit the service tax liability of the
service provider in their (appellant's) account, in the case of an assessee,
being a company, when the fact remains that, ultimate service tax has to be
collected from the service recipient by the service provider and remit back
the same to the Department.
10.3 Therefore, we hold that the procedure adopted by the service
recipient cannot be found fault with as long as there is no specific bar under
the Act to make tax remittance directly to the account of the service
provider. Further, service recipient admitted that, they misunderstood that
reverse charge mechanism is applicable to the appellant's Company and this
mistake happened only in the first transaction and subsequently, 100% of
the service tax has been collected by the service provider from the service
recipient and remitted the same to the Department without any
default/delay. In such view of the matter, the contention of the respondent-
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W.A. No.2196 of 2021
Department that 100% service tax has to be collected from the service
recipient by the service provider and the same has to be remitted to the
Department does not hold water.
10.4 Further, we do not find any logic on the part of the Department
for not having re-credited the 50% of the service tax to the Department,
immediately, on the date, on which original payment was made by the
service recipient to the service provider's account, but given effect to the
same by choosing a particular date in the year of 2014 as per their whims
and fancies. In the event, the Department had returned the said amount to
the service Recipient, or the payment was made to the appellant's account
other than by the service recipient, then, the contention of the Department
will have substance. Therefore, obviously, there is no financial loss caused
to the exchequer. In fact, the entire amount of 100% towards service tax
was paid to the Department in time.
10.5. In view of the aforesaid findings, we do not find any merit in
the submissions made on behalf of the respondents and all these aspects
have not been considered by the Settlement Commission as well as the
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W.A. No.2196 of 2021
learned single Judge. Therefore, the order of the learned Single Judge as
well as the impugned order 28.6.2021 passed by the 1st respondent are
hereby set aside.
11. In the result, the Writ Appeal stands allowed. No costs.
Consequently, connected CMP is closed.
[P.S.N., J.] [K.R., J.]
18.02.2022
Index : Yes/No
suk/jd
Speaking order/Non-speaking order
To
1. Customs Central Excise and Service Tax
Settlement Commission,
Additional Bench, II Floor, Narmada Block,
Custom House, No.60, Rajaji Salai,
Chennai 600 001.
2. The Commissioner of Service Tax,
Service Tax III Commissionerate,
Newry Towers, Plot No.2054,
12th Main Road, II Avenue, Anna Nagar,
Chennai 600 035.
https://www.mhc.tn.gov.in/judis
W.A. No.2196 of 2021
Pushpa Sathyanarayana,J.,
&
Krishnan Ramasamy,J.,
suk/jd
W.A. No.2196 of 2021
18.02.2022
https://www.mhc.tn.gov.in/judis
