The Commissioner vs M/S. National Remote Sensing ...
2021 Latest Caselaw 1626 Tel

     THE HIGH COURT OF JUDICDATURE FOR THE STATE OF
                 TELANGANA : HYDERABAD

                             ****

CEA NO.2 OF 2021

The Commissioner, Customs & Central Excise, Hyderabad IV (presently Commissioner, Central Tax & Central Excise and Service Tax, Medchal Commissionerate), Medchal GST Bhavan, 11-4-649/B, Lakdikapool, Hyderabad.

.. Appellant Vs.

M/s. National Remote Sensing Agency, Balanagar Hyderabad.

.. Respondent

DATE OF THE JUDGMENT PRONOUNCED: 14.06.2021

SUBMITTED FOR APPROVAL:

HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO AND HONOURABLE SRI JUSTICE T.VINOD KUMAR

1. Whether Reporters of Local newspapers Yes/No may be allowed to see the judgment?

2.        Whether the copies of judgment may be             Yes/No
           marked to Law Reporters/Journals


3.           Whether Their Lordships wish to                Yes/No
            see the fair copy of the judgment?




                                          ______________________
                                    M.S.RAMACHANDRA RAO, J




                                                     ________________
                                                 T.VINOD KUMAR, J

* HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO AND HONOURABLE SRI JUSTSICE T.VINOD KUMAR

+ CEA NO.2 of 2021

% DATED 14th JUNE, 2021

# The Commissioner, Customs & Central Excise, Hyderabad IV (presently Commissioner, Central Tax & Central Excise and Service Tax, Medchal Commissionerate), Medchal GST Bhavan, 11-4-649/B, Lakdikapool, Hyderabad.

.. Appellant Vs.

$ M/s. National Remote Sensing Agency, Balanagar Hyderabad.

... Respondent

<Gist:

>Head Note:

! Counsel for the Appellant:     Sri B. Narayan Reddy,
                       Learned Senior Standing Counsel appearing
                        for the appellant-Revenue


^Counsel for Respondent:     ---

? CASES REFERRED:

THE HON'BLE SRI JUSTICE M.S. RAMACHANDRA RAO AND THE HON'BLE SRI JUSTICE T. VINOD KUMAR

CEA No.2 of 2021

ORDER : (per Hon'ble Sri Justice T. Vinod Kumar)

This appeal under Section 35H of the Central Excise Act,

1944 (as applicable to the Finance Act, 1994), is directed against

the common order No.A/30898-30899/2020 dated 29.06.2020 in

Service Tax Appeal Nos.401 of 2008 and 402 of 2008 passed by the

Customs, Excise and Service Tax Appellate Tribunal, Regional

Bench, Hyderabad (for short 'the Tribunal').

2. The Revenue is the appellant before this court.

3. Before the Tribunal, there were two appeals, one filed by the

respondent / assessee numbered as S.T. No. 401 of 2008 and the

other by the appellant / Revenue numbered as S.T. No. 402 of

2008.

4. By the present appeal, the Revenue is questioning the order

passed by the Tribunal in appeal numbered as S.T. No. 401 of

2008, filed by the respondent / assessee, to the extent it held that

(a) the respondent / assessee had not resorted to willful

suppression with an intent to evade payment of service tax and

thus the extended period of limitation prescribed under Section

73(1) of the Finance Act cannot be invoked and (b) since, there is

no evidence of willful suppression of facts, provisions of Section 80

of Finance Act, 1994 can be invoked to waive the penalties

imposed.

5. The Respondent / assessee - National Remote Sensing

Agency (for short "NRSA") is an autonomous body under the

Department of Space and Research. The respondent is an

organization established with the object of capturing Satellite Data

Reception, Processing, Dissemination and application of Satellite

Data in harnessing natural resources and also supporting various

agencies of Government which are involved in launching of

Satellite like ISRO and other Space centres concerned with

designing of Satellite launch vehicles by receiving data from the

Satellites launch, processing and disseminating the same to the

user agency including Defence establishments on behalf of the

Government of India.

6. It is on record that authorities of Revenue directed the

respondent NRSA to obtain registration in respect of the three

services viz., (1) photography service, (2) scientific and technical

consultancy service and (3) commercial training and coaching

service, as these services are taxable services under Chapter V of

the Finance Act, 1994, and NRSA is providing above services for

consideration and is required to discharge service tax. Upon such

direction of the authorities of the Revenue, NRSA obtained

registration under the provisions of Finance Act, 1994, with effect

from 14.02.2005.

7. On the respondent-NRSA obtaining registration as guided

by the appellant-Revenue authorities, the respondent was issued

notices calling for certain records and documents for the period

16.07.2001 to 31.03.2005 in respect of above three categories of

services for which registration was obtained.

8. In response to the notice issued by the appellant, the

respondent submitted Annual Reports for the year 2001 to

2004-2005, detailed project-wise list, the working of the

respondent with regard to Satellite Data dissemination and other

activities undertaken for user agencies.

9. Upon the submission of the above information, the

appellant-Revenue issued show cause notice dt. 23.10.2006 in

O.R. No.84/2006-Adjn (ST), calling upon the respondent-NRSA to -

show cause as to why service tax of Rs.19,89,66,570/- should not

be demanded and recovered on the photography service, scientific

and technical consultancy service and commercial training and

coaching service from it, for the period 16.07.2001 to 31.03.2005

and on advances received during the period of 16.06.2005 to

31.12.2005 under Section 73(1)(a) of the Finance Act, 1994 read

with Section 68 of the said Act and Rule 6 of Service Tax Rules,

1994, along with Education Cess leviable thereon under Section 91

read with Section 95 of the Finance Act, 2004. In addition to

demand of service tax, the respondent was also directed to show

cause as to why penalty should not be imposed on them under

Sections 76, 77 and 78 of the Finance Act, 1994.

10. The respondent had submitted its reply dt. 02.02.2007

inter alia contending that the respondent is not providing

photography services as defined under sub-clause (zb) of Section

65(105) of the Act; that the respondent cannot be considered as

photography studio or agency in as much as it is not in the

profession of rendering service in relation to photography as

defined under clause (64) of Section 65 of the Finance Act.

Similarly, with regard to the other activities undertaken by the

respondent which are sought to be classified under the category of

scientific or technical consultancy services, it was contended that

the activity of collection of data processing and supplying the same

to various user agencies of the Government relating to Geological,

Geophysical, Prospecting surface, sub-surface or Aerial surveying

or mapping of the earth, cannot be considered as providing advice,

technical consultancy or assistance service. On the other hand, it

is contended that the activity undertaken by the respondent-NRSA

is in the nature of survey and map making.

11. It also contended that various projects or jobs which are

entrusted to it by various departments of Central and State

Governments involve survey and map making which information

provided by the respondent is further processed and used by the

said Government agencies; that the scope of the work under

various job orders given is composite in nature with the primary

object of the survey, map making of the earth surface or sub-

surface, Reception, Processing, Dissemination and application of

Satellite Data and the same cannot be vivisected to apply different

category of services as defined under the Finance Act, 1994; that,

since all its customers are departments of Central Government or

State Government or its undertakings, they do not have any

intention not to pay service tax, if due thereon nor there is any

intention on its part to evade the same; and that being a

Government department, it did not resort to suppression with an

intent to evade payment of service tax and, as such, the extended

period of five years cannot be invoked in this case for demanding

the service tax for the period 16.07.2001 to 31.03.2005 and on

advances received during the period 16.06.2005 to 31.12.2005.

12. The respondent further claimed that it received certain

grants from Department of Space for upgradation of its facilities for

carrying out research projects like remote sensing application

machine, integrated machine for sustainable development and

large scale mapping of the country provided to ISRO for

development of payload for future Satellites; identification of earth

quake affected area, carrying out aerial photography over the flood

affected area and fertilizer requirement using remote sensing.

Thus, it is contended that there is no service to third party as

these are in-house projects for the same department under which

they are working.

13. The above said submissions of the respondent did not find

favour with the Commissioner viz., appellant-Revenue, who by his

order dt. 27.03.2008 in Order-in-Original (Service Tax) No.05/2008

confirmed the proposals made in the show cause notice in relation

to demand of service tax under the category of photography

services and scientific and technical consultancy services

rendered, including penalties and interest, while accepting the

contention of the respondent-NRSA in relation to non-liability to

service tax on consideration received as grant for in-house project.

14. Being aggrieved by the said Order-in-Original, both the

Revenue as well as the respondent-NRSA preferred separate

appeals before Tribunal. The Revenue preferred appeal STA.

No.402 of 2008 to the extent the respondent was granted benefit of

exemption from levy of service tax on the grant received for in-

house project. The respondent-NRSA filed appeal being STA.

No.401 of 2008 disputing its liability to service tax under the

category of photography services and scientific or technical

consultancy services during the period in dispute; invocation of

extended period of limitation; and imposition of penalties. Both

the appeals filed by the appellant and the respondent-NRSA were

taken up for hearing together and disposed of by the Tribunal by

its common order dt. 24.06.2020.

15. The Tribunal, by its common order dt. 24.06.2020, held

that- the respondent is liable to pay service tax under the category

of photography services and scientific or technical consultancy

services; that having regard to the fact that the respondent-NRSA

is a Governmental organization run by Bureaucrats and Scientists,

none of whom have any personal interest in evading service tax, it

cannot be concluded that the respondent had committed fraud or

collusion or willful misstatement or suppression of facts with an

intent to payment of evade service of tax. Thus, the Tribunal held

that the extended period of limitation cannot be invoked and

demand for the normal period of limitation would only survive. In

so far as imposition of penalty under Section 78 of the Finance Act,

1994, the Tribunal also held that there is no evidence of willful

suppression of facts with an intent to evade payment of service tax,

and it is a fit case to invoke Section 80 of the Finance Act to waive

penalties imposed under Section 78 of the Act.

16. Aggrieved by the said order passed by the Tribunal in

holding that the extended period of limitation is not invocable and

also waiving the penalties, the Revenue has filed the present

appeal.

17. According to the appellant-Revenue, the Tribunal ought not

to have interfered with the Order- in-Original, since the respondent

did not comply with the statutory tax provision; but for the

intervention of the department, the respondent did not come

forward for paying service tax; thus, there was suppression of

material facts, a pre-condition for invoking the extended period of

limitation under Section 73(1) of the Finance Act. Similarly, it is

also contended that the Tribunal ought not to have invoked the

provisions of Section 80 of the Act suo motu to waive all the

penalties imposed without existence of a reasonable cause for

failure to pay service tax.

18. Heard Sri. B. Narayan Reddy, Learned Senior Standing

Counsel appearing for the appellant-Revenue. On behalf of

appellant -Revenue, written arguments are also filed.

19. As seen from the Order-in-Original, as well as the order of

the Tribunal, the main contention of the respondent-NRSA was

that the nature of activity carried on by it is, primarily is of survey

and map making as defined under sub-clause (zzzc) of Section

65(105) of the Finance Act; that in the course of execution/

performing the above said nature of composite activity, capturing

images and the geographic information in the fields of agriculture,

forestry, geology, oceanography and water resources and the data

acquired and processed and disseminated to the user agencies of

both in Central and State governments cannot be vivisected to fall

under different category services as enumerated under the Finance

Act, 1994; and that, since the said activity of survey and map

making undertaken by the respondent being an agency under the

control or authorized by the Government, not being considered as

a service, the same would not be liable to tax.

20. As an alternative, the respondent also contended as to how

each of the category of service under which the service tax is

sought to be demanded from it, would not be applicable.

21. From a reading of the impugned order, it is to be seen that

the Tribunal, had taken note of the primary contention urged by

the respondent-NRSA, that the activity carried on by the

respondent would be classifiable as a service covered by Section

65(104)(b) being a taxable service as defined under Section

65(105)(zzzc) of the Finance Act, 1994, liable to service tax, if at all,

only w.e.f 16.06.2005 and no service tax can be demanded by

classifying the activity under the heads of i) photography service,

and ii) scientific and technical consultancy service. However,

there is neither a discussion nor a finding recorded by the Tribunal

on the primary contention raised by the respondent-NRSA. On the

other hand, the Tribunal proceeded to consider as to whether the

demand of service tax under the heads of photography service,

scientific and technical service can be sustained and also as to

invocation of extended period of limitation and imposition of

penalty.

22. Having said so, the only issue which this Court is now

required to consider is as to whether the respondent-NRSA had

any intent to evade service tax on its activities during the period

16.07.2001 to 31.03.2005 and on advances received during the

period 16.06.2005 to 31.12.2005, justifying the action of the

appellant-Revenue invoking the extended period of limitation for

demanding of service tax, as contended. From the Order-in-

Original, it is evident that the respondent had applied and

obtained registration under various categories of services as guided

by the authorities of the appellant-Revenue. It is also evident that

the authorities, who informed the respondent that its activities

would get covered by photography service, scientific or technical

constancy service and commercial training and coaching service

etc., are guided by Revenue considerations alone and they have not

kept in mind the nature of activity undertaken by the respondent-

NRSA and area of operation of its activities, apart from the

important role it plays in the affairs of this nation.

23. The appellant-Revenue authorities initially directed the

respondent-NRSA to obtain registration under the above three

categories which was duly adhered to by obtaining registration on

14.02.2005. Upon obtaining registration, the appellant-Revenue

saddled the respondent-NRSA with the show cause notice for the

period prior to registration by invoking the provisions of Section

73(1)(a) of the Finance Act. To justify the action of invocation of

extended period of limitation, it has been stated that since, the

respondent has been rendering taxable service and failed to

observe statutory provisions for registration and payment of service

tax, there was suppression of material facts.

24. The Tribunal while considering the above said aspect had

observed as under:

"we find that the assessee in this case is an autonomous organization under the Department of Space, Government of India. It is not a private business entity."

"By not paying service tax the assessee is not gaining anything. It is a Governmental organization run by Bureaucrats and Scientists, none of whom have any personal interest in evading service tax. In fact, by evading service tax, nothing would be gained either by anyone individually or by

their organization. Revenues argument is that the assessee had not come forward to disclose all their activities and therefore they have suppressed the facts, which is sufficient to invoke extended period of limitation. We do not agree with this contention. The assessee could have genuinely believed that they were not liable to pay service tax and not disclosed facts to the department or sought any advice or guidance from the department regarding taxability of their services. In this factual matrix, by no stretch of imagination can we hold that the assessee has committed fraud or collusion or willful misstatement or suppression of facts can intend to evade payment of service tax".

25. By observing as above, the Tribunal held that the extended

period of limitation cannot be invoked in this case and the demand

if any, can only be survived within the normal period of limitation.

26. The finding as recorded by the Tribunal, in our view, is

justified, for the reason that, though the respondent is established

as an autonomous body, the same for all purposes like

administrative control, its financial needs etc., looks only to the

Government. This is on account of the fact the services of the

respondent are utilized for functioning of various Government

agencies under different Ministries and is not run like a private

commercial organization with a profit motive.

27. Thus, there is no incentive for the respondent-NRSA to resort

to evasion of tax which could result either in the profits soaring

higher or any individual being benefited. On the other hand if

there existed a liability, the respondent could have factored the

same in its budget proposals and sought for release of more funds

from the Government to discharge its liability. Thus, it is only flow

of funds from one pocket to the other pocket of the Government

and would not result in any gain either to the organization or to

any individual. In this view of the matter, it is absurd to even

suggest that the respondent had suppressed facts with an intent to

evade payment of tax, and mulct it with payment of service tax by

invoking the extended period of limitation.

28. It also needs to be noted that organizations like respondent-

NRSA are run by Scientists, Academicians and Administrators.

Even if there has been any non payment of service tax, the same

cannot be alleged to be by fraud, collusion or willful misstatement

or suppression of facts. Attributing fraud, collusion, suppression

or willful mis-statement to the Scientists and Academicians, will

have a demoralizing effect, would not be in public interest. On the

contrary, it could contribute to Brain drain from the country.

29. The focus of the organizations like the respondent-NRSA is

definitely not on either resorting to tax evasion or tax planning

which would benefit the establishment, but is focused in its core

activity of research and assisting the other agencies of Government

in various projects. The said fact was completely lost sight by the

appellant-Revenue while passing the Order-in-Original, which

however, has been rightly taken note by the Tribunal.

30. This court also records its displeasure in the manner in

which the approval was accorded by the authority for filing this

appeal, without due consideration of the fact that the activity of the

respondent-NRSA involves Nations Safety and Security and that it

is not a private commercial concern.

31. Thus, this court is of the view that in the given facts and

circumstances, the Tribunal has given cogent reasons for holding

that the extended period of limitation under Section 73(1)(a) of

Finance Act, 1994 would not be invocable.

32. Similarly, the order of the Tribunal waiving all penalties by

invoking Section 80 of the Finance Act, is also rightly justified.

33. In view of the above, this Court is of the opinion, no

substantial question of law arises for consideration in this appeal.

34. Accordingly, the appeal of the Revenue is dismissed at the

stage of admission with Costs. The appellants shall pay costs of

Rs. 10,000/- to Telangana High Court Legal Services Committee

within six weeks.

35. The miscellaneous petitions pending, if any, shall stand

closed.

______________________________ M.S. RAMACHANDRA RAO, J

_____________________ T. VINOD KUMAR, J Date:14.06.2021

Note: L.R. copy to be marked.

B/o MRKR

THE HON'BLE SRI JUSTICE M.S.RAMACHANDRA RAO

AND

THE HON'BLE SRI JUSTICE T. VINOD KUMAR

CEA No.2 of 2021 (Division Bench Judgment prepared by Hon'ble Sri Justice T. Vinod Kumar)

14.06.2021