CESTAT: Service Tax Payable On Service Charges Collected From Client For Printing
Pranav B Prem
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax is payable on the service charges collected by the assessee towards printing work, though such liability would be limited to the normal period of limitation. The ruling came in a case involving M/s Chhattisgarh Samvad, an associate organization of the Department of Public Relations, Government of Chhattisgarh, which was set up to provide multi-media advertising and publicity for various government schemes.
The Bench comprising Dr. Rachna Gupta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member) noted that the assessee, using its in-house expertise, prepared content for materials such as brochures and manuals, which were then printed through empanelled agencies. The Tribunal clarified that this arrangement did not amount to the assessee acting as a job worker to a printer. Rather, the printer was functioning as a sub-contractor to the assessee. Therefore, the assessee was not covered under the exemption notification related to job work in the printing sector and is liable to pay service tax on the service charges collected for such printing activities.
The assessee was earlier served with a show cause notice following the audit of its records for the period 2011 to 2015. The audit revealed that the assessee had failed to pay service tax on some services rendered and had also collected certain amounts purportedly as service tax from its clients but did not deposit them with the government. As per the assessee's standard billing practice, it would invoice government departments with a consolidated amount that included the charges of empanelled agencies, applicable service tax on those charges, and a further 10% or 15% as its own service charges along with service tax thereon. The entire amount was collected from the client and payments were made to the empanelled agencies for their services.
Upon evaluating the case, the Tribunal held that the demand raised for the extended period of limitation could not be sustained. It found that there was no fraud, collusion, wilful misstatement, or suppression of facts on the part of the assessee that could justify invoking the extended limitation period. The assessee was registered with the service tax department, had filed returns regularly, and had been audited earlier on similar grounds. The Bench emphasized that the negligence or failure of the tax officer to scrutinize the returns or seek further documents could not be construed as suppression of facts by the assessee.
On the issue of service tax liability on selling of space for advertisements, the Tribunal noted that the demand pertained to the period before 2014, during which time the relevant services were either not taxable or were specifically exempt under the negative list provisions. The Bench stated that service tax on such advertisements became payable only after 2014 and, hence, the demand for the earlier period could not be sustained. However, it allowed for verification by the Commissioner to determine if any portion of the demand pertained to the post-2014 period, in which case the demand would be enforceable to that extent.
As to the service tax said to have been collected from client departments but not deposited, the Tribunal directed that the Commissioner verify whether such amounts were indeed paid to the empanelled agencies, as claimed by the assessee. The appellant had submitted voluminous records in this regard. The Tribunal clarified that if the collected service tax amounts had been passed on to the empanelled agencies, no liability would remain on the assessee under Section 73A of the Finance Act, 1994.
Lastly, regarding the service charges collected for printing work, the Tribunal analyzed the exemption under Notification No. 25/2012-ST dated 20.06.2012. It held that the exemption applies only to intermediate production processes in the nature of job work. Since the assessee had overall contracts with the client departments and merely outsourced the printing part, it could not be considered a job worker. Consequently, the service rendered by the assessee does not fall under the said exemption, and service tax is payable on the service charges collected for printing during the post-negative list period.
In conclusion, the Tribunal partly allowed the appeal. The demand for the extended period of limitation and the corresponding penalty under Section 78 was set aside. The demand relating to sale of space for advertisements before 2014 was also quashed, subject to verification by the Commissioner. The Commissioner was further directed to verify the appellant’s claim regarding amounts passed on to empanelled agencies. However, the demand for service tax on printing-related service charges during the normal period of limitation was upheld.
Appearance
Shri A.K. Batra, Chartered Accountant for the Appellant
Shri Anand Narayan, Authorised Representative for the Respondent
Cause Title: M/s Chhattisgarh Samvad v. Principal Commissioner
Case No: Service Tax Appeal No. 51826 of 2017
Coram: Hon'ble Dr. Rachna Gupta, Member (Judicial), Hon'ble Mr. P. V. Subba Rao [Member (Technical)]
