Service tax was introduced from 1 July 1994 through the Finance Act, 1994. Administration of service tax has been vested with the Central Excise department under the Ministry of Finance. Commissioners of Central Excise have been authorised to collect service tax within their jurisdiction. This section contains 16 paragraphs featured individually or grouped together and has a revenue implication of Rs.32.55 crore. The Ministry of Finance/Department had (till January 2002) accepted audit observations in 8 paragraphs involving Rs.10.77 crore and recovered Rs.1.49 crore. The significant findings of Audit included in this section are mentioned in the following paragraphs :-
(i) Consulting engineers
As per section 65 of the Finance Act, 1994, as amended with effect from 7 July 1997, services rendered by a consulting engineer are liable to service tax. The term consulting engineer has been defined as "any professionally qualified engineer or an engineering firm, who either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering".
As per notification dated 9 April 1999, service tax is exempt if payment for taxable services is received in India in convertible foreign exchange which is not repatriated or sent outside India.
(a) M/s. Schlumberger Asia Services, in Mumbai V Commissionerate of Central Excise, rendered oilwell logging, perforation and auxiliary services to M/s. ONGC and M/s. Enron Oil and Gas India Limited. Oil well logging services included surveying the oil wells by qualified engineers. Logging tools were used to measure technical aspects like magnetism, resistivity and radioactive emission of the formation and the data generated were correlated to infer various parameters such as thickness, porosity and components of the formations. These were submitted to the clients in the form of technical log records. The assessee also provided technical interpretation to the client in order to give the client a clear picture of the downhole formation contents at various levels of the oilwell. Thus the logging service was a technical assistance provided by the assessee in the capacity of consulting engineer to the client to gauge the potential of the oilwell. Therefore, the gross amount charged from the clients was liable to service tax at the rate of 5 per cent.
Annual accounts of M/s. ONGC and M/s. Enron Oil and Gas India Limited showed that a payment of Rs.389.53 crore was made towards services rendered by the said firm during the period 1997-98 to 2000-01. Relevant invoices also indicated that the taxable value received in convertible foreign exchange was repatriated outside India and it was not exempt from service tax. Service tax of Rs.19.48 crore was, therefore, recoverable.
This was pointed out in July 2001; reply of the department/Ministry of Finance had not been received (January 2002).
(b) Records of M/s. Washle Ideal Limited, M/s. Motherson Auto Computers Engineering Limited and M/s. Matsushita Televisions and Audio India Limited, Noida, in Meerut II Commissionerate of Central Excise, revealed that an amount of Rs.7.36 crore was paid to their foreign collaborators during 1997-98 to 1998-99 for providing technical assistance/know-how in the capacity of consulting engineers. However, service tax amounting to Rs.37.33 lakh liable to be paid, was not paid by the service providers.
On being pointed out (February/April 2000), the department stated (October 2000) that Rs.2.94 lakh had been recovered from one of the assessees. Reply in other two cases had not been received (March 2001).
Reply of the Ministry of Finance had not been received (January 2002).
(c) M/s. D.O. Industrial Plant Services Limited, 24 parganas in Kolkata III Commissionerate of Central Excise, collected an amount of Rs.3.35 crore from the customers on account of designing and engineering services provided during the period from July 1997 to March 2000. Though such services were liable to tax under heading ‘Consulting Engineers’, service tax of Rs.16.74 lakh due thereon was neither paid by the assessee nor was demanded by the department.
This was pointed out in May 2000; reply of the department/Ministry of Finance had not been received (January 2002).
(d) M/s. Transparent Energy Systems Private Limited and M/s. SKF Bearings Limited, in Pune I and II Commissionerates of Central Excise, rendered services as consulting engineer but did not pay the service tax due on the taxable value recovered from the buyers. This resulted in non-levy of service tax of Rs.15.89 lakh during the period from 7 July 1997 to April 2000 on which interest of Rs.4.08 lakh was also due.
On this being pointed out (March and September 2000), the Ministry of Finance accepted the objection and intimated (October 2001) recovery of Rs.23.54 lakh and issue of show cause cum demand notice for Rs.4.23 lakh.
(ii) Transport operators
As per sub-rule (xvii) of rule 2(d) of Service Tax Rules, 1994, effective from 16 November 1997, recipients of services of goods transport operators were liable to pay service tax at the rate of 5 per cent of the freight charges paid to goods transport operators.
Twenty two assessees, in Aurangabad, Mumbai VII, Pune I and II Commissionerates of Central Excise, had not paid service tax on the freight charges paid to goods transport operators during the period 16 November 1997 to 1 June 1998. This resulted in non-levy of service tax to the extent of Rs.1.13 crore.
On being pointed out (between August 1999 and November 2000), the Ministry of Finance admitted the objection (December 2001) and intimated recovery of Rs.35.51 lakh from six assessees. In the remaining cases, it stated that the necessary action for recovery of tax had either been initiated or was being initiated.
(iii) Management consultants
Service tax was levied on service provided by a management consultant with effect from 16 October 1998 vide notification dated 7 October 1998.
M/s. DSP Merrill Lynch Limited, in Mumbai I Commissionerate of Central Excise, received Rs.6.35 crore during the period 16 October 1998 to 31 March 1999 for providing consultancy services in regard to merger and acquisition of companies. However, service tax of Rs.31.73 lakh payable thereon was not paid.
On being pointed out (October 1999), the Ministry of Finance admitted the objection (July 2001).
(iv) Consignment agents
As per notification dated 11 July 1997, recipients of service of consignment agent are liable to pay service tax on remuneration paid to consignment agent.
M/s. Koparan Limited, M/s. Bhupendra Industries Limited and M/s. Ruby Mills Limited in Mumbai VII Commissionerate of Central Excise, had not paid service tax on the remuneration paid to consignment agents during the period July 1997 to August 1999. This resulted in non-recovery of service tax of Rs.18.42 lakh.
On being pointed out (July 2000), the Ministry of Finance admitted the objection and intimated (January 2002) that show cause notices for Rs.18.42 lakh had been issued.
(i) According to rule 6 of the Service Tax Rules, 1994, as amended from 16 October 1998, the service tax on telephone service is payable on the value of taxable services received during any calendar month.
A test check of S.T. 3 returns filed by Chennai Telephones, Chennai, providing telephone services, in Chennai I Commissionerate of Central Excise, revealed that in respect of half yearly period from October 1998 to March 1999, the value of taxable services charged or billed was less than the value of services realised. Service tax was paid on the billed or charged amount instead of the amount realised. There was short payment of service tax of Rs.8.23 crore during the period from July 1994 to March 2000.
On being pointed out (July 2000), the Ministry of Finance confirmed the facts and stated (October 2001) that the assessee had preferred an appeal before Commissioner (Appeals) which was pending decision.
(ii) As per sub-rule (xvii) of rule 2(d) of Service Tax Rules, 1994, which came into effect from 16 November 1997, recipients of service of goods transport operators were liable to pay service tax at the rate of 5 per cent of the freight charges paid to goods transport operators.
M/s. Float Glass India Limited, Taloja, in Mumbai VII Commissionerate of Central Excise, paid an amount of Rs.6.94 crore towards freight charges to goods transport operators during the period 16 November 1997 to 1 June 1998. The service tax payable thereon worked out to Rs.34.70 lakh. However, an amount of Rs.23.19 lakh only was paid. This resulted in short levy of service tax of Rs.11.51 lakh.
On being pointed out (November 2000), the Ministry of Finance admitted the objection (October 2001).
In terms of section 75 of the Finance Act, 1994, every person liable to pay tax in accordance with provisions of section 68, or rules made thereunder, who fails to credit the tax or any part thereof to the account of Central Government within the prescribed period, shall pay simple interest at the rate of one and a half per cent, for every month or part of the month by which such crediting of tax or any part thereof is delayed and penalty for failure to pay service tax can be imposed.
For the purpose of calculation of interest and penalty under service tax on telephones, the Ministry of Finance clarified on 15 October 1996, that the first date on which book transfer is made in the cash section of Secondary Switching Area (SSA) may be taken as the date of credit of service tax to Central Government account.
(a) Scrutiny of service tax records of two secondary switching areas of Chennai Telephones and Coimbatore Telephones, in Chennai I and Coimbatore Commissionerates of Central Excise, revealed that there was delay ranging from one month to five months in effecting book transfer for remittance of service tax collected. Interest amounting to Rs.1.49 crore was leviable between August 1994 and October 1998.
On being pointed out (between November 1998 and April 1999), the department stated (March 1999) that the actual amount of interest to be paid could be ascertained only at the time of assessment of ST-3 returns filed by the assessee and that the assessees had been issued show cause notices to submit their accounts for assessment.
Reply of the Ministry of Finance had not been received (January 2002).
(b) M/s. Lucent Technologies Hindustan Limited, in Delhi I Commissionerate of Central Excise, engaged in providing services of supervision/commissioning of telecom projects, charged service tax from clients but did not deposit it with the Government on due dates. Service tax of Rs.57.85 lakh charged between August 1997 and March 1998 was deposited on different dates with delay ranged from 1 to 27 months. Interest of Rs.3.49 lakh recoverable for delayed payment was not realised.
On being pointed out (December 2000), the Ministry of Finance admitted the objection and intimated (June 2001) recovery of Rs.3.78 lakh.
(i) Penalty for late filing of returns of service tax
According to section 77 of the Finance Act, 1994, if a person fails to furnish in due time, the return which he is required to furnish, he shall pay by way of penalty, a sum which shall not be less than one hundred rupees but which may extend to two hundred rupees for every day (for every week or part thereof with effect from 16 October 1998) during which such failure continues. As per Finance Act, 1999, effective from 11 May 1999, the penalty leviable may extend to an amount not exceeding two thousand rupees irrespective of the period of delay.
A check of service tax returns filed by 78 assessees, in Raipur Commissionerate of Central Excise, revealed that returns due between the period October 1994 and December 1999 were not filed within the prescribed time limit and no action was initiated for recovery of penalty which amounted to Rs.29.85 lakh.
On being pointed out (January 2000), the Ministry of Finance stated (August 2001) that show cause notices had been issued in all the cases.
(ii) Penalty for delayed payment of tax
As per section 76 of the Finance Act, 1994, any person liable to pay service tax in accordance with the provisions of section 68 or the rules made thereunder, who fails to pay such tax shall pay in addition to paying such tax, and interest, a penalty which shall not be less than rupees one hundred but which may extend to two hundred rupees for every day during which such failure continues, however, such penalty shall not exceed the amount of service tax that he failed to pay.
A check of service tax records maintained by Assistant Commissioner (S.T.) Division I, Surat Commissionerate of Central Excise, revealed that 24 assessees made payment of service tax after due dates. Though interest was levied on them but penalty under section 76 which was mandatory and leviable in addition to service tax and interest, was not levied. This resulted in non-levy of penalty amounting to Rs.8.07 lakh.
On being pointed out (January 2001), the Ministry of Finance admitted the objection and intimated (July 2001) that show cause notices amounting to Rs.10.25 lakh had been issued.
In 20 other cases of non-levy of service tax, the Ministry of Finance/department had accepted the objection involving tax of Rs.0.42 crore and reported recovery of Rs.0.06 crore in 18 cases till January 2002.
| New Delhi Dated : 15 February 2002 |
(S.K. BAHRI) |
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Countersigned |
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| New Delhi Dated : 15 February 2002 |
(V.K. SHUNGLU) |