Brief facts of the case

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OIO No. 17/STC/AHD/ADC(JSN)/2013-14

BRIEF FACTS OF THE CASE:

M/s Bajaj Herbals Pvt Ltd. 450, Ashwamegh Estate, Opp M.N. Desai Petrol Pump, Changodar, Ahmedabad 382 210. (hereinafter referred to as “the said service provider”) are engaged in manufacturing of Hair Oil, Hair Cream, Tooth Paste, Cool Hair Oil r etc. falling under chapter heading 33 & 30 of the Central Excise Tariff Act,1985 for which they have taken Central Excise Registration No.AACCB6654JXM001. The said notice have also taken Service Tax Registration No. AACCB6654JST001 under the category of GTA service.

2. The officers of Central Excise, Ahmedabad-II conducted audit at the premises of said notice for the period November 2008 to September 2010 on 10.11.2010.

3. During the course of audit it was noticed that the notice,

(i) Had made payment to various parties towards exhibition expenses in foreign currency during the F.Y. 2008-09.

(ii) Had made payment to M/s Concord Parma towards Sales Promotion expenses in foreign currency during the F.Y. 2008-2009.

(iii) Had made payments towards Advertisement expenses incurred in foreign currency

4. Hence, a statement of Shri Yogesh P Dave aged 47 years, Manager Excise of M/s. Bajaj Herbals Pvt Ltd, ST Reg no AACCB6654JST001, Address 450, Ashwamegh Estate ,Opp M.N. Desai Petrol Pump, Changodar, Ahmedabad -382 210-was recorded under Section 14 of the Central Excise Act read with Section 83 of the Finance Act,1994 on 20.12.2011 wherein he inter-alia stated that:-

5. He had gone through the content of the Audit report :- No A.R. NO 192/2010-11 Dated 07/03/2011, Conducted by Central Excise H.Q. Audit Ahmedabad – II, period of Audit: November – 2008 to September 2010 date of Audit 10/11/2010. Revenue Para – 03, 04 & 05. Issued from F.No IV/CAAP-Bajaj Herbal/2010-11 dated 05.04.2011. The questions asked by the officer and answers given by him are as under.

Question-1.

I would like to draw your attention towards over seas expenses incurred for business exhibition for which Audit objection was raised for the F.Y. 2008 – 09 , Please explain as to what service were provided to you/ by the overseas firm?

Answer.

The organizer/overseas firm has provided space, furniture, electricity etc where our products were displayed to the visitors as well as literature of the products

Question 2

Are you aware of the Business Exhibition service falling under section 65(19)(a) which says business exhibition service is a service rendered to an exhibitor by an organizer of a business exhibition that intends to market, promote , advertise or show case products or services for growth in business of the producers or providers of such products or services.? Do you agree with it? What was your object of the company? Who made the payments for the overseas expenses and Why?

Answer. Yes .1) Foreign exhibition were under taken to expand foreign market, clients. 2) We have made , over seas payment from our Indian Bank held by M/s Bajaj Herbal Pvt. Ltd. 4) It is a policy matter.

Question-3

1) When did the unit come into existence? 2) From when did you start exhibiting your goods overseas?

Answer

Our unit came into existence in the year 17/01/2006 there after we

Have started export of our goods to foreign country.

Question-4. Do you have overseas office? What is the name and address?

Answer

Yes. We have an overseas office by the name, M/s Bajaj Herbals FZE, P.O. Box, 8383, SAIF, Zone, Sharjaha, U.A.E.

Question–5

Please refer to your letter dated 12/07/2011.As stated for para 3, that the exhibition at the place which situated outside India where you had participated with your product / literature of the same & products displaced physically and therefore the payment was made in foreign currency. The exhibition was organized on the land which was situated outside India where organizer had provided space, furniture, electricity etc where the products were displayed to the visitors to whom the literature of the products were handed , also counseling were conducted by your representative. ? Do you agree with it?

Answer Yes

Question – 6

Have you taken monetary consideration for the same?

Answer.

We have not taken any monetary consideration for the counseling done. It was free.

Question.7

Further as stated, can you name the organizers, their address, contact no, from whom, who had obtained the foreign services?

Answer.

Some of the names are 1) Big Vision P.O. Box No120978, Dubai UAE Tel No +971 42580421, 2)Proto Media P.O. Box No 184469 Dubai UAE

Tel No 97142956345. 3) Dragon fruit P.O. Box 30218 Dubai UAE Trl No +97143375690. Etc

Question 8

Did the organizers have permanent business establishment in India? Can you name their residential addresses in India or their associates?

Answer No. The organizers did not have any permanent business establishment in India. And therefore the payment was made in foreign currency. Hence it cannot be treated as import of service. And hence service tax is not leviable. As the services of exhibition not received on the land with in India, service tax is not leviable.

Question 9

Expenditure in foreign currency incurred during the year, (EXHIBITION EXPENSES) as shown in the balance sheet is as under?

2007 – 2008 Rs 6.41/- Lacs

2008 – 2009 Rs 7.75/- Lacs

2009 - 2010 Rs ----/-

2010 - 2011 Rs ---/-

2011 - 2012 Rs No records are available.

Do you agree/ dispute with the Auditors M/s Ashokkumar S. Gupta & Co. Chartered Accountants 203, New Cloth Market, o/s Raipur Gate Ahmedabad 380 002 report?

Answer.

I/we do not dispute with the Auditors report , the same is agreed upon. As for the year 2011 – 2012 to the best of my knowledge no foreign expenses have been incurred.

Question.10

In the audit report no A.R. No 192/2010-11 they raised audit objection regarding non-payment on exhibition expenses incurred in foreign currency regarding payment of Rs 7,75,374/- raising demand of S.T. Rs 85,294/- plus interest as applicable. For the Period 2008- 2009. Do you agree?

Answer.

I say we are not liable to service tax as stated above. If we were liable to service tax, I do not dispute with the service tax calculated by the Audit party. Under business exhibition service falling under section 66A of the service Tax Act, 1994 read with rule 3 of the Taxation of service rules 2006. But I add we are not liable to service tax on the same.

Question. 11

What was the exhibition business service incurred abroad for the subsequent period 2009 – 2010, 2010 – 2011, 2011 – 2012 (Till date)

Answer.

We have not incurred any expenses for the period 2009-2010, 2010-2011 as per the Audit report. For The period 2011-2012 till date to the best of my knowledge no foreign expenses have been incurred.

Question 12

What was the expenditure in foreign currency incurred during the year, 2007-2008.?

Answer.

As per the balance sheet the expenditure incurred is 6.41 lacs.(Exhibition Expenses)period 2007-2008 I put my dated signature as a token of its correctness.?

Question. 13

The rate of duty for the period 2007-2008 is ST 12%,Edu.Cess 2%, SHEC 1% Total 12.36%? Do you agree?

Answer

I agree.

Question. 14

How much are you liable to pay service tax, ? At the above rate.?

Answer.

At the above rate we would be liable to duty a per the annexure Rs 79,228/-(on reverse charge basis) plus interest as applicable. For the period 2007 – 2008.. But I further state that we are not liable to service tax. Also the exhibition was at the place which was situated outside India where we had participated with your product / literature of the same & products displaced physically and therefore the payment was made in foreign currency. The exhibition was organized on the land which was situated outside India where organizer had provided space, furniture, electricity etc where the products were displayed to the visitors to whom the literature of the products were handed , also counseling was conducted by our representative

Question 15

Was the ground of exhibition expenses for the period 2007-2008 & 2008-2009 the same?

Answer

Yes.

Question. 16

Had You provided the balance sheet to the Audit party at the time of their audit visit to the factory on 10/11/2010,?

Answer

Yes the balance sheet as well as form 3CD , and all records called for hard copy as well as soft copy were provided to them for the purpose of audit before as well as at the time of audit.

Question 17

Were the exhibition Expenses for the period 2007-2008 reflected therein showing the Exhibition Expenses of Rs 6.41/- Lacs.? in the Audited balance sheet?

Answer

Yes.

Question 18

Why had the Audit party not pointed the error/discrepancies regarding non- payment of service tax. for the year 2007-2008 Why was is not brought on record? How much would you be liable to service tax if any? Are the ground for both the years the same?

Answer

I am not able to answer the question regarding non bringing of discrepancies on record. The Audit party will be in a better position to clarify the same.

I state that the exhibition was at the place which situated outside India where we had participated with our product / literature of the same & products displayed physically and therefore the payment was made in foreign currency. The exhibition was organized on the land which was situated outside India where organizer had provided space, furniture, electricity etc where the products were displayed to the visitors to whom the literature of the products were handed , also counseling were conducted by your representative. For which we had not taken any monetary benefit.

Question 19

If at all you were liable to service tax on the above what would be your liability? Were the ground for expenses the same for both the years?(2007-08 & 2008-09)

Answer

We are not liable to service tax. If at all we were liable for the same, the ST would be Rs 70,512/- , further the ground for expenses / payment for both the years are the same. Further we submit that the exhibition organized on the land outside India where organizer has provided space, furniture, electricity, etc where our products were displayed to the visitors to whom the literature of products as well as our representative were counseling them as the services of exhibition not received on the land within India, S.T. is not leviable.

Question 20

Please provide copy of break up/ ledger copy for 6.41/- lacs (Exhibition Expenses?

Answer

Enclosed please find relevant copy of ledger for the period 1-4-2007 to 31-march 2008. Duly signed.

Question. 21

Had you filed any revised ST -3 return for any of the previous year? Were any balance sheet provided to the range office.?

Answer

We have not filed any revised ST- 3 return for any of the previous year. Nor any balance sheet provided to the range office for any year.

Question 22

Have you paid service tax on banking and other Financial charges/ commission for services obtained/received for the period 2007 -2012 till date?

Answer.

Yes. we have paid the service tax on Banking and other Financial charges/ commission for the above period as applicable. And also regularly paying banking and other financial charges, but credit not taken.

Question 23

Who are the directors of the company, name, residential address, and their work in the company ?

Answer

The Board of directors consist of 1) Dwarka Prasad G Bajaj.(Chairman) 2) Sanjay D. Bajaj(Managing Director). 3) Gautam D. Bajaj (director).4) Mrs Sunita Bajaj. Residential Address Sunrise Park, Vastrapur Ahmedabad 15.

All are active in their respective field. And take part active part in all the business decision of the company.

Question 24

The Audit conducted by the previous party for the period January 2006 – October 2008 was it a test audit or complete audit conducted by them?

Answer

To the best of my knowledge as per the remark/ endorsement at the end of the register, It was a test audit conducted by the pervious party.

Question 25

Has any demand being raised by the Central Excise Jurisdictional Officer regarding the Audit objection raised?

Answer

No demand has been raised by the Central Excise Jurisdictional officer for the audit, But we have complied with the query raised by the department.

Question 26

As per the balance sheet M/s Bajaj Herbal FZE, SAIF – Zone ,Sharjaha UAE is 100% subsidiary of M/s Bajaj Herbal.?

Answer

No

Question 27

There is steady increase in sales over the year? Advertisement and sales has a direct relation. How is that there is no foreign expenses / advertisement expenditure as per your books of accounts. Is it, your foreign subsidiary is making the foreign expenditure to escape the Indian Tax net?

Answer.

I have no idea .No comment.

Question 28

In continuation of the above audit report para 4 i.e. “Nonpayment of service Tax on expenses incurred in foreign currency towards sales promotion charges? You have made payment of Rs 2,28,091/- to M/s Concord Pharma towards sales promotion expenses in foreign currency during the year 2008-2009? Please put your signature on sales & Promotion ledger Account submitted for the period 1/04/2008 to 31/03/2009 payment made vide OBC bank. Are you liable to service tax on the same? Under BAS section 66A of the Service Tax Act 1994 read with rule 3 of the Taxation of services.

Answer

I put my signature on the same.

I would like to state that the payment made to M/s Concord Pharma in foreign currency is accounted for in books of accounts as sales promotion expenses but in facts it is deduction of quantity discount. However not admitting but presuming the payment towards the sales promotion even though it does not attract service tax because such sales promotion is carried out in the stall hired in the exhibition organized on the land which is situated outside India and therefore service tax is not leviable because services is provided is not received in India.

Question 29

Have you made payment for the same(Rs 2,28,091/-) from India your factory i.e. M/s Bajaj Herbals Pvt Ltd.

Answer.

Yes.

Question 30

Please refer of scan copy of concord bill the free English translation reads as under “ only Eighty thousand EGP.(EGYPTION POUND) This is the remaining (last) value of the films productions (Adv.) for Bajaj Amla Hair Oil”

Please provide the earlier copies of the concord bills. And details of service tax being paid on the same.?

Answer

The 80,000 EGP (EGYPTION POUND) as mentioned on the bill the conversation 1egp = 0.166141 US $.As per EBL policy (EQUAL BRAND LIABILITY POLICY) The party i.e. M/s Concord Pharma has made the remaining payment of USD $ 7957. The present bill is the final payment made we have not made any additional payment to Concord Pharma.

Question 31

Please refer to the Audit Para para 5 nonpayment of service tax on Advertisement expenses incurred in foreign currency for the period 2008-09 to September – 2010. October 2010 to March 2011 & April to November 2011Please refer to the work sheet do you agree with the calculation?

Answer

Yes I put my signature in token of its correctness.

Question 32

Please refer to section 66A of the Act the taxable services provided from outside India and received in India shall, in relation to taxable services as per Rule 3(iii) of Taxation of Services (Provided from outside India And Received In India) rules 2006 and as specified in clause (105) of section 65 of the Act the “Advertisement Services” is covered under aforesaid taxation rules for payment of service tax. When payment made in foreign currency in respect of services received by a recipient located in India from abroad, then such taxable service shall be treated as taxable services provided from outside India and received in India and the recipient of services is treated as deemed service provider. What are your comments?

Answer.

No comment

Question 33

As per the above are you liable to service tax.

Answer.

In this regards it is to submit that the services are not received in India but at a place which situated outside India as well as the services related to canvassing of the product by display on TV during the period allotted to the services provider by the Broadcasting Agency or Origination of the Respective Country. The various service providers has provided services outside India and therefore I/We are of the view that the Service Tax is not liable in the present case because the two condition that is service provided outside India and received in India but here the case is different and both the condition are not fulfilled as the service provided outside India but isniot received in India, Hence no service tax is payable on the amount paid in foreign currency.

Question 34

Who has made the payment to the foreign broad casting agency/originating of the respective company?

Answer.

M/s Bajaj Herbal Pvt. Ltd has made the payment from India o the overseas party, I submit copies of invoices.

Question 35

What are your figures for foreign expenses incurred on TV display for the year 2007 -2008? What is/was the amount of service tax liable.?

Answer

No services / payment was made in respect of the above for the period 2007 – 2008.

Question 36

Please once again go through section 66A@ Finance Act 1994 as amended What are your comments? Is your foreign expenditure in relation to commerce or industry.?

Answer

No comments. For the second part. Yes.

6. As per the provision of Notification No 12/2002 dated 01.08.2002, as per the provision of rule 2(1)(d)(iv) of service Tax Rules, 1994 (here in after referred to as the Rules) as per the explanation to section 65(105) of the Finance Act, 1994 (here in after referred to as the Act) inserted from 16.06.2005 and as per Section 66A of the Act “in relation to Taxable Service provided by any person from a country other than India and received by any person in India, then recipient of such service shall pay the service Tax. But the notice has not paid Service Tax on services received in foreign land, as per the provision of Rule 2(1)(d)(iv) of service Tax Rule, 1994 and as per section 66A of Finance Act, 2006 taxable service include services received from outside India by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India. The notice has registered office at Ahmedabad (India). Hence the notice is the recipient of service and liable to pay service Tax on these services with effect from 18.4.2006 only, as held by Hon’ble Apex Court in Union of India Vs. Indian National Ship owners Association, as reported in 2010(17)STRJ57(SC)

7. During the time of Audit and recording of the statement, it was noticed that they have incurred expenses under service category. Business Exhibition Service, Business Auxiliary Service (*sales promotion Expenses) & Advertisement Expenses as detailed in the Annexure “A”.

8. From the Annexure A, it appears that the notice has not made payment as under :

1) Business Exhibition Expenses, period 2007 – 2008 Value 1416374/- duty 1,55,806/-

2) Sales Promotion Expenses, period 2008-2009 Value 2,28,192/- duty 25,090/-

3) Advertisement Expenses, period 2008-09 to September 2010 value Rs. 3,83,79,235/-/- duty 35,98,876/-

4) Advertisement expenses period Oct. 2010 to November 2011, Value Rs. 23,91,875/- ; Duty : Rs. 2,23,358/-

Totaling to Rs 40,03,130/-

9. As per the provision of Rule 2(1) (d) (iv) of Service Tax rules, 1994 and as per Section 66A of the Finance Act 1994, “in relation to taxable Service provided by and person from a country other than India and received by any person in India, then the recipient of such service shall pay the Service Tax. As per the provision of section 68 of the Act read with rule 6 of the Rules, every person providing taxable service to any person shall pay the Service Tax at the rate specified in Section 66 of the Act in such manner and within such period as may be prescribed.

10. RULE 3. Taxable services provided from outside India and received in India. —

Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services, —

(i) specified in sub-clauses [(d), (m)j, (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzy), [(zzzz), (zzzza) and (zzzzm)J of clause (105) of section 65 of the Act, be such services as are provided or to be provided in relation to an immovable property situated in India;

(ii) specified in sub-clauses (a), (f), (h), (i), (j), (!),[***} (n), (o), (s), (t), (u), (w), [ (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), (zzzp), (zzzzg), [(zzzzh), (zzzzi), (zzzk) and (zzzzl)J of clause (105) of section 65 of the Act, be such services as are performed in India :

Provided that where such taxable service is partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under section 67 of the Act and the rules made thereunder:

[Provided further that where the taxable services referred to in sub-clauses (zzg), (zzh) and (zzi) of clause (105) of section 65 of the Act, are provided in relation to any goods or material or any immovable property, as the case may be, situated in India at the time of provision of service, through internet or an electronic network including a computer network or any other means, then such taxable service, whether or not performed in India, shall be treated as the taxable service performed in India;].

(iii) specified in clause (105) of section 65 of the Act, but excluding,

(a) sub-clauses (zzzo) and (zzzv);

(b) those specified in clause (i) of this rule except when the provision of taxable services specified in clauses [(d), (zzzc), (zzzr) and (zzzzm)J does not relate to immovable property; and

(c) those specified in clause (ii) of this rule, be such services as are received by a recipient located in India for use in relation to business or commerce :

[Provided that where the taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act is received by a recipient located in India, then such taxable service shall be treated as taxable service provided from outside India and received in India subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient.]

RULE 4. Registration and payment of service tax- The recipient of taxable services provided from outside India and received in India shall make an application for registration and for this purpose, the provisions of section 69 of the Act and the rules made thereunder shall apply.

RULE 5. Taxable services not to be treated as output services- The taxable services provided from outside India and received in India shall not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input services under CENVA T Credit Rules, 2004.

11. As per section 65(19) of the Finance Act,1994, Business Auxilliary Service means any service in relation to :-

(i) promotion or marketing or sale or sale of goods produced or provided by or belonging to the client ; or

(ii) promotion or marketing of service provided by the client , or

(iii) any customer care service provided on behalf of the client or

(iv) procurement of goods or services , which are input for the client.;

(v) production or processing of goods for, or on behalf of the client; or

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clause (i) to (vi) , such as billing, issue or collection or recovery of cheque, payments, maintenance of accounts and remittance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services commission and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act 1944.

The definition of ‘taxable” given in section 65(105)(zzb) of the Finance Act, 1994 (prevailing during the period covered under this notice) covers any service provided to a client , by a commercial concern in relation to business auxiliary service.

As per the above said rules, in respect of Business Auxilliary Service, if the service provided by a person from outside India are received by a recipient in India, for use in relation to business or commerce then such service are liable for service tax by the recipient in India. In this case the company, the recipient is/are liable to pay service tax under BAS

12 As per section 65(19a) of the Finance Act 1994, defines the term taxable service for business exhibition service as under:

“business exhibition “ means an exhibition:-

To market: or

To promote; or

To advertise: or

To showcase.

Ant product or service, intended for the growth in business of the pr0ducer or provider of such product or service as “business exhibition service is a service rendered to an exhibitor by an organizer of a business exhibition that intends to market, promote, advertise or show case products or services for growth in business of the producers or providers of such products of service

Service Provider defined u/s 65(3) “advertising agency” means any person engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant.

Taxable service defined u/s 65(105)€. “Taxable service means any service provided or to be provided to any person, by an advertising agency in relation to advertisement in any manner”

Advertisement “ includes any notice , circular, labels, wrapper, documents, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas.

13. Section 66A Charge of Service Tax on services received from outside India 1) Where any service specified in clause (105) of section65 is:- (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has permanent address or usual place of residence, in a country other than India, and. (b) received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purpose of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provision of this chapter shall apply

14 In the subject case, the said notice has not paid the service tax leviable thereon and thereby

Thus , it appears that the said service receiver has contravened the provision of

Section 68. Of the Finance act, 1994 read with rule 6 of the Service Tax rules 1994, in as much as they have failed to make the payment of service tax amounting to Rs 40,03,130/- as explained in for going paras for the period 2007 -2011 (Upto Nov) and failed to credit the same to the Government within the stipulated time limit.

Section 69 of the Finance act 1994 read with rule 4 of the Service Tax rules, 1994 in as much as they have failed to get them self-registered with service tax department within the stipulated time.

Section 70.of the finance act 1994 read with rule 7 of the Service Tax rules 1994 in as much as they have failed to file prescribed quarterly /half yearly ST-3 return within the stipulated time limit.

Section 75.of the Finance Act, 2001 read with rule 4 of the Service Tax Rules, 1994 in as much as they have failed to take registration within the stipulated time at the relevant time.

15 All the above acts of contravention of Finance Act, 1994 ( as amended) and rules made there under, on the part of the service receiver appear to have been committed by way of suppression of facts with an intention to evade payment of Service Tax and therefore the service tax not paid is required to be demanded and recovered from them under the provision of section 73(1) of The Finance Act, 1994 read with rule 2(1)(d)(iv) , 6 of the Service Tax rules, 1993 as amended by invoking extended period of five years. All these acts of contravention of the provision read with rule 4,6 and 7 of the service tax rules, 1994 appear to be punishable under the provision of section 76,77,78 and erstwhile provision of section 75A of the Finance Act , 1994 as amended from time to time.

16. Therefore a show cause notice F.No STC/04-102/O&A/ADC/D-II/11-12 dated 15.03.2013 was issued to M/s Bajaj Herbals Pvt Ltd. Changodar, Ahmedabad by the Additional Commissioner, Service Tax, Ahmedabad, 380 as to why:-

The Service Tax, Education Cess and Higher Edu. Cess on the “commission income” received by them under the category of “Business Exhibition Services” amounting to Rs 6,41,000/- demanding Service Tax to Rs 70,512/- for the F.Y. 2007-08

The Service Tax , Education Cess and Higher Edu. Cess on the commission income received by them under the category of “Business Exhibition Services” amounting to Rs 7,75,374/- demanding Service Tax to Rs 85,295/- for the F.Y. 2008-09

The Service Tax, Education Cess and Higher Edu. Cess on expenses incurred in foreign currency towards sales promotion for payment made to M/s Concord Pharma, Dholka, amounting to Rs 2,28,091/- towards Sales Promotion expenses in foreign currency during the F.Y. 2008-2009 demanding Service Tax of Rs 25,090/- .

The Service Tax , Education Cess and Higher Edu. Cess on payment made towards Advertisement expenses as recipient of the services under “Advertisement service ”incurred in foreign currency under the category of “Advertisement Service” . Demanding Service Tax of Rs 35,98,876/- from 2008-09 to September 2010 on value Rs 3,83,79,235/-

The Service Tax , Education Cess and Higher Edu. Cess on payment made towards Advertisement expenses as recipient of the services under “Advertisement service ”incurred in foreign currency under the category of “Advertisement Service” Demanding Service Tax of Rs 2,23,358/-. ) for the period from October 2010 to November 2011. On value Rs 23,91,875/-as detailed above in para 1, 2, 3, 4 & 5 should not be demanded / recovered from them under the first proviso of sub-Section (1) of Section 73 of the Finance Act, 1994, by invoking extended period.

Interest at the appropriate rate on service tax not paid from the due date to actual date of payment should not be charged from them under section 75 of Finance Act 1994.

Penalty under Section 76 of the Finance Act, 1994, should not be imposed upon them for failure to pay Service Tax within the period prescribed under Section 68 of the Finance Act, 1994, read with the Rule 6 of the Service Tax Rules, 1994.

Penalty under Section 78 of Finance Act, 1994 should not be imposed upon them under Section 78 of Finance Act, 1994 for suppressing of value of taxable service with intent to evade payment of Service Tax.

Penalty should not be imposed upon them under Section 77 of Finance Act, 1994 for failure to obtain Service Tax Registration for the category of “Business Auxiliary Services”./ “Business Exhibition Service” & Advertisement service.

Late fee should not be imposed upon them for their failure to file ST-3 returns within the time prescribed under Section 70 of Finance Act, 1994 read with Rule 7 of Service Tax Rules, 1994.

DEFENCE REPLY AND PERSONAL HEARING :

17 In response to the above show cause the said service provider filed their defence reply vide their letter dtd 10.8.2013 as under:

18. That the said service provider would like to draw the kind attention on the facts that they are not a Service Provider but are Manufacturer of Excisable Goods for which under Rule 9 of the Central Excise Rules, 2002; has obtained Central Excise Registration No. AACCB 6654 J XM 001 as well as under the provisions of the Finance Act, 1944; obtained Service Tax Registration No. AACCB 6654 J ST 001 under Section 69, of the Finance Act, 1994 as “ RECIPIENT OF SERVICE”. Moreover, being a Private Limited Company Registered under the provisions of the Company’s Act, 1956; it is mandatory on part of the Company to submit the Balance Sheet and Profit and Loss Account of the Company with the Registrar of Company-Gujarat at Ahmedabad. Accordingly, they have submitted the Balance Sheet every year since the beginning of the company and such documents are available with the said Office.

19. However, in view of the above background the para wise reply to Show Cause Notice are as under: -

Para 1 of the Show Cause Notice: - No Comments.

Para 2 of the Show Cause Notice: - No Comments.

Para 3 of the Show Cause Notice: - No Comments.

Para 4 of the Show Cause Notice: - No Comments.

Para 5 of the Show Cause Notice: - In this para, the statement of Shri Yogesh P. Dave, Manager Excise, of the Said service provider is discussed in form of Question-Answer and though the Manager has given proper reply, they would like to comment on each Question –Answer which are as under: -

Que-Ans-1: - They have received the service on Law of Land situated outside India for exhibition of products of the Said service provider. The Overseas Organizer is not belongs to India.

Que-Ans-2:- They have made payment through Banking Channels only to the Overseas Organizer, who organized the Business Exhibition on the Land situated outside India, such service i.e. Business Exhibition service is fall under section 65 (19) (9) of the Finance Act, 1994.

Que-Ans-3:- No Comments.

Que-Ans-4: - They have established a branch in U.A.E., in the Name and style of M/s. Bajaj Herbals FZE, P.O Box 8383, SAIF Zone, Sarjaha, U.A.E.

Que-Ans-5:- No Comments.

Que-Ans-6:- No Comments.

Que-Ans-7:- No Comments, but it appeared from the Show Cause Notice that the details of Overseas Buyers provided has not been taken into account for demanding the Service Tax.

Que-Ans-8:- No Comments.

Que-Ans-9:- No Comments.

Que-Ans-10:- No Comments.

Que-Ans-11:- No Comments.

Que-Ans-12:- Yes, during the year 2007-08 the exhibition expense for exhibition of conducted on land out-side India, is Rs. 6,41,000/- which paid in the month of 01.04.2007 through banking channel only and shown in Balance Sheet of 2007-08.

Que-Ans-13:- No Comments.

Que-Ans-14:- No Comments.

Que-Ans-15:- No Comments.

Que-Ans-16:- The Hard Copies and Soft Copies of All the records of Excise alongwith Balance Sheet Profit & Loss A/c and From 3CD are submitted produced the Audit Officers.

Que-Ans-17:- No Comments.

Que-Ans-18: - The question and answer was very vital and therefore the demand of Service Tax on Exhibition Expenses occurred (6,41,000/-) organized on the Land outside India was not leviable and hit by Limitation provided under section 73 of the Finance Act, 1994.

Que-Ans-19: - No Comments.

Que-Ans-20: - No Comments.

Que-Ans-21: - No Comments, but as Service Tax on exhibition organized on the land which situated outside India, Service Tax not leviable and hence S.T. 3 return are not filed.

Que-Ans-22: - No Comments.

Que-Ans-23: - No Comments.

Que-Ans-24: - The answer of the than Excise Manager appeared to be not proper as there was no relaxation to the officers of Internal Audit of the Excise Records and Private Records including Balance Sheet, Profit & Loss Account, Form 3CD, Journal Voucher, Debit Note-Credit Note etc., as well as records pertained to Service Tax matter and therefore though the Audit Officer had made endorsement in Register endorsing the Test Audit of records which is not correct and therefore for the purpose of demanding Central Excise Duty or Service Tax under Section 11A or 73 of the Central Excise Act, 1944 or the Finance Act, 1994 respectively, the limitation is applicable.

Que-Ans-25: - No Comments, though the Compliance to Audit Objection has been submitted vide Letter No. SD- 01/ 4-319/ Bajaj/ Audit/ AR-11/ 2011-12 / 400 dated 10.05.2011 in respect of Audit Report No. 192/ 2010-2011 dated 07.03.2011

Que-Ans-26: - No Comments.

Que-Ans-27: - No Comments.

Que-Ans-28: - No Comments, but they are of the view that as the service provider is situated in India and therefore for the service provided by him, they not liable for payment of Service Tax though the payment made in Foreign Currency by them.

Que-Ans-29: - No Comments.

Que-Ans-30: - No Comments, they are not liable to pay Service Tax on the payment made in Foreign Currency to the service provider having office in India.

Que-Ans-31: - No Comments.

Que-Ans-32:- Though, the than Excise Manager had not Commented on question put forth before him during the statement recorded by the Superintendent of Central Excise & Service tax, the Said service provider would like to state as under:-

They are of the view that the Service of “Advertisement Service” is falling under the category / classification of Section 65 (105) (e) of the Finance Act, 1944 and as this services were received on the Land of Law which situated out of India, which can be seen on CD (Produced before Adjudicating Authority) and therefore no Service Tax was leviable.

Moreover, as regards taxability on this service under the provisions of the Taxation of Service (Provided from outside India and received in India) Rules, 2006; in the present case the rule 3 (iii) quoted in this question is unwarranted on the ground that the provisions itself is self explanatory and in the present case as the Service of Advertisement is not received in India and received on the Land of Law situated outside India, these provisions are not squarely applicable and therefore no Service Tax payable by the Said service provider on the service of Advertisement received on the Land of Law situated outside India.

Que-Ans-33:- No Comments.

Que-Ans-34:- No Comments.

Que-Ans-35:- No Comments.

Que-Ans-36:- No Comments.

20. That they would like to draw the kind attention of the Adjudicating Authority that in the Statement dated 20.12.2011, the then Excise Manager had not admitted the liability or leviablity of Service Tax on the Services provided by them (who has not have any office in India) on the land of law which located outside India, though the payment for the said services were made in Foreign Currency through Banking Channel by the Said service provider.

That they have observed that , the provisions of Rule 2 (1) (d) (iv) of Service Tax Rules, 1994 has been discussed and accordingly, as per Rule 2 (1) (d) (iv) of Service Tax Rules, 1994; (refer Notification No. 10/ 2006 –ST dated 19.04.2006-effective from 18.04.2006 ---- and not Notification No. 12/ 2002-ST dated 01.08.2002-effective from 16.08.2002; as quoted in this para) --- (d) “person liable for service tax” means ----

(iv) “in relation to any taxable service provided or to be provided by any person from a Country other than India and received by any person in India under Section 66A of the Act, the Recipient of such Service.”

21. From the above, they are of the view that as per the aforesaid provisions, the recipient of service is only liable to pay tax, if the service is provided from the country other than India and such service is received in India by the recipient of service, however in the present case, the second part of the provision that i.e. “service received by any person in India” is absent and therefore, though the payment made in foreign currency through Banking Channel by the recipient of the Service from India, no service tax leviable/ payable under the provision of Section 66A of the Finance Act, 1994. The Said service provider has also observed that the case law site in this para does not squarely applicable on the ground that the period cover in aforesaid case law is prior to 2007-08 and therefore not applicable.

22. That the Said service provider has not found any justification for putting the provisions of Rule 3 of “Taxation of services (Provided from Outside India and Received in India) rules, 2006; in Show Cause Notice. The Said service provider would like to reproduce below the provisions of Section 64 of the Finance Act, 1994.

Section 64: - Extent, commencement and application.—(1) This Chapter extends to the whole of India except the state of Jammu and Kashmir.

(2) It shall come into force on such date as the Central Government may, notification in this Official Gazette, appoint.

(3) It shall apply to taxable services provided on or after the commencement of this chapter.”

23. As per the provision of the above Section, the Service Tax is payable on all the taxable services rendered in India whether to an Indian or Foreign Client. However, services rendered abroad do not attract service tax in India, in the present case also the services rendered by overseas service provider on the land located outside India and therefore though the payment made in Foreign Currency through Banking Channel by Indian Company, no Service Tax is leviable and therefore the provisions of Taxation of Service (Provided from Outside India Received in India) Rules, 2006;

24. That the provision of the Section 66A of the Finance Act, 1994 has been discussed and accordingly the services specified under clause (105) of Section 65 of the Finance Act, 1994 has been divided in to two parts:-

Service provided or to be provided by a person who has established a Business or has a fixed establishment from which the services provided or to be provided or has permanent address or usual place of residence, in a Country other than India, and,

Service received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purpose of this Section, be taxable service, and such taxable service shall be treated as if the recipient has himself provided the service in India, and accordingly all the provision of this Chapter shall apply.

25. That the Said service provider, after going the above provisions, is of the view that these provisions are not squarely applicable on the ground that the services are received not in India but it received at a place located in the Country other than India and therefore no service tax is leviable under the provisions of the Finance Act, 1994.

26. That they have not contravened any provisions of the Finance Act, 1994 and being a Manufacturer of Excisable Goods having Central Excise Registration No. AACCB 6654 J XM 001 under rule 9 of Central Excise Rules, 2002; as well as being a recipient of service of GTA, Banking and Financial Services, Business Auxiliary Services has obtained Service Tax Registration No. AACCB 6654 J ST 001 under Section 69 of the Finance Act, 1994.

(i): - The Demand of Service tax Rs. 70,512/- on amount of Rs. 6,41,000/- received as commission income pertains to financial year 2007-08 is appeared to be time barred.

(ii): - The demand of Service Tax Rs. 85,295/- on the amount of Rs. 7,75,374/- for the Financial Year 2008-09 is not sustained on the ground that the Said service provider has participate in Business Exhibition organized at the place located outside India and therefore service tax not payable.

(iii): - The demand of Service Tax Rs. 25,090/- is not sustainable on the ground that the Notice has paid Rs. 2,28,091/- in Foreign Currency through Banking Channel to M/s. Concord Pharma, Dholka towards sales promotions and therefore as the service provider i.e. M/s. Concord pharma, Dholka is in India, the Said service provider is not liable to pay Service Tax under the provisions of Section 66 A of the Finance Act, 1994.

(iv) & (v): - The Said service provider is of the view that the Service of “Advertisement Service” is fall under the category / classification of Section 65 (105) (e) of the Finance Act, 1944 and as this services were received on the Land of Law which situated out of India, which can be seen on CD (Produced before Adjudicating Authority) and therefore no Service Tax is leviable.

27. Moreover, as regards taxability on this service under the provisions of the Taxation of Service (Provided from outside India and received in India) Rules, 2006; in the present case the rule 3 (iii) quoted in this question is unwarranted on the ground that the provisions itself is self explanatory and in the present case as the Service of Advertisement is not received in India and received on the Land of Law situated outside India, these provisions are not squarely applicable and therefore no Service Tax payable by the Said service provider on the service of Advertisement received on the Land of Law situated outside India.

(vi): - In this para, the Department has invoked the extended period of 5 (Five) years under the provisions of Sub Section 1 of section 73 of the Finance Act, 1994 is not sustainable in law on the ground that the Said service provider is not Service Provider but is Manufacturer of Excisable Goods for which under Rule 9 of the Central Excise Rules, 2002; has obtained Central Excise Registration No. AACC B6654 JXM 001 as well as under the provisions of the Finance Act, 1944; obtained Service Tax Registration No. AACC B6654 JST 001 under Section 69, of the Finance Act, 1994 as “ RECIPIENT OF SERVICE”. Moreover, being a Private Limited Company Registered under the provisions of the Company’s Act, 1956; it is mandatory on part of the Company to submit the Balance Sheet and Profit and Loss Account of the Company with the Registrar of Company-Gujarat at Ahmedabad. Accordingly, we have submitted the Balance Sheet every year since the beginning of the company and such documents are available with the said Office therefore the extended period of 5 (Five) Years not invokable under Section 73 (1) of the Finance Act, 1994 and demand of service tax for the period prior to 16.03.2012 is hit by law of limitation.

(vii): - The Said service provider is of the view that on the ground discussed in foregoing para the demand of Service tax is not sustainable in law and therefore question of Interest is also quashed.

(viii), (ix), (x) & (xi): - The Said service provider is of the view that on the ground discussed in foregoing para the actions of penalty proposed under Section 76, Section 78, Section 77 and Section 70 of the Finance Act, 1994 is not sustained.

28. In view of above, the said service provider requested the Hon’ble Adjudicating Authority to drop the Show Cause notice in the Interest of Natural Justice and Industries.

29. Further Shri R.R. Dave ( Consultant) and Shri Jignesh Dave ( Excise Manager) appeared for personal hearing fixed on 12.8.2013 and argued the case. Their case was that they are not liable to pay service tax on exhibition organized outside India and advertisement and other expenditure incurred to M/s. Concord is also not liable to tax. They filed written reply which is taken on record.

DISCUSSIONS AND FINDINGS

30. I have carefully gone through the contents of the show cause notices and the defence reply, relevant documents of the case and written submissions of the said assessee submitted during or before the personal hearing.

31. I find that the moot point to be decided in this case is whether the said service provider is liable to pay the service tax under reverse charge mechanism under Section 66A of the Finance Act, 1994 and Rule 2(1)(d)(iv) of Service Tax Rules, 1994, on the following services :

  1. Expenses incurred by the said service provider in foreign currency towards Exhibition charges provided abroad, by foreign based service providers, under ‘Business Exhibition Services” as defined u/s 65(105)(zzo).

  2. Expenses incurred by the said service provider in foreign currency towards Sales Promotion charges under ‘Business Auxiliary Services” defined under section 65(105)(zzb) and

  3. Expenses incurred by the said service provider on Advertisement in foreign currency to foreign parties, under ‘Advertising Agency Services’ defined under Section 65(105)(e).

32. In this context, I find it relevant to reproduce Section 66A of the Finance Act, 1994. This provision of law, which was brought into force w.e.f. 18-4-2006, reads as follows :-

SECTION 66A. Charge of service tax on services received from outside India -



(1)Where any service specified in clause (105) of Section 65 is,-

(a)provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and

(b)received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment permanent address or usual place of residence, in India.

service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the providing of this Chapter shall apply :

Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply :

Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.

(2)Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.

Explanation 1. - A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.

Explanation 2. - Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.

33. I find from the above, that the general scheme of levy of service tax is that service tax is leviable (on the value of taxable services) from the service providers within the territory of India. Section 66A of the Act embodies an exception to this general scheme. It is an independent charging provision which provides for levy of service tax in India on services provided or to be provided by a person located outside India and received by a person located in India. Section 66A lays down that such services (specified in clause (105) of Section 65 of the Act) shall be treated as having been provided in India by the recipient. This deeming provision of Section 66A makes the Indian recipient liable to pay service tax on the services provided by the foreign service provider. This exception to the general scheme of levy of service tax is also called ‘reverse charge mechanism’.



34. Further, the Taxation of Services (Provided from Outside India) Rules, 2006 were made by the Central Government for carrying into effect the provisions of Section 66A of the Act. Rule 3 of these rules, reads as under :-

RULE 3. Taxable services provided from outside India and received in India. —

Subject to Section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services -

i. … … …

ii. … … …

iii. specified in clause (105) of Section 65 of the Act, but excluding -

(a) … … …

(b) … … …

(c) … … …

be such services as are received by a recipient located in India for use in relation to business or commerce.”

                    

35. Before proceeding further, I would like to state below the exact nature of services received by the said service provider, which are also not disputed by them.

36. I find from the records that in the first issue, the overseas firms had provided space, furniture, electricity etc at a place situated outside India, where the products & the literature of the said service provider were displayed to the visitors i.e in short had exhibited the products of the said service provider. The foreign exhibition was undertaken to expand foreign markets & clients of the said service provider, who had made overseas payments from their bank to these foreign parties.

37. In his statement dated 20.12.2011. Shri Yogesh Dave, Manager Excise of the said service provider, on the above issue stated as under :

Further we submit that the exhibition organized on the land outside India where organizer has provided space, furniture, electricity, etc where our products were displayed to the visitors to whom the literature of products as well as our representative were counseling them as the services of exhibition not received on the land within India, S.T. is not leviable.”

38. On the second issue, the said service provider had made payment of Rs. 2,28,091/- to M/s. Concord Pharma, Dholka towards Sales Promotion expenses in foreign currency during the year 2008-2009. I find that Shri Yogesh Dave, Manager Excise of the said service provider, in his statement dated 20.12.2011 has stated on the said transaction as under :

“….. such sales promotion is carried out in the stall hired in the exhibition organized on the land which is situated outside India and therefore service tax is not leviable because services is provided is not received in India.”

39. On the third issue, I find that the said service provider had made payments in respect of advertisement expenses to foreign parties. In his statement dated 20.12.2011, Shri Yogesh Dave, Manager Excise of the said service provider, has stated thus :

In this regards it is to submit that the services are not received in India but at a place which situated outside India as well as the services related to canvassing of the product by display on TV during the period allotted to the services provider by the Broadcasting Agency or Origination of the Respective Country. The various service providers has provided services outside India and therefore I/We are of the view that the Service Tax is not liable in the present case because the two condition that is service provided outside India and received in India but here the case is different and both the condition are not fulfilled as the service provided outside India but is not received in India, Hence no service tax is payable on the amount paid in foreign currency.”

40. Thus, on all the three issues described above, the said service provider has agreed that the services were carried out abroad on their behalf, and that transaction was made in foreign currency. However, I find that the said service provider is of the view that the recipient of service is only liable to pay tax, if the service is provided from the country other than India and such service is received in India by the recipient of service, however in the present case, the second part of the provision that i.e. “service received by any person in India” is absent and therefore, though the payment made in foreign currency through Banking Channel by the recipient of the Service from India, no service tax was leviable/ payable under the provision of Section 66A of the Finance Act, 1994. The said service provider has also observed that the case law site in this para does not squarely applicable on the ground that the period cover in aforesaid case law is prior to 2007-08 and therefore not applicable.

41. In this connection, I find that the said service provider is disputing that the services were not received in India but abroad, therefore the provisions of Section 66A were not applicable. On this issue, I find that as per the provision of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 and as per Section 66A of Finance Act, 2006 taxable service include services received from outside India by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India. The said service provider has registered office at Ahmedabad (India) and payments were made by them towards the exhibition expenses & Advertisement expenses in foreign currency, to the overseas firm outside India . They also made payments to M/s. Concord Pharma towards Sales Promotion expenses in foreign currency . Thus it is clear that the services were received them in India , in the sense that the products of their company were exhibited/advertised/promoted abroad, which helped them to further their business in India, as so provided under Section 66A as well as under Rule 3 of the Taxation of Services (Provided from Outside India) Rules, 2006 . I further find that the said issue is no more res-integra , and has attained finality. The Hon’ble Apex Court in Union of India Vs. Indian National Ship owners Association, as reported in 2010(17)STRJ57(SC), has upheld the order of the Bombay High Court as reported at 2009 (13) S.T.R. 235 (Bom.), wherein the Hon’ble Court discussed the issue in detail and came to a conclusion that the recipient in India is liable to Service tax for service received from abroad only from 18-4-2006 after enactment of Section 66A, as under :

Import of Services - Liability of recipient - Date of effect - Service tax not leviable under Rule 2(1)(d)(iv) of Service Tax Rules, 1994 on petitioners as impugned demand related to service received by vessels and ships outside India - Person providing service alone regarded as an assessee as per Chapter V of Finance Act, 1994 - Rule 2(1)(d)(iv) ibid cannot be framed as not to carry the purpose of the Chapter V ibid - Services provided to petitioners outside India became taxable service as per Explanation to Section 65(105) ibid but charge being on service provider, petitioners not liable - Law laid down in Laghu Udyog Bharati case [2006 (2) S.T.R. 276 (S.C.)] applicable to Rule 2(1)(d)(iv) ibid - Statutory provision absent before enactment of Section 66A of Finance Act, 1994 - Recipient in India liable to Service tax for service received from abroad only from 18-4-2006 after enactment of Section 66A ibid - Sections 65(105), 66, 66A, 68(2) and 73 ibid - Rule 2(1)(d)(iv) ibid. [paras 16, 17, 18, 19, 20, 21]


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