Brief Facts of the case: M/s Motif India Infotech P. ltd., (STP Unif),I-A, Wall Street -2, Nr. Gujarat College, Ellisbridge, Ahmedabad 06 (hereinafter referred to as the said "assessee") are engaged in providing taxable services of "Business Support Service" and are registered with the Service Tax Department having Service Tax Registration Number AACCM 1005 A ST 001, dated 10.07.2006 and are a STP (Software Technology Park of India) unit, They are also registered with Range - V, DivisionV, Central Excise, Ahmedabad -II.
2. During the course of Audit conducted by the CERA Audit party, at the premises of the said assessee, it was noticed that the said assessee had paid Rs.9,64,25,631/- to two foreign service providers as narrated below: -
Business Auxiliary Services - The STP unit entered into an agreement with M/s Motif Inc. (Motif US), a California based unit, for providing support in international marketing function. It was noticed that the STP unit had paid Rs.6,14,99,006/- during the year 2006-07 & 2007-08 to M/s Motif Inc. towards the services provided by them and shown this expenses as Marketing expenses in their P&L Account.
Business Support Service - The STP unit had entered into a service agreement with M/s Pacific Hub Corporation, a Philippine Corporation, for providing infrastructure including equipments, room facility, manpower requirement, payroll and HR outsourcing etc. for a call centre set up by them in Philippine. The STP unit had paid Rs.3,49,26,625/- during the year 2006-07 & 2007-08 towards the services provided by M/s Pacific Hub Corporation.
(iv) procurement of goods or services, which are inputs for the client; or
[Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods orservices intended for use by 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-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, [but does not include any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944.]
(a) ”commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person —
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
7[(b) information technology service “ means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking, or any other service primarily in relation to operation of computer systems.
Further, as per Section 65 (I 05) (zzb), the taxable service means any service provided or to be provided to a client, by any person in relation to business auxiliary service.
4. As per Section 65 (104c) of the Finance Act, 1994, Business Support Service means :-
“support service of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase of orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customers relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customers service and pricing policies, infra structural support services and other transaction, processing.
Explanation - For the purposes of this clause, the" expression "infra structural support services" includes providing office along with office utilities, lounge, reception which competent personnel to handle messages, secretarial services, internet and telecom facilities pantry and security.
Further, as per Section 65 (105) (zzzq), the taxable service means any service provided or to be provided to any person, by any other person, in relation to support services of business or commerce, in any manner.
As per provision of Rule 2(1) (d) (iv) - "person liable for paying the service tax" means -
'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 66 A of the Act, the recipient of such service'.
5. From the above definitions and provisions of the Act and Rules, it was alleged that the payment mode by the said assessee to their foreign suppliers was covered under the provision of Rule 2(1) (d) (iv) of Service Tax Rules, 1994 as amended and they were liable to pay Service Tax being recipient of taxable services of Business Auxiliary Service and Business Support Service as mentioned herein above. As the said assessee had paid Rs.9,64,25,631/- to their foreign supplier, but they had not discharged the service tax liability on the said gross amount paid by them, it had resulted in short / non-payment of Service Tax amounting to Rs.1,18,34,666/- (inclusive of Education Cess) as mentioned in 'Annexure-A' to the show cause notice.
6. It was alleged that the said assessee had violated the provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of Service Tax Rule 1994, Section 69 of Finance Act, 1994 read with Rule 4, Section 70 of Finance Act, 1994.
7. It was also alleged that the said assessee had not disclosed the payment made by them to their foreign supplier for receiving the taxable services to the department which amounted to deliberate withholding of essential and material information from the department about service provided and value realized by them. It was alleged that all these material information had been concealed from the department deliberately, consciously and purposefully to evade payment of service tax. Therefore, it appeared that in this case all the essential ingredients existed to invoke the extended period in terms of Section 73 (1) of Finance Act 1994 to demand the Service tax short paid along with interest under Section 75 ibid .
8. It was alleged that the assessee had not declared the value paid by them to their foreign supplier for receiving taxable services which was alleged in their Profit & Loss Account of respective year and also not discharged their service tax liability on the said amount for the financial year 2006-07 & 2007-08 and thereby, they had contravened the provisions of section 67 of the Finance Act 1994 in as much as they failed to determine the correct value of taxable service provided by them, Section 68 of the Finance Act 1994 read with rule 6 of The Service Tax Rules 1994, in as much as they failed to determine and pay the correct amount of service tax.
9. From the evidence, it was alleged that the said assessee had not taken into account the payment mode by them to their foreign supplier for receiving taxable services of Business Auxiliary Services & Business Support Services, for the purpose of payment of service tax and thereby minimize their tax liabilities. The deliberate efforts to not to declare the value of taxable service in ST-3 returns and not paying the correct amount of service tax was in utter disregard to the requirements of law and breach of trust deposed on them. Such outright act in defiance of law, was alleged to have rendered them liable for stringent penal action as per the provisions of Section 78 of Finance Act, 1994 for suppression or concealment value of taxable service with intent to evade payment of service tax. All these acts of contravention of the provisions of Section 67 & 68 of the Finance Act, 1994 appeared to be punishable under the provisions of Section 76 & 78 of the Finance Act, 1994 as amended from time to time.
10. Accordingly, the said M/s Motif India Infotech P ltd, (STP Unit), 1-A, Wall Street-2, Nr. Gujarat College, Ellisbridge, Ahmedabad were called upon to Show Cause to the Commissioner of Service Tax, Ahmedabad 380 015, vide F.No. STC/585/Demand/Motiff/Div.III/08-09 dated 9.6.2009 as to why:-
The total amount of Rs. 9,64,25,631/· paid by them to their foreign supplier, for the F .Y. 2006-07 and 2007-08, should not be considered as value of taxable service and Service Tax amounting to Rs.1,18,34,666/- (One Crore eighteen lakhs thirty four thousand six hundred and sixty six only, including Education Cess and Secondary & Higher Education Cess) not paid by them should not be demanded and recovered from them under Section 73 (1) of the Finance Act, 1994.
Interest at applicable rate should not be charged and recovered from them under Section 75 of the Finance Act, 1994.
Penalty should not be imposed upon them under Section 76 of the Finance Act 1994, for the failure to make the payment of Service Tax in prescribed time limit.
Penalty should not be imposed upon them under Section 77 of the Finance Act 1994, for the failure to comply the provisions of the Act & Rules properly.
Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the department with intent to evade payment
of Service Tax.
11. The said assessee filed a written submission dated 13.8.2009. In their reply the said assessee stated that their's is a STP Unit and interalia engaged in the business of processing, contracting, developing and exporting of support services. The services ore covered under the definition of 'Business Support Service' which was accordingly discharged by them.
12. The said assessee stated in their defence reply that they provided the services to overseas clients which qualified under the Export of Service Rules, 2005 and therefore they had exported their services without payment of service tax in terms of Rule 4 of the Export of Services Rules, 2005. Being the exporter of the services, they were claiming refund of service tax paid on the input services in terms of Rule 5 of the Cenvat Credit Rules, 2004. They regularly claimed refund of service tax paid on the input services in terms of Ihe Cenvat Credit Rules, 2004. The said assessee submitted illustrative copies of the refund claims filed and sanctioned by the Service Tax Department.
12.1. They submitted that for providing the services to overseas customers, the said “assessee” had entered into an agreement on November 1, 2006 with M/s Motif Inc. a company based in USA (hereinafter referred to as Motif USA). Under the agreement, Motif USA had provided the marketing and other liaison services. For receiving the services from Motif USA, the said "assessee" had paid an amount of Rs.6,14,99,006/- during the Financial Years 2006-2007 & 2007-2008. The said assessee submitted a copy of the agreement entered into with Motif USA alongwith illustrative copies of the invoices raised by Motif USA for reference.
12.2. They submitted that they had also entered into a Service Agreement on August 19, 2006 with M/s Pacific Hub Corporation, a company incorporated in Philippine (hereinafter referred to as PHC). Under the agreement, the said "assessee" received the call centre services from PHC in respect of its overseas client. For receiving the services from PHC, the said "assessee" had paid an amount of Rs.3,49,26,625/- during the Financial Years 2006-2007 & 2007-2008. A copy of the agreement entered into with PHC was submitted alongwith illustrative copies of the invoices raised by PHC for reference.
12.3. The said assessee further stated that they had not paid the service tax on the above said services provided by Motif USA and PHC on the ground that the services rendered outside India are not liable to service tax as the coverage of the Service Tax Provisions was confined to the services rendered in India except the state of Jammu & Kashmir.
12.4. The said "assessee" denied all the allegations contained in the SCN as incorrect and unsustainable on the following grounds:
1.The said assessee submitted that the SCN was vague as it did not explain the nature of the services received by them. While issuing the SCN, the Department had simply assumed that the services received by the said "assessee" from Motif'USA were liable to service tax under 'Business Auxiliary Service' and the services received from PHC were liable to service tax under 'Business Support Service'. The SCN, however, had not given any reason as to how that the services received by the said "assessee" were liable to service tax under the said taxable services. In absence of any specific allegation, the said "assessee" submitted that it had not received any taxable service from the overseas service provider, hence the question of payment of service tax did not arise. Merely the payment had been made in foreign currency did not make them liable to pay service tax.
2. They submitted that in order to levy the service tax on a particular service, it had to be first established that the said service falls under the ambit of the taxable service and it also had to be established that who was liable to pay service tax. In the present case, however, the SCN failed to explain in all the cases that as to why the services so received by them would be liable to service tax.
3. They cited the case of Govind Saran Ganga Saran Vs. Commissioner of Sales Tax 1985 (Supp) SCC 205, the Supreme Court had laid down the ingredients of a taxing statute as follows:
The first was the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second was a clear indication of the person on whom the levy was imposed and who was obliged to pay the tax, the third was the rate at which the tax was imposed and the fourth was the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it was difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity. "
12.5. The said assessee stated that even if it was assumed that the services received by them were liable to service tax under the proposed categories, still they are not liable to pay service tax as the provisions contained in Section 64 of the Finance Act, 1994 extend to the whole of India and not beyond India. It was clear that service tax was leviable only on specified services as defined in the Finance Act, 1994 and that the Act extends to whole of India, excluding the State of Jammu and Kashmir. The above section does not make any specific mention about the Finance Act having extra territorial applications.
12.6. They further submitted that service tax was leviable' only when the activity of rendering of the prescribed service takes place in the taxable territories of India. In this regard they referred to the decision of the Constitution Bench of the Hon'ble Supreme Court in Bengal Immunity Co. ltd. V/s State of Bihar, (1955) 2 SCR 603, which stated that the laws of a nation apply to all its subjects and to all things and acts within its territories.
12.7. Section 64 uses the phrase 'This Chapter extends to the whole of India except the State of Jammu and Kashmir', which was identical to section 1(2} of the MRTP Act. The said "assessee" submitted that the said phrase had been examined by the Hon'blet5upreme Court in Haridas Exports V /S All India Float Glass Manufacturers' Assn., (2002) 6 SCC 600.
12.8 The said assessee referred to Section 66A which was inserted by legislature with effect from 19.4.2006 and stated that it was clear that the effect of introduction of Section 66A was that any services received by a person residing in India will be a taxable service, even if service was rendered by a non-resident in India. They further stated that section 66A nowhere specified that it extends the applicability of service tax beyond India. The effect of this section cannot be extended to bring services rendered outside India in the service tax net. It merely provides that if the services are rendered by a non-resident in India to a resident in India, they shall be deemed to be taxable service in the hands of the lndian recipient of service and the Indian recipient will be the person liable to pay service tax under rule 2(i)(d)(iv) of Service tax Rules, 1994.
12.9. The said assessee further stated that in the absence of the section 66A specifying that it was extending the applicability of service tax beyond India, it had to be read harmoniously with section 64 which inter alia states that services provided in India only was taxable.
12.10 The said assessee further submitted that above submissions, regarding applicability of the Act to cover only those services, which were provided in India, was also evident from various circulars, notifications and trade notices issued by the Department. Such circulars are binding on the Department and the Department cannot take a stand contrary to their own circulars.
12.11 The said assessee placed reliance on the notes on clauses of the Finance Bill, 2006 which provided that the new section 66A was inserted with a view to levy service tax on taxable services provided from outside India and received in India. In addition, the marginal note to section 66A of the Act reads as "Charge of service tax on services received from outside India". It clearly showed that the intention behind section 66A of the Act was to cover only those services, which were provided from outside India and received in India.
12.12 The said assessee further submitted that the CBEC had issued a Circular F.No.Bl/4/2006-TRU dated 19.4.2006 after introduction of section 66A and Import of Service Rules. The above-mentioned Circular clarified that for the purpose of levy of service tax the service provider must be located outside India and the service receiver must be located in India and such services must be received in India.
12.13 In the Budget for 2006-07, Explanation to clause (105) of section 65 providing for charging of service tax on taxable services received from outside India had been omitted and for this purpose, a new section 66A had been incorporated in the Finance Act, 1994. Section 66A was to be read with the Taxation of Services (Provided from outside Indio and Received in India) Rules, .2006. It may be noted that only services received in India are taxable under these provisions.
12.14 All taxable services are chargeable to service tax under this section. The service provider should be outside India and the recipient of service should be in India. However, taxable services received by on individual from outside the country other than for the purpose of use in business or commerce, are not chargeable to service tax. In other words, taxable services received by individuals from outside the country for non-business purposes are not leviable to service tax.
12.15 The assesssee further stated that the issue whether a particular service was received in India or not was to be decided on the merits of each case and relied on the judgment given by the Hon'ble Delhi High Courl in M/s Orient Crafts Ltd Vs Union of India & Anr reported at 2006 (4) STR 81 (Del. HC) wherein the Hon'ble High Court had, inter alia, upheld the validity of section 66A and Import of Service Rules.
12.16 The said "assessee" further relied on the following decisions of the Apex Court that the Board Circulars are binding on the Revenue authorities and that it was a settled position in law:
(a) Paper Products ltd vs. CCE - 1999 (112) ELT 765 (SC)
(b) CCE Vododara vs. Dhiren Chemical Industries 2002 (139) ELT 3
12.17 The said assessee further relied on Circular No.36/4/2001-CX dated 08.10.2001 wherein it had been reiterated that the services provided beyond the territorial waters of India are not liable to service tax. Similar views are also expressed in the Paragraph C (iii) of the Trade Notice issued by Indore Commissionerate dated 14.10.1998 wherein it had been clarified as under:
''An issue had been raised whether service tax was payable in respect of services rendered to foreign clients in India, and in respect of such services rendered abroad. It was clarified that service tax was payable on all taxable service rendered in India, whether to an Indian or foreign client. However, services rendered abroad shall not attract service tax levy as service tax extends only to services provided within India.
12.18 The said assessee submitted that even after the introduction of Rule 2(i) (d) (iv) of Service Tax Rules, 1994, the Department in the circular/clarification in October, 2003 and reported in (2003) 158 ELT T23-T37 clarified as follows:
(Q 3.8) Would the service provided abroad liable for payment of Service Tax?
Ans. No, the services rendered abroad shall not attract service tax as the levy covers only the services provided within India.
12.19. The said assessee accordingly stated that when the service provider was located outside India, service receiver was located in India, and the services are used in India, the question arises as to whether the services were rendered in India. They sought reliance on the following case laws in their support:
CIT V /s Toshuku ltd 1980 (Supp)SCC 614(SC)
Carborandum Co. v (IT (1977) 108 ITR 335 (SC)
12.20. In view of the above, they submitted that the services rendered outside India were liable to service tax. In the present case, it was clear from the perusal of the agreements entered into with the overseas service providers that entire activities were undertaken outside India. Further, it was not the case of the revenue also that the overseas service providers did come in India to provide the services to them. In view of the said position, they submitted that they were not liable to pay service tax.
12.21. The assessee further submitted that Section 66A was inserted w.e.f. 18.4.2006 which provided for a situation where the service provider was situated outside India and the service recipient was located in India then by way of deeming fiction such service shall be deemed to be a taxable service for the purpose of this section and all the provisions of the chapter shall apply.
12.22. The assessee further submitted that a close reading of Section 66A would make it clear that there was no specific charge or levy of service tax which was created by Section 66A unlike Section 66 wherein there was a specific charge which was created on services referred in sub-clauses of Section 65(105).
12.23. The assessee also submitted that the Section 66A was an independent provision which was to be read as it is. Section nowhere says that services provided outside India shall be taxable. It was further submitted that Section 66A provided for two deeming fictions.
First deeming fiction says, "Such service shall, for the purposes of this section, be taxable service". This simply means that services provided by a person who had established a business or had a fixed establishment from which the service was provided or to be provided or had his permanent address or usual place of residence, in a country other than India shall be taxable if it was received by a person who had his place of business, fixed establishment, permanent address or usual place of residence, in India.
The second deeming fiction says, "such taxable service shall be treated as if the recipient had himself provided the service in India". This means that liability to pay service tax on activities which were made taxable by virtue of first deeming fiction shall be on the recipient of service. Therefore, the emphasis in section 66A was on the person liable to pay service tax and not on services provided outside India. In this regard, Noticee further submits that the intention behind introducing section 66A was to give legislative backing to rule 2 (1 )(d)(iv) of service tax rules, 1994 which contemplates a situation wherein service provider was situated outside India and service receiver was situated in India. The rule said that in such a situation service receiver shall be the person liable to pay service tax. It was further submitted that there was no rate specified in section 66A for the levy of service tax on such services covered under the provision of Section 66A. This leads them to the conclusion that section 66A was either not a charging section or was a half-baked or defective charging section.
12.24. Even if it is assumed that section 66A was a charging section then in order to levy a particular service it had to be read with section 66 which provides for the rate at which service tax shall be charged. Now, section 66 was subject to section 64, which restricts the applicability of service tax to whole of Indio except state of Jammu and Kashmir. Therefore, even if it is assumed that section 66A was a charging section, its applicability shall be restricted only to the territory of India.
12.25. The assessee stated that the intention behind introducing section 66A was to give legislative backing to rule 2 (1)(d)(iv) of service tax rules, 1994 which contemplates a situation wherein service provider was situated outside India and service receiver was situated in India. The rule says that in such a situation service receiver shall be the person liable to pay service tax.
12.26. Therefore, it was submitted that the Section 66A does not create any levy on services which are rendered outside India. Thus, no demand of service tax can be proposed in view of Section 66A of the Act. Hence the SCN deserves to be withdrawn on this ground itself.
12.27 Gross amount paid by the said "assessee" as a recipient of services under reverse charge mechanism was to be considered as cum-tax. They submitted that even if they were liable to pay any service tax under reverse charge mechanism, the service tax calculation was incorrect. They submitted that the gross amount paid the foreign commission agent for the services received from them had to be treated as inclusive of the amount of service tax payable. In the case of excise duty also, it had been held that the amount received should be token as cum-duty price and the value should be derived there from, by excluding the duty alleged to be payable as required under section 4(4)(d)(ii) of the Central Excise Act. In support of this the said "assessee" relied on the larger Bench decision in the case of Sri Chakra Tyres reported in 1999 (108) ELT 361. The said decision of the larger Bench had been affirmed by the Hon'ble Supreme Court as the departmental appeal had been dismissed vide Order doted 26th Feb. 2002 reported in 2002 (142) EL T A279 (sc). We also rely on the Apex Court judgement in the case of CCE vs Maruti Udyog limited reported in 2002 (49) RLT 1 (SC), wherein it had been held that the deduction under section 4(4)(d)(ii) was allowable, even in situations where no duty was paid at the time of removal. Thus, for service fox calculation, the amount paid by the service receiver should be considered as cum tax payment and service tax should be calculated accordingly.
12.28 Reliance was also placed on the Trade Notice No.20/2002-dated 23.5.2002 of Delhi-II Commissionerate. They submitted that the legislature had further clarified the legal position in respect of the value of the taxable service by incorporating Explanation No.2 in section 67 of the Act by virtue of the Finance Act, 2004. Reliance was placed on the following judgments of the Hon'ble CESTAT:
Rajmahal Hotel v CCE 2006 (4) STR 370 (Tri-Del)
Gem Star Enterprises (P) ltd. v. CCE 2007 (7) STR 342 (Tri.-Bang.) Panther Detective Services v. CCE 2006 (4) STR 116 (Tri.-Del.)
12.29 The department had treated the gross amount paid by the said “assessee” itself as the value of taxable service, without making any adjustments for service tax included in it. Based on the reasons given above, it was submitted that the manner of computation of tax adopted by the department was incorrect.
12.30. The said "assessee" further submitted that since the entire transaction was revenue neutral, the demand was liable to be set aside for this reason also. Assuming but not accepting that any service tax was payable by them, the services so received by them from the overseas service providers would qualify under the definition of input service as the said service was used for providing the output service which are undisputed export of service. Hence if any service tax would have been paid by the said "assessee" on the said service, the same would be availed the Cenvat credit of the said payment of service tax. Hence, by not paying service tax on the services received from the overseas service providers, there was no loss to the Exchequer. In support of the above contention that no demand can be raised when the entire dispute was revenue neutral, reliance was placed on the following judgments of the Hon'ble Supreme Court wherein it had been consistently held that once the entire exercise was revenue neutral, there was no question of sustaining the duty demand:-
Amco Batteries Itd. Vs CCE 2003(153)ELT 7 (SC)
International Auto lid. Vs CCE 2005(183)ELT 239 (SC)
CCE Vs Narayan Polyplast Ltd 2005(179) elt 20 (SC)
CCE Vs Narmada Chematur Pharma 2005(179)ELT 276 (SC)
CCE Vs Textile Corporation 2008(231)ELT 195 (SC)
CCE Vs Jamshedpur Beverages 2007(214)ELT 321(SC)
CCE Vs Coca Cola India P. Ltd. 2007(213)ELT 490 (SC)
12.31. It was submitted that the present SCN had been· issued based on the Audit Objection. It was submitted that the said "assessee" had .not suppressed any' information from the Deportment with the intention to evade the payment of service tax. In fact, the said "assessee" further stated, was and still is of the bonafide belief that the services rendered outside India are not liable to service tax as the coverage of the Finance Act, 1994 was confined to the services rendered in India. Further the services of the said "assessee" qualified under Export of Service Rules and accordingly the said "assessee" claimed refund of the service tax paid on its input services in terms of Notification No. 4/2006 and 5/2006 Central Excise (NT) dated 14.03.2006. The services received by the said "assessee" from overseas service providers are input services for the Noticee. If the service tax would have been paid by the said "assessee" on the services subjected in the SCN, the said "assessee" would have claimed refund of the same under Notification No. 4/2006 and 5/2006 Central Excise (NT) doted 14.03.2006. Hence, by not paying any service tax on the above said services, neither the Deportment had lost any revenue nor the said "assessee" got benefitted in this regard. Once the entire exercise was revenue neutral, it cannot be said that the said "assessee" has suppressed the information with the intention to evade the payment of service tax. The said "assessee" in this regard placed reliance on the Larger Bench judgment in the case of Jay Yushin Limited vs. CCE 2000 (119) ELT 718 (LB) wherein the Larger Bench of the Hon'ble CESTAT had held that when the issue was revenue neutral, the extended period of limitation cannot be invoked. The assessee submitted that the said judgment of the Larger Bench of the CESTAT was squarely applicable to the facts of the present case in as much as the said "assessee" itself was entitled to avail the Cenvat credit if the service tax had been paid on the services received from the overseas service provider. Hence, in view of the larger bench judgment of the CESTAT, the extended period of limitation cannot be invoked. The CESTAT and the Supreme Court held that the extended period cannot be invoked if the issue was revenue neutral also placed the reliance on the following judgments wherein the consistent view had been taken:
Kitply Industries Limited vs. CCE 2003 (157) ELT 110 [Affirmed by the Supreme Court reported in 2003 (158) ELT All (SC)]
Parkin Textile Pvt.ltd. vs. CCE 2005 (179) ELT 406
IFGL Refectories Ltd. vs. CCE 2006 (206) Ell 728
Super Forging & Steel ltd. vs. CCE 2007 (208) ELT 153 [Affirmed by the Supreme Court reported in 2007 (212) ELT A151(SC)]
Cephem laboratories Ltd. vs. CCE 2007 (214) ELT 286
CCE vs. Arti Industries ltd. 2008 (229) ELT 667
Hindustan Lever Ltd. vs. CCE 2008 (230) ELT 447
CCE vs. Crystal Quinone (P) Ltd. 2009 (233) ELT 499
12.32. The assessee submitted that recovery of interest under the provisions of section 75 of the Act was also not sustainable since the service tax itself was not payable and the said "assessee" had not contravened any of the provisions of the Act.
12.33. They submitted that the impugned order had also imposed penalties under the provisions of sections 76, 77 and 78 of the Act which are not sustainable since the service tax itself was not payable and hence, the said "assessee" has not contravened any of the provisions of the Act.
12.34. It was further submitted that for imposing penalty, there should be an intention to evade payment of service tax, or there should be suppression or concealment of the value of taxable service. Whereas they were of the bona-fide belief that no service tax was payable on the service charges paid to the overseas service providers during the period in question and hence there was no intention on its part to evade payment of tax.
12.35. The assessee submitted that Section 80 provides that no penalty shall be imposable on the assessee for any failure if the assessee proves that there was reasonable cause of the said failure. In the present case they had explained in the preceding paragraphs that they were of the bono-fide belief that no service tax was payable on the service charges paid to the overseas service providers during the period in question. Thus, penalty should not be imposed on them in view of the circular dated 06.11.2006 and in terms of provisions of Section 80 of the Finance Act, 1994 and also on the strength of the following decisions:
(I) Hindustan Steel ltd. v The State of Orissa reported at AIR 1970 (SC) 253
(ii) Tamil Nadu Housing Boord Vs (ollector Of (entral Excise, Madras reported at 1994 (74) E.L.T. 9 (SC);
(Iii) Akbar Badruddin Jiwani Vs Collector Of Customs reported at 1990 (47) E.L.T. 161 (S.L)
12.36. The assessee further added that the Finance Act, 1994, itself provided under section 80 that no penalty shall be imposed on the assessee for any failure if the assessee proves that there was reasonable cause for the said failure. The Act statutorily provides for waiver of penalty. The said "assessee" relied on the following cases:
ETA Engineering Ltd. vs. (CE, Chennai, 2004 (174) E.L.T 19
Flyingman Air Courier Pvt.ltd. vs. CCE 2004 (170) ELT 417
(iii) Star Neon Sign vs. CCE, Chandigarh, 2002 (141) EL T 770
(Tri. - Del)
12.37. In view of the above submissions, the assessee requested to drop the proceedings initiated vide the above SCN be dropped.
12.38 A personal hearing was conducted on 13.11.2009 which was attended by Shri Sandeep Sachdeva, C.A. During the course of hearing the submissions already made were re-iterated.
12.39 The said show cause notice was adjudicated by the Commissioner, of Service Tax, Ahmedabad vide OIO No.STC/22/COMMR/AHD/2009 dated 29.12.09 and confirmed the demand and ordered recovery of service tax amounting to Rs.1,18,34,666/- (One Crore eighteen lakhs thirty four thousand six hundred and sixty six only, including Education cess and Secondary & Higher Education cess) under Section 73 (1) of the Finance Act, 1994 along with interest under Section 75 ibid. Penalty under Section 76, 77 and 78 of the Finance Act, 1994 was also imposed on the said assessee in the said order.
13. Against the said OIO, the said assessee filed an appeal with the Hon’ble CESTAT and had contended that they are a STPI (Software Technology Park of India) registered unit and since they are not able to utilize the Cenvat Credit being exporter of services, the same is refunded to them in terms of Rule 5 of the Cenvat Credit Rules. Therefore, the service tax confirmed against them vide the said OIO was also available to them as Cenvat Credit and they were in a position to claim the refund of the same and as such the entire situation was revenue neutral. They had further contended that they had raised this plea before the Commissioner at the time of adjudication who chose not to give any findings on the same. Hon’ble CESTAT vide Order No. A/332/WZB/AHD/2011 & S/86/WZB/AHD/2011 dated 21.2.2011 remanded the case to the Commissioner of Service Tax, Ahmedabad for consideration of the above plea raised by the said assessee. A letter F.No. STC/4-29/O&A-Denovo/11-12 dated 4.7.2011 was written to the Assistant Commissioner(RRA), Service Tax, Ahmedabad to know whether, the said order of the Hon’ble CESTAT has been accepted by the department or other wise. The Assistant Commissioner(RRA), Service Tax, Ahmedabad vide letter F.No.STC/RRA/Misc/11-12 dated 6.7.2011 informed that the said order has been accepted by the department on 4.5.2011.
Defence Reply & Personal Hearing: 14. A personal hearing was held on 9.8.2009 which was attended by Shri Jigar Shah, Advocate, on behalf of the said assessee. He submitted that the earlier adjudication authority has not given any findings on revenue neutrality and hence the case is remanded. On this issue and the issue of penalty and limitation, he relied on the following judgments:
2009(13) S.T.R. 579(Tri.-Ahmd)
He further submitted that their entire services are exported and they are getting regular refunds from the department.
Discussion & Findings: 15. I have carefully gone through the facts on record, OIO No. STC/22/Commissioner/AHD/2009 dated 29.12.2009, Order No. A/332/WZB/AHD/2011 & S/86/WZB/AHD/2011 dated 21.2.2011 of the Hon’ble CESTAT and the submissions made by the said assessee during the course of personal hearing. I find that the above OIO has been set aside and the matter has been remanded for taking a decision on the issue of revenue neutrality raised by the said assessee on which no findings were given by the original adjudicating authority. However, since the said OIO has been set aside and the appeal has been disposed off, I proceed to re-adjudicate the case in terms of the directions given by the CESTAT.
16. I first take up the issue of revenue neutrality. I find that the plea of revenue neutrality was certainly raised by the said assessee at the time of original adjudication. I also agree with the contention of the said assessee that the original adjudicating authority has not given any findings on the said plea. Hence, I take up the case to give findings on the said plea.
17. I find that facts of the case are that the said assessee is a STPI (Software Technology Park of India) registered unit, exporting the services without payment of service tax under the Export of Service Rules, 2005. There is no dispute to the fact that the said assessee, under Rule 5 of the Cenvat Credit Rules, 2004 is eligible to claim refund of service tax paid by them on input services. I further find that the procedure for claiming refund of Cenvat credit in respect of input services used in providing output service which has been exported without payment of service tax is prescribed by the Government under Notification No.5/2006-C.E. (N.T) dated 14.3.2006. As per the procedure laid down in the said Notification, an application for refund is required to be made in a prescribed Form along with the prescribed enclosures. Relevant extracts of the records maintained by the claimant under the Central Excise Rules, 2002, Cenvat Credit Rules, 2004 or the Service Tax Rules, 1994, in original are also required to be filed with the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise as the case may be, before the expiry of the period specified in section 11B of the Central Excise Act, 1944 along with their application. I find that under the said Notification, the proper authority to sanction refund is the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise as the case may be. I find that the plea of revenue neutrality raised by the said assessee is misplaced as the refund in such cases is neither suo-moto nor automatic as mistakenly believed by the said assessee but has to pass through a procedure as prescribed in Notification No.5/2006-C.E. (N.T) dated 14.3.2006. Refund is sanctioned if the criteria prescribed in the said Notification is satisfied and is rejected if it doesn’t satisfy the prescribed criteria. Thus, sanction or rejection of refund under the said Notification is a matter of fact which has to be verified on case to case basis and cannot be thought as sanctioned merely because it is allowed to be claimed under a Notification or refunds have been sanctioned to the said assessee on regular basis in the past.
18. I have already discussed that the proper officer to decide on the claim of refund is the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise as the case may be and therefore, refund application has to be made to him who shall then examine the admissibility including the issue of time limit for filing the refund as prescribed. However, in order to claim refund one has to first pay service tax and avail Cenvat credit which has not been done in the present case. I observe that in the impugned show cause notice it is the question of non payment of service tax as per the provisions of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 read with Section 66A of the Finance Act,1994. The said service tax was required to be paid by them in the manner prescribed in the Finance Act, 1994 and Rules made there under followed by the act of claiming refund under Rule 5 of the Cenvat Credit Rules, 2004. The said assessee is trying to get waiver of the prerequisite of payment of service tax for claiming refund which can not be done. I observe that if the said plea of revenue neutrality is accepted then it will lead to a situation which will make Rule 5 of the Cenvat Credit Rules, 2004 redundant and nobody will discharge the service tax liability under Rule 2(1)(d)(iv) of Service Tax Rules, 1994 and the Finance Act, 1994 which is not the intention of the legislature. The legislature in order to alleviate the problems of exporters has therefore enacted Rule 5 of the Cenvat Credit Rules, 2004 for refund of unutilized input service credit. It cannot and should not be taken as a ground for claiming exemption from payment of service tax as per under Rule 2(1)(d)(iv) of Service Tax Rules, 1994 or the Finance Act, 1994. In view of the above discussion, I do not find any merit in the plea of revenue neutrality raised by the said assessee.
19. The said assessee has relied on the following judgment in support of their plea of revenue neutrality: