BRIEF FACTS OF THE CASE :- M/s Aditya Corpex Pvt. Limited, 103, Shaily House Harihar Park Soc. Nr. Income Tax, Underbridge Navrangpura, Ahmedabad (hereinafter referred as M/s ACPL for the sake of brevity) is a private limited company and is engaged in the business of export and import of various goods. They are not registered for the purpose of service Tax at any place in India.
2. An intelligence was gathered by the Directorate General of Central Excise Intelligence (here-in-after referred as DGCEI for the sake of brevity) Ahmedabad Zonal Unit (AZU) that M/s ACPL had not paid appropriate service tax on the taxable services received by them from the service providers who were not having office in India. Accordingly, investigations were initiated under summons proceedings under the provisions of Section 14 of the Central Excise Act, 1944 as made applicable to service tax matters.
3.1 M/s ACPL were called upon to provide the details of service tax paid by them, alongwith information related to expenditure on the commission and brokerage. M/s ACPL vide their letter dated 09.02.2009 submitted the following information:-
(i) They do not have any service tax Registration and hence month
wise details of taxable service and tax paid were not applicable.
(ii) Copies of the Balance sheet and profit and Loss Account with schedules for 2004-05, 2005-06, 2006-07 and 2007-08.
(iii) Copies of the ledgers showing the details of foreign exchange and commission paid for the above period.
(iv) Copies of the agreement for brokerage and commission with the agents.
(v) Details of expenditure made in foreign currency during the year 2004-05, 2005-06, 2006-07 and 2007-08.
3.2 The scrutiny of the above information revealed that M/ s ACPL had incurred expenditure of Rs.23,22,20,847/- during the year 2004-05 as payment of brokerage and commission. Out of the said commission, payment of Rs.15,04,24,161/- was made to M/s Al Shahad Gold & Jewellery, Dubai and M/s Gudami International Pte. Ltd., Singapore. The balance commission amount of Rs.7,94,19,292/- was shown to be unpaid by them.
3.3 Statement of Shri Saurin Shah, Director of M/s ACPL was recorded under Section 14 of Central Excise Act' 1944 (as made applicable to Service Tax matters vide Section 83 of Chapter V of the Finance Act, 1994, as amended) on 26.03.2009, in which he, interalia, stated that he was Director of the company which was engaged in the import and export of goods, that his statement would be binding on the company.
3.4 He stated that M/s ACPL was incorporated on 07.10.2004 and the business of the company was import-export and trading of goods. He stated that the company had exported Cut and polished diamonds, gold jewellery, copper wires, textile products, cosmetics and toiletries etc. The company had imported gold bars and cut & polished diamonds.
3.5 He further stated that the company had not obtained service tax registration. He was shown the details of foreign currency expenditure during the year 2004-05 to 2007-08 produced by him vide letter dated 09.02009 and asked to elaborate the purpose for which the expenditure was incurred and how it was handed over to the recipient. After seeing the statement containing details of foreign currency expenditure of M/s ACPL for the year 2004-05 to 2007-08 he stated that in the said statement the amount written against item commission CPD was related to commission payable to M/s Gudami International and M/s Al Shahad Gold and Jewellery towards exports of CUT and Polished diamonds. The commission amount was paid through UCO Bank Ahmedabad. They had not used any other Bank for remittance of the commission amount. He further stated that both these parties had provided services as per the agreement dated 26.11.2004 and 24.11.2004 respectively. Both these parties were acting as their agent for exploring new markets for precious stones exported by M/s ACPL. The scope of services to be provided by them was as under:-
Agent through its offices/ branches located in different parts of the world shall explore new markets for precious stones and diamonds to be supplied by M/s ACPL as well as make different efforts to enhance market share for the said products in world market outside India.
Agents shall participate in tradeshow, conferences, seminars and other events on behalf of ACPL outside India.
Agent will provide specific information regarding client expectations to ACPL. Agent shall also identify product market segment, quality requirements of major customers, best practices followed by other manufactures of similar precious stones and diamonds in the world, marketing strategy adopted by other suppliers of similar products, collecting market related data, information on key buying factors and to carry out market research/ survey from time to time.
Agent shall procure order for precious stones and diamonds to be supplied by ACPL from different parts of the world. It was agreed by both the parties that Agent shall be entitled to book orders directly from any part of the world.
Agent shall collect the orders executed by ACPL and carry out follow up activities with buyers with respect to payments. It was clearly understood that Agent shall be solely responsible for collection of payments for the said orders after ACPL had executed the order mailed by Agent in connection with sales outside India.
The director of M/s ACPL was explained that the services received from the service provider viz. M/s Al Shahad Gold and Jewellery, Dubai, M/s Gudami International were in the nature of business auxiliary services and since the service providers did not have office in India as per Rule 2(1)(d) (iv) of the Service Tax Rules, 1994, the person receiving taxable service in India was liable to pay the service tax. He was also explained that M/s ACPL was liable to pay service tax on such services received by them. On being explained the provisions of service tax, he stated that as per legal advice received by them such services were liable to service tax from 16th June, 2005, and in their case the transactions were of the period previous to 16th June, 2005. He stated that as per their belief M/s ACPL was not liable to pay service tax on the commission payable by them for the period prior to 16th June, 2005.
3.6 The Director of M/s ACPL vide their letter dated 14th April, 2009 informed that the agreement with the agents was signed by them at Ahmedabad in India.
4.1 The provisions related to liability of service tax on services received from the service providers not having office in India came into effect from 16.08.2002. Rule 2(1)(d) of the Service Tax Rules, specifies the various category of persons who are liable to pay service tax. These Rules were amended vide Notification No. 12/2002 dated 01.08.2002 , effective from 16th August, 2002. A new category of person liable to pay service tax was added, the said category of persons is as under:
"(iv) in relation to any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India , the person receiving taxable service in India. ";
4.2 This addition in the rules implied that the recipient of the services in India was liable to pay service tax if the provider of the service is a non- resident or is from outside India, does not have any office in India. The other condition being that the services should be taxable in nature.
4.3 Service tax on “Business Auxiliary Service” was introduced with effect from 1-7-2003 and the definition of the said Service included the services of a commission agent. In view of Notification No. 8/2004-ST dated 9.7.2004, the services of commission agent was taxable w.e.f. 9.7.2004.
4.4 The taxable service under Section 65(105)(zzb) of the Finance Act, 1994 means service provided to a client by a commercial concern in relation to business auxiliary service. The value of taxable service under “Business Auxiliary Service” is the gross amount charged by the service provider of such service provided or to be provided by him.
5. It appeared that M/s ACPL being the recipient of “Business Auxiliary Service” from the service providers not having office in India were the persons liable to pay service tax under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994.
6.1 M/s ACPL’s contention that their services were not taxable prior to 16.6.2005 did not appear correct as they were engaged in the business of export from India , the agent is procuring orders for their products which are implemented, finalized from their office in India and hence is liable to pay service Tax.
7. M/s ACPL vide their letter dated 9.2.2009 provided the information about the details of transactions with the agents. The details of the provision of the commission and actual payment details were summarized as under:
8.1 M/s ACPL had paid commission of US$ 3438659.42 which in Indian Rupees is equal to Rs.15,04,24,156/-. The service tax @ 10.2% on the said commission worked out to Rs. 1,53,43,263/- (Service tax of Rs. 1,50,42,415/- and Edu.Cess of Rs.3,00,848/-).
8.2 M/s ACPL had not paid service tax amounting to Rs. 1,53,43,263/- (Service tax of Rs. 1,50,42,415/- and Edu.Cess of Rs.3,00,848/-) which appeared recoverable from them under section 73 of the Finance Act, 1994.
8.3 M/s ACPL were fully aware that service tax was payable on the services received by them but they did not pay the same. They contravened the provisions of Section 68, 69 and 70 of the Finance Act, 1994.
9.1 It appeared that M/s ACPL had not paid service tax and education cess by way of willful suppression of facts and the contravention of provisions of Finance Act, 1994 relating to levy and collection of service tax and the rules made thereunder with intent to evade payment of service tax. Thus it appeared that service tax was recoverable from them by invoking the extended period of five years as per first proviso to sub-section (1) of section 73 of the Finance Act, 1994.
9.2 They also appeared liable to pay interest at the appropriate rate under Section 75 of the Finance Act, 1994 from the due date on which the Service Tax and Education Cess was liable to be paid till the date of actual payment of the said Service Tax.
9.3 It also appeared that since M/s ACPL did not pay service tax in due time as prescribed under Section 68 of the Finance Act, 1994, they rendered themselves liable to penal action under section 76 of the of the Finance Act, 1994. It also appeared that as service tax was not paid by them by way of suppression of facts with intent to evade payment of service tax they were also liable to penalty under section 78 of the Finance Act, 1994.
10. Therefore, M/s ACPL having their registered office at 103, Shaily House, Harihar Park Soc, Near Income Tax Under Bridge, Navrangpura, Ahmedabad were called upon to show cause vide SCN F.No. DGCEI/AZU/12(4)143/2008-ACPL dated 04.07.2009 to the Commissioner of Service Tax, Ahmedabad as to why:
Service tax amounting to Rs. 1,53,43,263/- (Service tax of Rs. 1,50,42,415/- and Edu.Cess of Rs.3,00,848/-) (Rupees One Crore Fifty Three Lakh, Forty Three Thousand Two Hundred Sixty Three Only) short paid by them should not be demanded and recovered from them under section 73 of the Finance Act, 1994 by invoking the extended period of five years as per proviso to sub section (1) of said section 73;
Interest at the appropriate rate under Section 75 of the Finance Act, 1994 should not be recovered from them from the due date on which the Service Tax and Education Cess was liable to be paid till the date on which the said Service Tax is paid ;
penalty under Section 76 and 78 of the Finance Act 1994, should not be imposed upon them.
DEFENCE REPLY AND PERSONAL HEARING :- 11.1 M/s ACPL vide their letter dated 12.8.2009 filed a written submission to the show cause notice. They submitted that there was no liability of service tax on the service recipient in India in respect of services provided by service provider outside India prior to 18th April 2006 and the issue was no more res integra. The Bombay High Court in the case of Indian National Ship Owners’ Association Vs. Union of India reported in 2009 (13) STR 235 held that before enactment of Section 66A, there was no authority vested by law in the hand of Revenue Authorities to levy service tax from a person who receives services from Outside India. Till Section 66A was enacted, a person liable was one who rendered the service. In another words, it was only after enactment of Section 66A that services received from abroad by the person in India are taxed in the hands of Indian recipients. In such cases, Indian recipient of taxable service is deemed to be service provider. Before enactment of Section 66A, there was no such provision in the Act and therefore, the Revenue Authority has no authority to levy service tax on services received prior to 18-4-2006.
11.2 They referred to Section 64 of the Act which provides that the Act applies to the services rendered in India except in the State of Jammu and Kashmir. They submitted that any attempt to tax and recover Service Tax on services received and consumed outside India for the period in dispute would not satisfy the basic requirement of territorial nexus between the right to tax and the event of taxation, moresoever in the period prior to 18.04.06 when there was no charging section for levying Service Tax on services received from outside India. It is universally recognized that Service Tax is a destination based consumption levy in respect of which the taxing jurisdiction is conferred on the country within whose jurisdiction the consumption of the service occurs. They submitted that this position is recognized and adopted by the CBEC in its Circular No. 56/5/2003 dated 25th April 2003 and by the Legislature in the Export of Services Rules, 2005. The services which are sought to be taxed are rightly taxable by the relevant countries within whose jurisdiction the consumption of the services occurs and not by the Indian Revenue Authorities.
11.3 They relied on the judgment of the Hon’ble Supreme Court in State of Bombay vs. R.M.D. Chamarbagwala [1957 SCR 874] and Haridas Exports vs All India Float Glass Manufacturers' Asso. [2002 (145) ELT 241] in this regard.
11.4 They submitted that under Article 245 of the Constitution of India, while there is a power to make an Indian statute apply to persons, things and acts outside the territory of India, it is well settled that such an extra territorial application must be secured by a specific provision in the statute itself to this effect, and not otherwise. Moreover in the period prior to 18.04.2006 , there also existed no charging section for the levy of Service Tax on services received from outside India. It is well settled that in the absence of any express provision providing for extra territorial application of the provisions of an enactment, no extra territorial jurisdiction can be inferred or presumed. In instances where, the Legislature has intended to make the provisions of an enactment applicable outside the jurisdiction of India, it has specifically conferred such powers by specific language and the specific provisions in the relevant enactment as for e.g. in, ‘The Income tax Act, 1961’, ‘The Indian Penal Code, 1860’, and ‘The Foreign Exchange Management Act, 1999’. It is submitted that any attempt to tax and recover Service Tax on services received and consumed outside India would not satisfy the basic requirement of territorial nexus between the right to tax and the event of taxation. Hence there can be no liability to Service Tax on the service recipient in respect of taxable services received from a foreign service provider before 18.4.2006 as there existed no charging provision, authorizing such levy of Service Tax.
12.1 They submitted that they had availed services from M/s. Al Shahad Gold and Jewellery, Dubai and M/s Gudami International Pte Ltd, Singapore before 16.06.2005 and made payment towards services during the period year of 2005.
12.2 The relevant extract of the rule 2 (1) (d) (iv) was reproduced hereunder as it existed before 16.6.2005:-
“(d) ‘person responsible for paying Service tax’ means, --
(iv) in relation to any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India, the person receiving the taxable service in India.” 12.3 They submitted that from a bare reading of Rule 2 (1) (d) (iv), it was clear that the taxable services provided by a person who is non-resident or is from outside India and who did not have any office, had to be received in India by a service recipient. Further, there was no provision in the Act which could levy tax on services received outside India. They had received the services outside India as the foreign agents had rendered the services of promoting our goods outside India for the prospective buyers located outside India. Therefore, Rule 2 (1) (d) (iv) was not applicable to them and no Service tax was payable for the period prior to 16.6.2005.
12.4 They relied on the judgment of the Hon’ble Delhi High Court in the case of Orient Crafts Ltd. vs. UOI reported in 2006(4) STR (81) Del and submitted that the allegations made in the captioned Show Cause Notice were without any legal basis and that for the period in dispute i.e. prior to 18.04.06; the location of the service recipient had no co-relation to the actual place of receipt of services from foreign commission agents for the purposes of Rule 2(1)(d)(iv) of the Rules. It is an undisputed fact that the place of physical receipt of services from foreign commission agents is outside India. They also placed reliance on the decision of the Hon’ble Bangalore Tribunal in Rubco Huat Woods Pvt. Limited vs. Commr. Of C.Ex Calicut reported in 2006 (4) S.T.R. 603, Welspun Gujarat Stahl Rohren Limited vs. CCE, Vadodara reported in 2007 (5) S.T.R. 38 (Tri. - Mumbai) and In Re: Thyssen Krupp Jbm Private Limited reported in 2005 (180) E.L.T. 285 (Commr. Appl.).
12.5 They further submitted that it has also been clarified by the Central Board of Excise and Customs vide it’s Circular No. 565/2003 dt. 25.04.2003 that Service Tax is a destination based consumption tax. Thus no Service Tax can be levied on services received outside India for the period in question.
13. Without Prejudice to the aforesaid, it was submitted that the captioned Notice raising a demand for Service Tax not paid for the period from December 2004 to February 2005 invoking the extended period of limitation under the proviso to Section 73(1) of the Act issued by the Department is time barred by limitation as there was no suppression of facts, willful mis-statement, collusion with an intent to evade the payment of tax. The statement of Shri Saurin Shah, Director was ex-culpatory. He had not admitted that service tax was not paid with intention to evade the payment of tax. There was a dispute in relation of interpretation of provision and therefore they had not paid amount of service tax on services received from Foreign Broker/Commission Agent. They submitted that whether they were liable for payment of service tax for transactions in dispute, undertaken by them before the period of 18-4-2006 was covered by decision of M/s. Indian National Ship Owners’ Association and therefore larger period for issuance of show cause notice was not invokable. They relied upon the decision of the Bangalore Tribunal in Mahakoshal Beverages Pvt. Ltd. vs. Commissioner of Central Excise, Belgaum reported in 2007 (6) STR 148, Pahwa Chemicals Private Limited vs. Commissioner of C. Ex., Delhi reported in 2005 (189) E.L.T. 257 (S.C.),Suthom Nylocots vs. Commr. Of Central Excise, Coimbatore reported in 2003 (161) ELT 287 and Mysore Paper Mills vs. Commissioner of Central Excise, Belgaum reported in 1997 (92) ELT 94. 14. Without Prejudice to the above, it was further submitted that they were always under a genuine bona fide belief that their activities were not liable to Service Tax. There was no deliberate intention not to disclose correct information or to evade payment of Service Tax and hence there arises no question of willful-misstatement as alleged by the Department vide the captioned Show Cause Notice.
15.1 It was submitted that as none of the conditions necessary for invoking the extended period of limitation were satisfied in the present case, the extended period of limitation should not have been invoked.
15.2 They further submitted that as demand of service tax was not sustainable, the demand for penalty and interest also would not sustain. They relied on the judgment of the Hon'ble Supreme Court in CCE vs. HMM Ltd. reported in [1995 (76) ELT 497 (SC)]. 15.3 They further submitted that there was no intention to evade payment of Service Tax and hence no penalty was imposable. They relied on the decision of the Hon’ble Supreme Court in the case of Tamil Nadu Housing Board vs. CCE reported in [1994 (74) ELT 9 (SC)]. 15.4 It was also submitted that in a case where there was no mala fide intent to evade the payment of duty, no penalty should be levied in terms of Section 76 of the Act. Reliance in this regard was made to the decision in the case of Catalyst Capital Services vs. CCE, Mumbai reported in 2005 (184) ELT 34 and Market Force Chennai Pvt. Ltd. vs. CST, Chennai reported in 2007 (8) STR 175(Tri-Chennai).
16. They also requested to invoke Section 80 of the Act for non imposition of penalty under Sections 76, 77 and 78 of the Act as there was a bonafide doubt as to whether they were liable to pay Service Tax under the reverse charge mechanism and therefore there was a reasonable cause not to deposit Service Tax. Reliance in this regard was placed on the case of ETA Engineering Ltd. vs. Commr. Of C.Ex reported in 2006 (3) S.T.R 429.
17. They further submitted that the issue was an interpretational one and therefore no penalty was imposable. They relied on the decision of the Hon’ble Tribunal in Fibre Foils Ltd. vs. Commissioner of Central Excise, Mumbai – IV reported in 2005 (190) E.L.T. 352 (Tri.- Mumbai). 18. They requested for a personal hearing in the matter.
19. A personal hearing was held on 25.11.2009 which was attended by Shri Naresh Thacker, Advocate and Shri Hardik Modh, Advocate. They reiterated the written submission made by them and relied on the INSA Bombay High Court decision. M/s ACPL vide their letter dated 24.3.2010 submitted that the Hon’ble Supreme Court had dismissed the SLP filed by the Revenue in case of Indian National Shipowners Association and requested that a fresh personal hearing may be given to make their submission. A personal Hearing was held on 1.2.2012 which was attended by Shri. Hardik Modh, Advocate and Ms. Richa Gandhi C.A. They submitted that in view of the judgment in the case of Indian National Shipowners Association as well as Board’s clarification dated 26.9.2011, the demand is liable to be dropped. They also submitted copies of the above citations.
DISCUSSION AND FINDINGS :-
20. I have carefully gone through the subject Show Cause Notice, the case records available with the office, the defence reply filed by M/s ACPL and the submissions made by them during the course of personal hearing.
21. I find that the issue to be decided in this case is whether M/s ACPL are liable to pay service tax under Rule 2(1)(d)(iv) of Service Tax Rules, 1994 on the amount paid by them during the period from 31.3.2005 to 26.10.2005 to the service providers not having office in India for “Business Auxiliary Services” received from such service providers.
22. I find that vide instruction F.No. 275/7/2010-CX8A, dated 30.6.2010 the Board (CBEC) had clarified that service tax on a taxable service received in India, when provided by a non-resident/person located outside India, would be applicable on reverse charge basis w.e.f 1.1.2005 and the ratio of judgment in M/s Indian National Shipowners Association case would not apply to such cases. However, it has now been clarified by the Board vide instruction F.No. 276/8/2009-CX8A dated 26.9.2011 that the appeals filed by the department before the Hon’ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently subsequent to the issuance of above said instruction dated 30.6.2010. In view of the same the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e. the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position and rescinded the above referred instruction dated 30.6.2010.
23. I find that it has been alleged in the show cause notice that M/s ACPL had availed the said services during the year 2004-05 and had paid commission of US$ 34,38,659.42 equivalent to Rs. 15,04,24,156/- during the period from 31.3.2005 to 26.10.2005 to the service providers, namely Al Shahad Gold & Jewellery and Gudami International Pte. Ltd not having office in India. I find that the period of availment of service and payment made by M/s ACPL is prior to the cut-off date of 18.4.2006. Therefore, this is an open and shut case. The demand of service tax of Rs. 1,53,43,263/- is not sustainable. Consequently, the proposals for interest and penalty also do not survive. I observe that Circulars and instructions issued by the Board are binding on the departmental officers as has been held by the Hon’ble Supreme Court in the case of Ranadey Micronutrients Vs 1996(87)ELT19(SC) and Paper Products Ltd Vs CCE 1996(112)ELT 765(SC).
24. In view of the above, I pass the following order:
O R D E R
I drop the proceedings initiated against M/s Aditya Corpex Private Ltd vide SCN F.No. DGCEI/AZU/12(4)143/2008-ACPL dated 4.7.2009.
( A.K.Gupta )
Service Tax, Ahmedabad.
F.No.STC/4-26/O&A/2009 Date: 28.03.2012.