Oio no: 72/stc-ahd/adc(mkr)/2011-12 Page of office of the commissioner of service tax



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OIO No: 72/STC-AHD/ADC(MKR)/2011-12 Page of

OFFICE OF THE COMMISSIONER OF SERVICE TAX

1ST FLOOR : CENTRAL EXCISE BHAVAN : AMBAWADI

NEAR GOVERNMENT POLYTECHNIC: AHMEDABAD-380015

निबन्धित पावती डाक द्वरा/By R.P.A.D

फा.सं./F.No.:STC-99/O&A/SCN/ADC/DI/R-9/D-II/09

आदेश की तारीख़/Date of Order :28/03/2012

जारी करने की तारीख़/Date of Issue :- 29/03/2012



द्वारा पारित/Passed by:- डा मनोज कुमार रजक / Dr. MANOJ KUMAR RAJAK

अपर आयुक्त / Additional Commissioner



मूल आदेश संख्या / Order-In-Original No. :- 72/STC-AHD/ADC(MKR)/2011-12

जिस व्यक्ति(यों) को यह प्रति भेजी जाती है, उसके/उनके निजी प्रयोग के लिए मुफ्त प्रदान की जाती है।

This copy is granted free of charge for private use of the person(s) to whom it is sent.

इस आदेश से असन्तुष्ट कोई भी व्यक्ति इस आदेश के विरूद्ध अपील, इसकी प्राप्ति से तीन महिनों के अन्दर आयुक्त (अपील), केन्द्रीय उत्पाद शुल्क, केन्द्रीय उत्पाद शुल्क भवन, अंबावाड़ी, अहमदाबाद - 380015 को प्रारूप संख्या एसटी-4 (ST-4) में दाखिल कर सकता है। इस अपील पर रू. 5.00 (पांच रूपये) का न्यायालय शुल्क टिकट लगा होना चाहिए।

Any person deeming himself aggrieved by this order may appeal against this order in form ST-4 to the Commissioner(Appeals), Central Excise, Central Excise Building, Ambawadi, Ahmedabad-380015 within three months from the date of its communication. The appeal should bear a court fee stamp of Rs. 5.00 only.

उक्त अपील, अपीलकर्ता द्वारा प्रारूप संख्या एसटी-4 (ST-4) में दो प्रतियों में दाखिल की जानी चाहिए। उस पर केन्द्रीय उत्पाद शुल्क (अपील), नियमावली 2001 के नियम 3 के प्रावधानों के अनुसार हस्ताक्षर किए जाने चाहिए। उक्त अपील के साथ निम्नलिखित दस्तावेज संलग्न किए जाएं।

(1) उक्त अपील की प्रति।

(2) निर्णय की प्रतियाँ अथवा जिस आदेश के विरूद्ध अपील की गई है, उनमें से कम से कम एक प्रमाणित प्रति हो, या दूसरे आदेश की प्रति जिसपर रू. 5.00 (पांच रूपये) का न्यायालय शुल्क़ टिकट लगा होना चाहिए।

The appeal should be filed in form ST-4 in duplicate. It should be signed by the appellant in accordance with the provisions of Rule 3 of Central Excise (Appeals) Rules, 2001. It should be accompanied with the following:

(1) Copy of accompanied Appeal.

(2) Copies of the decision or, one of which at least shall be certified copy, the order Appealed against OR the other order which must bear a court fee stamp of Rs.5.00.

BY RPAD

विषयः- कारण बताओ सूचनाः...........................................................

Sub:- Show Cause Notice F. No.:STC-99/O&A/SCN/ADC/D.I./R-9/Dn.-II/09 dated 02.12.2009 in respect of M/s. Dynamic Industries situated at Plot No.5501/2, Phase-III, GIDC, Trikampura Cross Road, Ahmedabad.



BRIEF FACT OF THE CASE:
M/s. Dynamic industries situated at Plot No.5501/2, Phase-III, GIDC, Trikampura Cross Road, Ahmedabad (hereinafter referred to as "the said Noticee") were engaged in the manufacturing of S.O. Dyes falling under the Chapter heading of 32.04 of the Central Excise Tariff Act, 1985. The said noticee had taken Service Tax Registration Certificate bearing number AAAC09872EST001 under the category of GTA, BAS etc.
2. During the course of audit conducted at the premises of said Noticee by the officers of Central Excise, Ahmedabad-I during November 2007, it was noticed that they had taken the services for procuring and executing export orders. The services so provided were in the nature of ‘Commission Agent’ as defined under Section 69(19) of the Finance Act, 1944 and such services were liable for Service tax from 01.07.2003. However, vide Notification No. 13/2003 ST dated 26.06.2003 Commission Agent were exempted from Service Tax. The said notification was withdrawn from 09.07.2004 and the service of ‘Commission Agent’ was made liable for Service Tax.
3. As per the provisions of Notification No.12/2002 dated 01.08.2002, as per the provision of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 (hereinafter referred to as the Rules), as per explanation to Section 65(105) of the Finance Act, 1994 (hereinafter 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 Noticee had not paid Service Tax on services received in foreign, 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 outside India by a person who had his place of business, fixed establishment, permanent address or usual place of residence in India. The Noticee had registered office at Ahmedabad (India). Hence, the Noticee was the recipient of services and liable to pay Service tax on these services with effect from 09.07.2004.
4. During the time of audit, it was noticed that they had paid commission to overseas agents the details of which are given below:-


Year

Amount of commission paid

Rate of Service Tax

Amount of Service Tax payable

Amount of S.T. paid on 03.12.07 & 05.12.07

Amount of Service Tax not paid

2005-06

1,22,22,819

10.20%

11,44,728

0

11,44,728

2006-07

1,60,96,217

12.24%

19,70,177

19,70,177

0

2007-08 (upto Sept)

16,08,893

12.36%

1,98,859

1,98,859

0

Total Amount of Service Tax Short paid

11,44,728

5. From the above it appeared that the Noticee had made payment of Rs.1,12,22,819/- as commission to overseas agent for the period 2005-06 for which they have not made payment of Service Tax (including 2% Ed. Cess) amounting to Rs.11,44,728/-.


6. 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 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. As per the provisions 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.
7. In the subject case, the said Noticee had not paid the service tax leviable thereon and thereby contravened the provisions of section 68 of the Act and rendered themselves liable for penalty as provided under section 76 of the Act.
8. As per the provision of Section 70 of the Act read with Rule 7 of the Rules, every person liable to pay Service Tax shall himself assess the tax due on the services provided by them and shall furnish to the Superintendent of Central excise, a return in the prescribed form ST-3 by 25th of the month following the particular half year. In the subject case, the said Noticee had not filed returns for the services received by them during the period under reference and had contravened the provisions of section 70 of the Act and rendered themselves liable to pay late fee as provided under section 70 of the Act.
9. As per the provision of Section 67 of the Act, every person liable to pay Service Tax himself shows the correct value of the services for charging service tax. In the subject case, on being asked by the officers of Central Excise and Service Tax, the year wise details of commission given to overseas agent for the period from 2005-06 to 2008-09 was given But the said Noticee had not pay the Service Tax due and as such, the said Noticee had contravened the provisions of section 67 of the Act and rendered themselves liable to penalty as provided under section 78 of the Act.
10. As per the provision of Section 75 of the Act, if any person is required to pay the service tax, did not pay the service tax in time had to pay the interest. In the subject case, the said Noticee had not paid the service tax as provided under Section 68 of the Act and they were required to pay the interest as provided under Section 75 of the Act.
11. From the para 4 discussed above, it was seen that the Noticee had not shown the taxable value of. Rs.1,12,22,819/- before the Service Tax department in any of the ST-3 returns filed by them though the said taxable value had been shown in their profit & loss account and thereby they have short paid Service Tax to the tune of Rs.11,44,728/-. By this way the Noticee had suppressed the material facts from the department with an intention to evade payment of service tax and hence the extended period is to be invoked for effecting recovery of non paid / short paid amount of service tax, as provided under Section 73 of the Act.
12. All these acts of contravention on the part of the said Noticee appeared to have been committed by way of suppression of facts with an intend to evade payment of Service Tax and therefore, the said service Tax not paid is required to be demanded and recovered from them under the proviso to Section 73(1) of Act by invoking extended period of five years. All these acts of contravention of the provisions of Section 66,67,68,69 and 70 of Act read With Rules 4,5,6, and 7 of Rules appears have to be punishable under the provisions of Section 76 and 77 of the Act.
13. Moreover, in addition to the contravention, omission and commissions on the part of the said Noticee as stated in foregoing paras, it appeared that they had willfully suppressed the facts, nature and value of service provided by them with an intend to evade the payment of Service Tax rendering themselves liable for penalty under section 78 of the Act.

14. Therefore, a show cause notice was issued from F.No.:STC-99/O&A/SCN/ADC/D.I./R-9/Dn.-II/09 dated 02.12.2009 to M/s. Dynamic Industries situated at Plot No.5501/2, Phase-III,GIDC, Trikampura Cross Road, Ahmedabad asking them to show cause as to why :-



  1. The Service Tax and Education cess, on the Commission given to the overseas agents as service provided outside India but received in India, totally amounting to Rs.11,44,728/- ( Rupees Elevan Lakhs Forty Four Thousand Seven Hundred Twenty Eight Only) for the period from 2005-06 as detailed in para 4 of above 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;

  2. interest at the appropriate rate should not be demanded and recovered from them on the total amount of Service Tax as mentioned at ( i ) above under the provision of Section 75 of the Finance Act, 1994, from the due date of payment upto the actual date of payment;

  3. 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;

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

  5. Penalty under Section 77 of Finance Act, 1994 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 & PERSONAL HEARING.
15. The assessee had filed their defence reply vide letter dated 29.12.2009 and 13.12.2010. They were called for personal hearing on 06.05.2010, 27.05.2010, 03.12.2010, 13.12.2010 & 14.03.2012. Shri Rahim B. Tamboli and Shri Himanshu Patel, Employee of the said firm appeared on behalf of the said service provider on 03.12.2010.
15.1. Thereafter, Personal Hearing in the matter was conducted on 14.03.2012. Shri S. V. Modi, Business Consultant appeared on behalf of the said Service Provider. During the course of Personal Hearing, he reiterated their defence reply dated 29.12.2009 and submitted a copy of Circular No:276/8/2009-CX.8A dated 26.09.2011 & Judgment reported at 2012 (25) STR J28 (S.C.), 2011 (24) STR J135 (S.C.) and 2010 (20) STR J99 (S.C.).
16. In their defence reply submitted to this office on 29.12.2009, he contented that:
16.1. They were engaged in the manufacturing of S.O. Dyes falling under the Chapter heading of 3204 of the Central Excise Tariff Act, 1985. At the same time, they were also exporting the goods outside India on which duty was not leviable. For obtaining the export orders, they had availed the services of commission agents from persons resident and located outside India and made payment. These services were utilized for export of goods. During the course of audit of excise department, it was pointed out by the audit party that they had not paid the service tax on the amount of commission paid under the category “"Business Auxiliary Service" under explanation to section 65[105] applicable at the relevant time and presently under the provisions of section 66A of the Finance Act, 1994, read with rule-2(1)(d)(iv) of the Service Tax Rules. The audit party raised the audit objection and raised a demand for the period 9th July 2004 onwards. The demand was made for the Year 2005-06.
17. Further, they have submitted the Statutory Provisions of the Finance Act, 1994 as mentioned below:
17.1 According to Section 64(1) of Chapter V of Finance Act, 1994:
This chapter extends to the whole of India except State of Jammu and Kashmir”
17.2 Explanation to section 65(105):-

[Inserted on 16-6-2005 and deleted on 1-5-2006] :-



“For the removal of doubts, it is hereby declared that where any service is provided or to be provided by any person who had established a business or had a fixed establishment from which the service is provided or to be provided or had his permanent address or usual place of residence in a country other than India and such service is received or to be received by a person who had his place of business, fixed establishment, permanent address or as the case may be, usual place of residence in India, such services shall be deemed to be taxable services for the purpose of this clause”.
17.3 Section 66A of Finance Act, 1994:

66A. (1) Where any service specified in clause (105) of section 65 is,—



(a) provided or to be provided by a person who had established a business or had a fixed establishment from which the service is provided or to be provided or had 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 had his place of business, fixed establishment, permanent address or usual place of residence, in India, such 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 provisions 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 had 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.’;
17.4 Section 70 of Finance Act, 1994

Furnishing of Returns. –


(1) Every person liable to pay the service tax shall himself

assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency [and with such late fee not exceeding two thousand rupees, for delayed furnishing of return, as may be prescribed”]*
(2) The person or class of persons notified under sub-section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed.’

17.5 Section 73(1) Finance Act, 1994:



73. (1) Where any service tax had not been levied or paid or had been short-levied or short-paid or erroneously refunded, the [Central Excise Officer] may, within one year from the relevant date, serve notice on the person chargeable with the service tax which had not been levied or paid or which had been short-levied or short-paid or the person to whom such tax refund had erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:



Provided that where any service tax had not been levied or paid or had been short-levied or short-paid or erroneously refunded by reason of—



  1. fraud or

  2. collusion or

  3. willful misstatement or

  4. suppression of facts

  5. contravention of any of the provisions of this chapter or rules made there under with an intent to evade the payment of service tax,


by the person chargeable with the service tax or is agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words “five years” had been substituted.”
17.6 Rule-2(1)(d)(iv) of the Service Tax Rules, 1994

2. (1) In these rules, unless the context otherwise requires,--

(a) ……….

(b) ……….

(c) ……….

(d) “person liable for paying the service tax” means,--

(i) …………..

(ii) …………..

  1. …………..

Old - (16-08-2002 to 15-6-2005)

(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;”

New – (w.e.f. 16-6-2005)

(iv) in relation to any taxable service 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 had his permanent address or usual place of residence, in a country other than India, and such service provider does not have any office in India, the person who receives such service and has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India;

18. The foreign agents have provided the services to them. These services were provided outside India. They met the prospective buyer/customer outside India and they promoted the product of the service provider outside India.


19.1 They have denied all the allegations leveled against it in show cause notice and proposes to contest the same on the ground mentioned herein below, which were without prejudice to each other and are in addition to the grounds which may be taken up before Adjudicating authority at the time of adjudication of the matter.
19.2 For service tax to be leviable and payable, the services must have been provided in India, except in State of Jammu and Kashmir. Looking to the provisions of section 64(1), when a service is provided outside India, the provisions of service tax are not applicable and they cannot be extended to out of the territory of India. Only because the querist is in India or the payment is being made from India, the querist cannot be held liable for service tax. Chapter-V does not extend to a place outside India. The Board, vide circular No. 36/4/2001 dated 8-10-2001, in respect of the applicability of service tax in the State of Jammu and Kashmir, explained as under:-
The matter had been examined. At present, the levy of service tax extends to the whole of India except State of Jammu and Kashmir. Expression ‘India’ includes the territorial waters of India. Indian territorial waters extend upto 12 nautical miles from the Indian land mass. Chapter-V of the Finance Act, 1994, which governs the levy of service tax is not extended to the levy to designated areas in the continental shelf and exclusive economic zone of India [as had been done in the case of Central Excise vide Notification No. 166/87-CE dated 11-6-1987 and in the case of customs by notification Nos. 11/87-CUS dated 14-1-1987 and 64/97-CUS dated 1-12-2997]. It is therefore, clarified that the services provided beyond the territorial waters of India are not liable to service tax, as the provisions of service tax have and not been extended to such areas so far.”
19.3 This circular shows and accepts that if the service is provided outside India, service tax is not leviable. What is relevant is where the service is being provided. The department had given the following clarification in the FAQ.
The service provided by a person having its business premises in the State of Jammu and Kashmir and providing taxable service to his client in a part of country, would be liable for payment of service tax. A person having his office in any of the other Indian states, who provides service to a person in the State of Jammu and Kashmir would not be liable to pay service tax.”
19.4 Looking to the above, it is clear that tax is not on a person or on a business establishment but it is a tax on the service provided. It is necessary to understand as to from which place service is provided. If the service is provided from a place where the provisions of chapter-V are extended, service tax is payable otherwise not. In the case of CCE Noida vs. Matsushita TV and Audio – (2006) 6 STJ 399 CESTAT [New Delhi], it had been held that providing service is a taxable event. In the querist’s case, the agents have provided services to the querist outside India, where the provisions of service tax cannot be extended. Section 66A clearly states that in a particular circumstance, the provisions of chapter-V shall apply. The Section is not levying a new tax but merely shifts the burden of payment of service tax from service provider to service receiver in a particular circumstance. The burden must exist before it is shifted and therefore, when there is no burden of service tax, there is no question of shifting it on any other person. The person providing service outside India, where the provisions of chapter-V are not extended, cannot be held liable to pay the service tax, meaning thereby, the liability of service tax is not created at all, which can be shifted to any other person like service receiver. In the case of Orient Craft Ltd vs. UOI [2006] 7 STJ 31 Delhi, the Hon'ble Delhi High court held that when the service is received outside India, service tax is not leviable. It is leviable only when the service is received in India. The observation made by the Hon'ble High court is reproduced below:-
4. The contention of the learned counsel for the petitioner based on the interpretation of section 66A of the Act, is that any service that is obtained by a person who had a fixed place of business or fixed establishment or permanent address in India is liable to tax for services availed by him in a foreign country. By way of an example, learned counsel for the petitioner had cited that if such a person in India goes abroad, and had a hair cut, he would be liable to pay service tax in India on the basis of section 66A of the Act.
5. We are not at all convinced by this argument of learned counsel for the petitioner. The rules that have been framed by the Central Government make it absolutely clear that taxable service provided from outside India and received in India is liable to service tax. In the example given by the learned counsel for the petitioner, there is no question on the service tax of a haircut having been received in India.”
19.5 In the case of Indian National Shipowners Association Vs Union of India 2009 (13) S.T.R. 235 (Bom.), the High Court of Bombay held that:

14. In this petition we are concerned with the provisions of Section 65(105), which defines the taxable service.



15. The charge of service tax in respect of service rendered to a ship or vessel remains on the person responsible for collecting the service tax under Section 66 of the Act.

Then comes Section 68, which lays down that every person providing taxable service to any person shall collect the service tax at the rate specified in section 66. It is clear from reading of these provisions that according to scheme of the Finance Act, as it existed before 18-4-2006, the charge of service tax is on the person who is responsible for collecting the service tax. It is by virtue of the provisions of Section 65 the person who provides the service is regarded as the assessee.

17. Reliance is placed on the provisions of Rule 2(1)(d)(iv) quoted above for justifying the levy of service tax for the period from 16-8-2002. Perusal of the above quoted Rule 2(d)(iv) shows that by that provision a person liable for paying the service tax was defined to mean in relation to any taxable service provided by a person who is non-resident or is from outside India to a person receiving taxable service in India. Apart from the fact that this rule is contrary to the provisions of Section 68 and other provisions of the Act, under this provision the recipient of the service became liable for paying the service tax provided the service was received in India. The entire case of the Petitioners is in relation to the service received by the vessels and ships owned by the members of the Petitioner-association outside India. Therefore, it cannot be said that on the basis of Rule 2(1)(d)(iv), service tax can be levied on the members of the Petitioners-association. In other words, as the Act makes the person who is providing the service liable, the provisions in the Rules cannot be made which makes the recipient of the service liable. It is, thus, clear that the provisions of Rule 2(1)(d)(iv) are clearly invalid.

19. Then reliance is placed on explanation which is added below Section 65(105). That explanation was added by Finance Act, 2005 with effect from 16-6-2005.
By this explanation services provided by a non-resident outside India to a person residing in India had been declared to be taxable service. Therefore, though the services provided to the members of the Petitioners-Association outside India becomes taxable service, the charge of the tax continues to be on the provider of service as per the scheme of the Act, and because of the explanation also the Respondents do not get authority of law to levy a service tax in relation to the services rendered to the vessels and ships of the members of the Petitioners-association outside India.
20. It appears that a similar provision in the rules was made applicable by the Government in relation to the Clearing Agents by making customers of the Clearing Agent liable for levy of the service tax.  That question had been decided by the Supreme Court by its judgment in the case of Laghu Udyog Bharati (supra) and the Supreme Court had clearly laid down that the imposition of the service tax is on the persons rendering the services and by making a provision in the Rules, levy of tax cannot be shifted to the recipients of the services and the Rule framed which brought about this situation had been declared by the Supreme Court to be invalid. The law laid down by the Supreme Court in its judgment in Laghu Udyog (supra) is squarely applicable to Rule 2(1)(d)(iv), which is relied on in this case. It appears that it is first time when the Act was amended and Section 66A was inserted by Finance Act, 2006 w.e.f.18-4-2006, the Respondents got legal authority to levy service tax on the recipients of the taxable service. In other words, it is only after enactment of Section 66-A that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents. In such cases, the Indian recipient of the taxable services is deemed to be a service provider. Before enactment of Section 66-A, there was no such provision in the Act and therefore, the Respondents had no authority to levy service tax on the members of the Petitioners-association.

21. In the result, therefore, the petition succeeds and is allowed. Respondents are restrained from levying service tax from the members of the Petitioners-association for the period from 1-3-2002 till 17-4-2006, in relation to the services received by the vessels and ships of the members of the Petitioners-association outside India, from persons who are non-residents of India and are from outside India.
19.6 They submitted that Circular is binding to department


    • It is well settled that circulars issued by the Board are binding. The circulars issued by the department, in particular where they are beneficial to the assessee and mitigate or relax the rigour of law had a binding legal force. In that regard reliance had been placed on the judgment of Hon’ble the Supreme Court in the case of Paper Products Ltd V/s. CCE (1999) 7 SCC 84. Placing reliance on earlier judgments of the Supreme Court in the cases of CCE v. Usha Martin Industries, 1997 (94) E.L.T. 460 (S.C) = (1997) 7 SCC 47; Ranadey Micronutrients v. CCE, 1996 (87) E.L.T. 19 (S.C.) = (1996) 10 SCC 387; CCE v. Jayant Dalal (P) Ltd., 1996 (88) E.L.T. 638 (S.C) = (1997) 10 SCC 402 and CCE v. Kores (India) Ltd., 1997 (89) E.L.T. 441 (S.C.) = (1997) 10 SCC 338, Hon'ble the Supreme Court concluded in para 5 as under:-

5. It is clear from the abovesaid pronouncements of this Court that, apart from the fact that the Circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said Circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgment of this Court further precludes the right of the Department to file an appeal against the correctness of the binding nature of the Circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it had to take, the same will have to be consistent with the Circular which is in force at the relevant point of time."
20. Invocation of extended period under Section 73 of the Act is incorrect and bad in law
20.1 It was submitted that department had proposed to invoke the extended period of limitation in terms of section 73 of the Act, on the ground that they had suppressed the value of taxable service.
20.2 Vide paragraph 12 of show cause notice, it was stated as under:

“Therefore, the said service tax not paid is required to be demanded and recovered from them under the proviso to section 73(1) of Act by invoking extended period of five years. All these acts of contravention of the provisions of section 66, 67, 68, 69 and 70 of Act read with Rules 4, 5, 6 and 7 of Rules appears to be punishable under the provisions of Section 76 and 77 of the Act.”
20.3 Section 73 of the Finance Act, 1994 provides for recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. According to the provisions of Section 73(1) of the Act where any service tax had not been levied or paid or had been short levied or short paid or erroneously refunded the Central Excise Officer may within one year from the relevant date, serve notice on the person chargeable with the service tax which had not been levied or paid or which had been short levied or short paid or the person to whom such tax refund had erroneously been made, requiring to show cause why he should not pay the amount specified in the notice.

The limitation of period can be invoked up to five years from the relevant date by the department by under of the proviso to Section 73(1) of the Act where any service tax had not been levied or paid or had been short levied or short paid or erroneously refunded by reason of-



  • fraud; or

  • collusion; or

  • willful misstatement; or

  • suppression of facts; or

  • contravention of any of the provisions of the service tax or of the rules made there under with intent to evade payment of service tax

by the person chargeable with service tax or his agent.

During the course of audit for F.Y. 2005-06, it had been observed by the department that service tax was payable on the commission paid to the overseas agent. The demand of Service Tax payable under the category "Business Auxiliary Service" was raised during the course of audit and audit objection cannot be termed as suppression of facts. This view was supported by Tribunal Ahmedabad in the case of Cambay Organics P. Ltd vs. CCE, Vadodara 2007 [217] ELT 586 {Tri. Ahd}.




    1. They had belief that they were not liable to pay service tax. They relied on the following decisions:


Catalyst Capital Service (P) Ltd. Vs. CCE, Mumbai (2005) 1 STT 241 (Tri. Mumbai), wherein it had been held that whenever service tax is not paid on bonafide belief but paid on pointing out the same, no penalty be imposed.


    1. In these circumstances, extended period can’t be invoked on the Noticee. It is settled law that when both the Department and the assessee had knowledge of the facts, there can be no allegation as to suppression.




    1. The demand raised by the department was on account of dispute in interpretation of law and the dispute arisen out of the interpretation of law cannot be termed as suppression of facts. This view was also supported by Tribunal Bangalore in the case of Secretary, Town Hall Committee, Mysore City Corporation, Mysore vs. CCE, Mysore [2007] 912 VST 471 (CESTAT Bangalore).




    1. It was submitted that there was no fact which was not known to the Department. Further, they have not willfully suppress the fact and there was no failure to disclose fully or truly the material fact. The Department never asked for any information which the Noticee failed to disclose. They have always cooperated with the Department in their proceedings and have always provided the details asked for by the Department and never suppressed any facts from the Department. It was humbly submitted that the Hon’ble Supreme Court in the case of Padmini Products Limited v CCE 1989 (43) ELT 195 (SC) held as follows in this regard:

8. Shri V. Lashmikumaran, learned Counsel for the Noticee Developer drew our attention to the observations of this Court in Collector of Central Excise, Hyderabad v. M/s. Chemphar Drugs and Liniments, Hyderabad – 1989(40)E.L.T. 276 (S.C)- 1989 (2) SCC 127 where at page 131 of the report, this Court observed that in order to sustain an order of the Tribunal beyond a period of six months and upto a period of 5 years in view of the proviso to sub-section (1) of Section 11-A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. It was observed by this Court that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability beyond the period of six months had to be established. Whether in a particular set of facts and circumstances there was any fraud or collusion or willful mis-statement of suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case”
20.8 They further drawn attention on the judgment of the Hon’ble Supreme Court in the case of CCE Vs. Chemphar Drugs and Liminents 1989 (40) ELT 276 (SC), wherein the Hon’ble Supreme Court held as follows:-

  1. Aggrieved thereby, the Revenue had come up in appeal to this Court. In our opinion, the order of the Tribunal must be sustained. In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section (1) of Section 11-A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by the reasons of either fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before (six beyond) the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or willful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to hereinbefore doe not warrant any inference of fraud. The assessee declared the goods on the basis of their belief of interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which they manufactured at the relevant time. The Tribunal found that explanation was plausible, and also noted that the department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the product other than those falling under T.I. 14-E manufactured by the respondent and this was in the knowledge, according to the Tribunal of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence.




    1. They had relied on the following decisions.

A. Phase 1 events & Entertainments Pvt. Ltd., V. Commissioner of Service Tax, Bangalore - [2008 -TMI - 31239 - CESTAT BANGLORE]

The appellant conducted a festival known as OKTOBERFEST. The appellant contended that it is a member of the Festival Committee and the Committee entrusted to organize the event. The appellant organized the program and did not receive any consideration. There is no client-service relationship. The appellants were under the bona fide belief that they were not liable for payment of service tax. The tribunal held in these circumstances the longer period cannot be invoked.
B. Om Sai Professional Detective & Security Pvt. Ltd., V. Commissioner of Central Excise, Guntur - [2008 -TMI - 30212 - CESTAT BANGLORE]

The appellants had assessed the service tax on their own and voluntarily paid the same from January 2005 onwards.   Subsequently after one and half a year from payments made by the assessee, the Department issued a show cause notice for the period from 01.04.1999 to 31.03.2003. The Department was aware that the assessee was voluntarily paying the service tax. The assessee did not have any intention to evade payment of tax as they have followed the procedure laid down in the Income Tax Returns. This plea had been accepted by the Commissioner. In view of this, the tribunal held that the demands are time barred and cannot invoke the extended period of limitation.


    1. They submitted that the charges leveled on them were liable to be dropped on this ground of limitation alone.

21. No penalty leviable as they were of the bonafide belief that amount paid by them was not eligible to service tax




    1. Show Cause Notice had proposed to charge interest under section 75 and impose penalty under section 76, 77 and 78 of the Act, as applicable during the material period.

21.2. They submitted that since the demand of service tax on the value so arrived at is not sustainable and also the appellant had not contravened any of the provisions of the Act or Rules. Therefore, no interest or penalty is imposable under sections 76, 77 and 78 of the Act.


21.3. It was submitted however, that for imposing penalty, there should be an intention to evade payment of service tax on the part of the Noticee supported by documentary evidences.
21.4. W.e.f 10-05-2008 by the Finance Act, 2008 the amendments have been made in the provisions of section 78. According to which if the penalty had been payable under section 78, the provisions of section 76 shall not apply.
21.5. The penal provisions are only a tool to safeguard against contravention of the rules. The Noticee submits that they have always been under the bonafide belief that charges paid by the Noticee are not liable to service tax under the services mentioned in Show Cause Notice. Such bonafide belief was based on the grounds given above. There was no intention to evade payment of service tax as mentioned in the ground above. Therefore, no penalty is imposable in the present case.
21.6. In support of the above view, reliance is placed on the decision of the Hon’ble Supreme Court in the case of Hindustan Steel Ltd., v. The State of Orissa reported in AIR 1970 (SC) 252. The above decision of the Apex Court, was followed by the Tribunal in the case of Kellner Pharmaceuticals Ltd., Vs. CCE, reported in 1985 (20) ELT 80, and it was held that proceedings under Rule 173Q are quasi-criminal in nature and as there was no intention on the part of the Noticee to evade payment of duty the imposition of penalty cannot be justified. The ratio of these decisions squarely applies in all force to the present case. In the present case, there was neither any malafide intention nor any intention to evade payment of tax. In view of the foregoing, no penalty is imposable.
21.7. They also relied on the decision of Hon’ble Tribunal in the case of Catalyst Capital Services (P) Ltd. Vs. CCE Mumbai (2005) 1 STT 241 (Mumbai CESTAT), wherein it had been held that if there is no malafide intention in non-making payment or delay in making payment of service tax, no penalty can be imposed.
21.8. They submitted that penalty under section 78 of the Act can be imposed only for willful suppression with an intent to evade payment of service tax. The Noticee humbly submits that it had not suppressed any value/ fact with an intention to evade payment of service tax. Therefore, penalty under section 78 of the Act cannot be imposed in the present case. Reliance is placed on the judgment of the Hon’ble Supreme Court in the case of Akbar Badruddin Jiwani V. Collector of Customs, 1990 (047) ELT 061 SC, wherein the Hon’ble Supreme Court had held follows:
57. Before we conclude it is relevant to mention in this connection that even if it is taken for arguments sake that the imported article is marble falling within Entry 62 of Appendix 2, the burden lies on the Customs Department to show that the Noticee had acted dishonestly or contumaciously or with the deliberated or distinct object of breaching the law.

[Emphadis supplied]


21.9. There was no means rea or contumacious conduct on the part of the assessee to evade service tax. The non payment of service tax and failure to follow the other formalities occurred not due to assessee’s intention to evade the payment of tax.
21.10. It is settled principle of law that the information, which is not required under the statute to be submitted, if not submitted, does not amount to suppression. There was no requirement in the Finance Act, 1994 or the Rules made thereunder that any information is required to be submitted for collecting those amounts, which are not liable for payment of service tax.
21.11. They submitted that even if any contravention of provision is alleged it was solely on account of their bonafide belief that the amount paid by them is not at all taxable under “Business Auxiliary Service”. Such bonafide belief was based on the reasons stated above. The contravention, if any, was not with the intention to willfully evade payment of service tax. Reliance is placed on the judgment of Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company V. CCE 1995 (78) ELT 401(SC) wherein it was held as follows:-

    1. Section 11A empowers the Department to re-open proceedings if the levy had been short levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppressions of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different then what is explained in various dictionaries unless of course the context in which it had been used indicates otherwise. A perusal of the proviso indicates that it had been used in company of such strong words as fraud, collusion or willful default. In fact, it is the mildest expression used in the proviso. Yet the surroundings in which it had been used it had to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.

21.12. Similar was the view of the Hon’ble Supreme Court in the case of CCE Vs. Chemphar Drugs and Liniments 1989 (4) ELT 276 (SC), (Supra).


21.13. The ratio of both the above-cited cases was squarely applicable to the Noticee because there is sufficient reason to believe that the service tax is not leviable on the service received by the Noticee and, therefore, in such circumstances charges of suppression with intention to evade payment of tax cannot sustain. The Noticee therefore, submits that there was no “willful suppression”, that too “with intent to evade service tax”, and therefore, no penalty is sustainable in the present case.
21.14. Further, without prejudice to above, it is a settled principle of law that if a dispute is arising out of interpretation of the provisions of statute or exemption notification, no penalty can be levied. If at all it is held that the service tax is payable, then also it can be said that it is a dispute arising out of interpretation of the provisions of the law and not because of any intentional avoidance of tax. The Noticee places reliance on the following case laws in this regard:


  1. Bharat Wagon & engg. Co. Ltd., V. Commissioner of C.Ex. Patna, (146) ELT 118 (Tri. – Kolkata),

  2. Goenka Woollen Mills Ltd., V. Commissioner of C. Ex. Shillong 2001 (135) ELT 873 (Tri. – Kolkata)

  3. Bhilwara Spinners Ltd., V. Commissioner of Central Excise, Jaipur, 2001 (129) ELT 458 (Tri.-Del).

21.15. They further submitted that even assuming without admitting that service tax is payable on the services received, then also no two penalties u/s. 76 and 78 can be imposed for a single default. This is a settled law. They relied on the following decisions.



a.) SIVA SANKAR MOTORS Versus CCE, VISAKHAPATNAM-II [2009] 18 STT 306 (KOL.-CESTAT)

b.) Opus Media and Entertainment vs. CCE, Jaipur [2007] 10 STJ 259 [CESTAT-New Delhi].
21.16. The Noticee also relies on section 80 of the Act, which expressly provides that no penalty shall be imposed under section 76, 77 and 78 if the assessee had a reasonable cause for default. In the present case, if at all service tax is payable, the Noticee had a bonafide belief that service tax was not payable. Therefore, in any case, penalties are not leviable on the Noticee u/s. 76, or 78 and 77 of the Act.


    1. . They further submitted that a subordinate authority is bound to follow the decision of the higher authority and cannot take a different view. The Noticee in support, relies on the following judgments:-


Pratik Marbles vs. CCE, Jaipur-II 2007 (7) STR 240 [Tri. Delhi]. The Hon'ble Tribunal while rendering the above decision, relied upon the following judgments rendered by Hon'ble Supreme Court:-

(a) CCE vs. L. H. Sugar Factories Ltd. 2006 (3) STR 715 SC.

(b) Gujarat Ambuja Cement Ltd vs. UOI 2006 (3) STR 608 SC.
They drawn attention to the decision rendered by the Hon'ble Bangalore Tribunal that the Commissioner ought to have followed the ratio of those judgements of Tribunals and therefore, was not justified in taking a different view:-

    1. The Motor Industries Company Ltd. vs. CST, Bangalore [2007] 10 STJ 96 [CESTAT-Bangalore].

    2. CST, Bangalore vs. Indian Rayon Industries Ltd.[2007] 10 STJ 89 [CESTAT-Bangalore].

22. Penalty u/s. 77:


For the reasons discussed herein above, they submitted that, no penalty u/s. 77 can be imposed
23. Interest u/s. 75:

For the reasons discussed hereinabove, when Service Tax was not at all payable, charging of interest u/s. 75 did not arise.


24. Filing of return u/s 70:

Section 70 uses the term ‘person liable to pay the service tax…’. For the reasons discussed hereinabove, when Service Tax was not at all liable, filing of return u/s. 70 did not arise.


25. PRAYER

They prayed that –

The proceedings proposed to be initiated to recover service tax u/s. 73 along with interest u/s. 75 of the Act and to impose a penalty u/s. 76 or 78 and 77 of the Act may please be dropped.
26. The Service provider had also filed another written submission dated 11.12.2010 wherein submitted that;
26.1. The issue whether the recipient in India of services rendered by a person resident outside India having no office or establishments in India is the person liable in terms of Finance Act, 1994 and the Rules made thereunder to pay of the applicable service tax on such services received i.e. foreign agent’s services of procuring export orders and if so then from which effectible date the recipient is liable to pay had already been emphatically settled is no longer res integra, it is res judicata.

In support of this contention they rely on the decided case laws reported under the following citations;


1. 2009(15) S.T.R.274 (Tri.-Del.) Pashupati Spg. & Wvg. Mills Ltd. Versus Commr. of C.Ex., Chandhigarh.
2. 2009 (13) S.T.R. 235 (Bom.) Indian National Shipowners Association versus Unin Of India; Agrees with in 2009 (15) STR 385 (Delhi High Court); Maintained in 2010 (17) STR J57 (Supreme Court); Agreed with in 2010 (18) STR 713 (Punjab & Haryana High Court).
The recipient of such services became liable to pay service tax on the amounts paid by them to the foreign commission agents only from 18.04.2006 i.e. upon enactment of the Section 66A in the Finance Act, 1994.
DISCUSSION & FINDINGS:
27. I have carefully gone through the content of Show Cause Notice and defence reply, relevant documents of the case, and written submissions of the notice along with all the relevant documents submitted during or before personal hearing.
27.1. In nut shell the issue involved in the matter to be decided, is related to service tax of Rs.11,44,728/- which had not been paid by the noticee on the taxable amount of Rs.1,22,22,819/- paid by the said noticee to over seas service provider toward Business Auxiliary Service, received by them from over seas supplier in the year 2005-06.
27.2. As alleged in the show cause notice the said service tax was required to be paid by the noticee in terms of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 and section 66A of the Finance Act,1994.
28. I have examined the aforesaid issue in detail as defended by the said service provider. I find that the said issue has undergone extensive judicial scrutiny and finally settled by the Apex court of the country. Accordingly, the CBEC vide Circular No:276/8/2009-CX.8A dated 26.09.2011 directed to decide the pending issues. The text of the said circular is as under:-
F. No. 276/8/2009-CX8A

Government of India

Ministry of Finance

Department of Revenue

(Central Board of Excise & Customs)

****


New Delhi, dated the 26th September, 2011

To,
1. All the Chief Commissioner of Central Excise/LTU

2. All Commissioner of Central Excise/Service Tax

Sir/Madam,



Sub: Applicability of service tax on taxable services provided by a non-resident or a person located outside India to a recipient in India-reg.

Kind attention is invited to instruction F No. 275/7/2010-CX8A, dated 30.6.2010, wherein the Board had communicated its view that services 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 with effect from 1.1.2005, and that the ratio of judgement in M/s Indian National Shipowners Association (INSA) case [2009 (13) STR 235 (Bom)] would not apply to such cases. Further, direction was issued to field formations to defend the levy of service tax on such services for the period on or after 1.1.2005, as post INSA judgment, it has been held by the High Courts/Tribunal in a large number of cases, applying ratio thereof, that service tax on such services is leviable only w.e.f. 18.4.2006. However, 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 said instruction dated 30.6.2010) in the following cases.




  1. SLP (C) No. 29539 of 2010 in CCE Vs Bhandari Hosiery Exports Ltd

  2. SLP (C)No. 18160 of 2010 in CST Vs Unitech Ltd

  3. SLP (C) No. 34208/09 of 2010 in UOI Vs S R Batliboi & Co.

  4. SLP (C)No. 328/332 of 2011 in UOI Vs Ernst & Young

  5. SLP (C) No. 25687-25688/2011 in CCE Vs Needle Industries

  6. SLP (C) No. 25689-25690/2011 in UOI Vs SKM Engg Products

Further, Review Petition No. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon’ble Supreme Court vide order dated 18/8/2011.


2. In view of the aforementioned judgments of the Hon’ble Supreme Court, 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. Accordingly, the instruction F No. 275/7/2010-CX8A, dated 30.6.2010 stands rescinded.
3. Appropriate action may please be taken accordingly in the pending disputes.

29. In view of the aforesaid circular, in the situation on hand the service tax is laviable w.e.f. 18.04.2006. In the case on hand the demand of service tax pertains to period 2005-06 only and in view of aforesaid position the demand of service tax does not survive on merits. Therefore, the demand of service tax has to be vacated accordingly. Under the circumstances, I find that other issues related to suppression of facts and impositions of penalty raised in the show cause notice requires no discussion in the matter.


30. In view of thereof, I pass following order.
ORDER
I hereby vacate the show cause notice bearing No. STC-99/O&A/SCN/ADC/D.I./R-9/Dn.-II/09 dated 02.12.2009 issued to M/s. Dynamic Industries situated at Plot No.5501/2, Phase-III, GIDC, Trikampura Cross Road, Ahmedabad.

(Sd/-)


(Dr.Manoj Kumar Rajak)

Additional Commissioner,

Service Tax,ahmedabad.

F.No. STC-99/O&A/SCN/ADC/DI/R-9/D-II/09 Date:28/03/2012.


BY R.P.A.D.
To,

M/s. Dynamic Industries

situated at Plot No.5501/2,

Phase-III, GIDC, Trikampura Cross Road,



Ahmedabad.
Copy to:

  1. The Commissioner of Service Tax, Ahmedabad. (Attention Review Cell).




  1. The Assistant Commissioner of Service Tax, Division-II, Ahmedabad.




  1. The Superintendent, Range-IX, Division-II, Service Tax, Ahmedabad, with extra copy of OIO to be served to the assesses and submit the acknowledgement to this office.




  1. Guard File/Office Copy.


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