2012 (8) TMI 437 - AT - Service Tax

Transportation of cargo by air - default in payment of service tax - assessee contested against invoking the extended period of limitation - Held that - The appellants were liable to pay service tax for the reason that they were not eligible for the benefit of the Export of Service Rules, 2005 based on the reasoning that the service was performed in India & that during the period from 15.3.2005 to 15.7.2005 the period during which the exemption as was available in Notf.No. 28/2004-ST dated 17.9.2004 was rescinded but not re-stored - Thus the appellants could not get waiver from service tax on such services during the period 16.6.2005 (Date on which Notf 28/2005-ST took effect) to 23.6.2005 (Appellant started paying service tax from 24-06-2005). As during the period 15-06-2005 to 23-06-2005, the appellant was not able to collect taxes from the customers cannot a reason to waive the liability or to consider that the appellant had bonafide belief that tax was not payable for the said period, thus the extended period of time can be invoked in this case. Invocation of Section 80 - Held that - Considering the legislative history of notifications like notification 28/2004-ST dated 17-09-2004, 9/2005-ST dated 03-03-2005 and 28/2005-ST dated 07-06-2005 and Notification 29/2005-ST dated 15-07-2005 would justify invoking section 80 - all the penalties imposed on the appellant is set aside

Summary

Issues:
1. Interpretation of Notification No. 28/2004-ST and subsequent amendments regarding service tax exemption for transportation of cargo by air.
2. Impact of Notification No. 10/2005-ST and Export of Service Rules, 2005 on the taxation of services rendered partly outside India.
3. Applicability and retrospective nature of Notification No. 29/2005-ST providing exemption from service tax.
4. Invocation of extended period for tax demand and waiver of penalty under Section 80 of the Finance Act, 1994.

Issue 1: Interpretation of Notification No. 28/2004-ST and subsequent amendments
The appellants, engaged in air cargo transportation, did not pay service tax for a specific period. The exemption under Notification No. 28/2004-ST was withdrawn by Notification No. 10/2005-ST, effective from 15.3.2005, impacting the taxation of services performed partly outside India. An amendment requiring payment in foreign exchange was introduced on 16-06-2005, causing confusion. Despite subsequent exemption restoration, the Tribunal clarified that Notification No. 29/2005-ST was not retrospective.

Issue 2: Impact of Export of Service Rules, 2005
The Export of Service Rules, 2005 categorized services for taxation based on performance location. The appellants argued that air cargo transportation involved substantial activity outside India, making them eligible for exemption. The Tribunal agreed, emphasizing the service's essence in taking goods outside India, not just handing over to airlines.

Issue 3: Applicability of Notification No. 29/2005-ST
The appellants sought retrospective application of Notification No. 29/2005-ST, reinstating exemption. The Tribunal rejected this, stating that new exemptions cannot be retrospective unless specified by the legislature. The notification was deemed a fresh exemption, not a clarification.

Issue 4: Invocation of extended period and waiver of penalty
The Revenue imposed tax demand for the period when the initial exemption was rescinded but not restored. The appellants claimed a bonafide belief in exemption, expecting retrospective relief. The Tribunal acknowledged the confusion but upheld tax liability for the period without legal waiver. However, invoking Section 80 of the Finance Act, 1994, the Tribunal waived the penalty due to the peculiar circumstances and legislative history, balancing suppression charges with the possibility of relief under exceptional circumstances.

In conclusion, the Tribunal confirmed tax liability for a specific period but waived penalties, considering the unique circumstances and legislative provisions.