2014 (8) TMI 516 - AT - Service Tax

Extended period of limitation - Business Auxiliary service - Sale of warehoused goods to traders - Appellants while raising the invoices on the purchasers, split the price mentioned in the purchaser orders and issue a separate debit note towards such expenses incurred by the Appellants - Held that - Notice is issued on 18-4-2013 and demands service tax for the period 1-10-2007 to 5-1-2012. The same is therefore beyond the normal period of limitation of eighteen months prescribed in Section 73(1) of the Finance Act 1994 - Appellants records have been subjected to scrutiny by the department from time to time. It is not in dispute that as many as four audits have been conducted by the department covering the period 1-10-2007 to 5-1-2012. There is no scope for invoking the larger period of limitation. The DGCEI having examined the documents and ascertained the facts and having come to the conclusion that there was no case for demand of service tax and having ordered closure of the inquiry in the year 2010, it cannot be held that there was cause for invoking the larger period of limitation by issuing a Notice in the year 2013. Where the documents were examined and a view was formed in 2010 that there is no case for demanding service tax and accordingly closure of inquiry was ordered, merely because the authorities subsequently change their view that does not justify invoking the larger period of limitation. It has been consistently held that a subsequent change of view by the authorities would not justify invoking the larger period of limitation. Commissioner while dealing with the issue of larger period of limitation, has completely ignored the fact that apart from the Appellants records being audited by the department on as many as four occasions, the DGCEI itself had after examining the documents arrived at a conclusion that service tax was not payable and ordered closure of the inquiry. There is no basis for the Commissioner s finding that the Appellants were aware that the expenses recovered under the debit notes from the traders-purchasers were liable to service tax under Business auxiliary service. Merely because after commencement of the DGCEI inquiry in November 2009, the Appellants started paying service tax in respect of such debit notes from December 2009 would not in itself be a justification for invoking the larger period of limitation particularly when after such inquiry the DGCEI itself ordered closure of the inquiry in August 2010. In the circumstances the larger period of limitation is not applicable in the present case and on this ground itself the impugned order is liable to be set aside. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of demand for service tax under the category of Business Auxiliary Service.
2. Imposition of penalties on the appellants.
3. Application of the larger period of limitation for issuing the show cause notice.
4. Nature of transactions between the appellants and purchasers.
5. Reimbursement of expenses through debit notes.
6. Denial of Cenvat Credit.

Detailed Analysis:

1. Confirmation of Demand for Service Tax:
The primary issue was whether the appellants were liable to pay service tax under the category of Business Auxiliary Service for the expenses incurred and recovered through debit notes. The department contended that the appellants procured services that were inputs for their clients, thus rendering Business Auxiliary Service as defined under clause (iv) of Section 65 (19) of the Finance Act 1994. The appellants argued that their transactions were purely of sale and purchase, and the split invoices and debit notes for expenses did not constitute a service.

2. Imposition of Penalties:
Penalties were imposed on the appellants for the alleged non-payment of service tax. The appellants contested this, arguing that they had no intent to evade tax and that their actions were in line with the understanding that their transactions were sales, not services.

3. Application of the Larger Period of Limitation:
The show cause notice was issued on 18-4-2013 for the period from 1-10-2007 to 5-1-2012, invoking the extended period of limitation under the Proviso to Section 73 (1) of the Finance Act 1994. The appellants argued that the extended period was not applicable as there was no willful suppression or mis-statement of facts. They pointed out that their records had been audited multiple times, and the DGCEI had previously closed an inquiry in 2010 after examining the same documents.

The tribunal found that the larger period of limitation was not applicable as the appellants' actions did not constitute willful suppression or mis-statement. The DGCEI's closure of the inquiry in 2010 supported the appellants' bona fide belief that no service tax was due.

4. Nature of Transactions:
The tribunal examined whether the transactions were of sale and purchase or if they involved the provision of services. The appellants sold goods stored in a customs bonded warehouse and issued debit notes for expenses incurred. The tribunal noted that the transactions appeared to be sales, and splitting the price to show expenses separately did not convert the transactions into services.

5. Reimbursement of Expenses:
The appellants issued debit notes for expenses like banking, L/C charges, etc., incurred during the sale of goods. The tribunal referenced the Delhi High Court's decision in Intercontinental Consultants & Technocrats P. Ltd v UOI, which held that service tax could not be levied on reimbursed expenses. This supported the appellants' argument that the debit notes were not for services rendered but for reimbursement of expenses.

6. Denial of Cenvat Credit:
The department's contention that the denial of Cenvat Credit should be reconsidered if the demand for service tax was set aside was addressed. The tribunal found that the same reasoning for setting aside the service tax demand on the grounds of limitation applied to the Cenvat Credit issue, thus no interference with the Commissioner's order on Cenvat Credit was necessary.

Conclusion:
The tribunal set aside the impugned order demanding service tax, interest, and imposing penalties on the appellants on the ground of limitation, providing consequential relief. The transactions between the appellants and purchasers were considered sales, and the reimbursement of expenses through debit notes did not constitute a taxable service. The decision was pronounced in court on 31.07.2014.

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