2015 (1) TMI 383 - Commissioner - Service Tax

Valuation - computation of taxable value of import of services - Demand of differential tax - Evasion of tax - Intention to evade - Invocation of extended period of limitation - Imposition of interest and penalty - Held that - Section 67 of the Act clearly states about the concept of gross amount charged which in reverse charge mechanism also means the gross amount charged by the service provider or gross amount paid to the service provider. Thus, the amount which was paid to the overseas service provider has to be taken as the taxable value. Thus, it is clear that the amount booked initially was ₹ 25,26,67,577/- on which the appellants paid service tax, whereas the actual amount paid later on by the appellants, to the service provider, was ₹ 25,52,53,374/- in foreign currency, resulting into short payment of service tax of ₹ 2,66,337/-. Further, the appellants have contended that legal proposition laid down by explanation (c) supra would apply to transaction between unrelated parties also, I find that when law is amply clear that the explanation supra is meant for associated enterprise, there is no need to read between the lines. This fact is also strengthened by the rule of literal constriction which states that one of the fundamental principles of interpretation of statue is to interpret a statute from language used in it without adding any words to or subtracting any words from the statute, unless there are adequate grounds to justify the inference that the legislature intended something which it omitted to express and a corollary to this principle would be that an interpretation which renders some word or words in a statute redundant, must be avoided. Therefore, I hold that the reliance placed by the appellants are not sustainable and the service tax demand has been rightly upheld by the adjudicating authority. Validity of issue of SCN where service tax with interest have been deposited earlier - Extended period of limitation - Held that - as provided under Section 73(4) of the Act, once the extended period has rightly been invoked, the appellants had been rightly issued with the show cause notice, even if they had deposited the differential service tax alongwith interest before issuance of show cause notice. Levy of penalty u/s 78 - Held that - once the service tax demand is held to be sustainable and it has also been held that extended period had been rightly invoked, the appellants cannot escape the penalty as prescribed under Section 78 of the Act. Thus, I hold that adjudicating authority had rightly imposed the penalty under Section 78 - Decided against the assessee.

Summary

Issues Involved:
1. Demand of differential service tax due to exchange rate fluctuation.
2. Invocability of the extended period for demand.
3. Liability to pay interest.
4. Imposition of penalty.

Issue-wise Detailed Analysis:

1. Demand of Differential Service Tax:
The appellants were found to have made a payment of Rs. 25,52,53,374/- in foreign currency for various services but paid service tax on Rs. 25,26,67,577/-, resulting in a short payment of Rs. 2,66,337/-. The appellants argued that the difference arose due to exchange rate fluctuations and that service tax should be based on the amount booked initially. However, the judgment clarified that under Section 66A and Section 67 of the Finance Act, 1994, the taxable value should be the gross amount actually paid to the service provider. The adjudicating authority upheld the demand of Rs. 2,66,337/- as the correct taxable value was Rs. 25,52,53,374/-. The appellants' reliance on the case of M/s. Paul Merchants Ltd. and the C.B.E.C. Circular was rejected as inapplicable because the provisions clearly state that the gross amount charged should be considered for service tax, and the cited circular was specific to associated enterprises.

2. Invocability of the Extended Period:
The appellants contended that the show cause notice should not have been issued since they had paid the service tax and interest before its issuance. The judgment referred to Section 73(3) and 73(4) of the Act, which allow for the issuance of a show cause notice in cases involving fraud, collusion, wilful mis-statement, suppression of facts, or contravention of provisions with intent to evade tax. The judgment found that the appellants' failure to disclose the differential amount constituted suppression of facts, thus justifying the invocation of the extended period. The reliance on the Gujarat High Court ruling in the case of Commissioner of C. Ex., Surat-I v. Neminath Fabrics Pvt. Ltd. supported this view, emphasizing that the department's knowledge of the issue does not negate the extended period's applicability.

3. Liability to Pay Interest:
The judgment upheld the liability to pay interest under Section 75 of the Act once the demand for service tax was confirmed. The appellants' argument that interest was not applicable was dismissed as the cited case involved non-payment due to exemption, which was not relevant to the present case where service tax was payable.

4. Imposition of Penalty:
The appellants argued against the imposition of a penalty, claiming no suppression and a bona fide belief regarding the non-leviability of service tax on the differential amount. The judgment, however, found that once the service tax demand was upheld and the extended period invoked, the imposition of a penalty under Section 78 of the Act was justified. The appellants' reliance on various judgments was deemed unsustainable.

Conclusion:
The appeal was rejected, and the impugned order upheld, confirming the demand of Rs. 2,66,337/-, the applicability of the extended period, the liability to pay interest, and the imposition of penalty. The stay application was also disposed of accordingly.