2015 (7) TMI 429 - AT - Service Tax

Liability to discharge service tax on amounts which have been remitted by the appellants to foreign entities for the commission on the import of rough diamonds - Bonafide belief - Invocation of extended period of limitation - Held that - appellants have been taking a consistent plea before the adjudicating authority that they were under a bona fide belief that the writ petition which has been filed by them has been filed by them has been admitted and is still pending, hence they need not discharge any service tax liability. On perusal of the records, we find that factually appellants had filed writ petition on 8.9.2006 and it was admitted by the Hon ble High Court and departments Affidavit was filed on 29.9.2006, which admitted the contentions that the appellants were engaged in importing of rough diamonds and have paid commission to the brokers through whom they procured diamonds from DTC. If the department was aware of writ petition filed by the appellants and have filed an affidavit in September 2006, nothing prevented them from issuing protective demand notices in order to safeguard the Revenue. Appellants could have entertained a bona fide belief that the constitutional validity having been challenged by them in writ petition and the same being pending before the Hon ble High Court, they need not pay any service tax on the amount that is remitted to the brokers. This can be bona fide belief of the appellants, accordingly, the demand which has been confirmed against all the appellants by invoking the extended period of limitation are liable to be set aside - demands which are within the period of limitation from the date of issuance to the show cause notice needs to be upheld with interest and we do so, to that extent appeals are rejected. - Decided partly in favour of assessee.

Summary

Issues involved:
Appeal against confirmed service tax liability, interest, and penalties based on remittance to foreign entities for services received.

Analysis:
1. The appeals involved multiple appellants challenging the demand of service tax liability, interest, and penalties for remitting payments to foreign entities for services received. The issue revolved around the invocation of Section 66A of the Finance Act, 1994, for levy of service tax on services rendered by foreign entities.

2. The appellants, engaged in the diamond business, imported rough diamonds from the UK, ensuring they were conflict-free and certified. They paid commissions to brokers abroad, remitted through banking channels. Show cause notices were issued, leading to disputes on tax liability and limitation periods.

3. The appellants argued that a pending writ petition challenging the constitutional validity of service tax on foreign services absolved them from immediate tax liability. They claimed a bona fide belief based on the writ petition's pendency and the revenue department's awareness of the ongoing legal challenge.

4. The Revenue contended that the appellants failed to respond to requests for records, delaying the process. They cited legal precedents supporting tax liability even during pending legal challenges. The Revenue highlighted cases where failure to disclose relevant facts constituted suppression of facts to evade tax.

5. The Tribunal considered both parties' arguments and reviewed the case records. It acknowledged the settled law on service tax liability under the reverse charge mechanism from a specific date. However, it emphasized the appellants' consistent plea of bona fide belief due to the pending writ petition.

6. The Tribunal found that the Revenue's awareness of the writ petition and subsequent actions, including filing an affidavit, indicated knowledge of the ongoing legal challenge. It concluded that the extended period demands were not justified, given the appellants' genuine belief based on the pending writ petition.

7. Consequently, the Tribunal set aside the demands raised under the extended period but upheld demands within the statutory limitation period, with interest. Penalties imposed on the appellants were also overturned under Section 80 of the Finance Act, 1994, considering their justifiable belief in the pending legal challenge.

8. The Tribunal's decision on the appeals was to allow them in part, setting aside extended period demands and associated penalties while upholding demands within the limitation period. The judgment was pronounced on 29/5/2015 by the Tribunal.