2015 (8) TMI 794 - AT - Service Tax

Demand of service tax - Reverse charge mechanism - Import of services were being used for export of goods - whether appellant-assessees are eligible to the benefit of exemption of service tax under Business Auxiliary Service under Notification No.14/2004-ST dt. 10.9.2004 and whether assessees are liable for penalty as contended by Revenue - Held that - The lower authorities denied the exemption merely on the ground that the said services are not used for textile processing. On careful reading of the above notification, it is evident that service tax was exempted during the relevant period for the services provided under Business Auxiliary Service if it relates to agriculture, printing, textile processing or education. The appellants are Textile manufacturer and exporters - The exemption of service tax under BAS was allowed in relation to four industries namely agriculture, printing, textile processing and education. Therefore, the appellant being textile industry, it is covered under the category textile processing in the notification. Appellants being the exporter of textile made ups as per the Foreign Trade Policy are not expected to export the taxes. Appellants pleaded that there was no suppression of facts with deliberate intention to evade payment of service tax. As payment of service tax by the recipients was under dispute for a long period till that was settled by the decision of Apex Court in the case of UOI Vs Indian National Ship Owners Association - 2010 (12) TMI 12 - Supreme Court of India there was no deliberate intention to make suppression of facts. - Service tax if any payable under reverse charge is permissible to be availed as cenvat credit and that may be refundable under Notification No.41/2007 unless otherwise deniable by law. The provision made in Central Excise Rules and Cenvat Credit Rules ensures that tax is not added to the cost of export so that Indian exporter can compete with overseas market. service tax demanded entitles the appellants to the credit thereof and claim refund thereof under 41/2007 since it is stated by appellants that they have no other liability for which the exercise may become revenue-neutral. - Decided in favour of assessee.

Summary

Issues:
- Service tax demand on import of services under Business Auxiliary Services under reverse charge mechanism.
- Exemption under Notification No.14/2004-ST for textile manufacturers and exporters.
- Eligibility for penalty waiver under Section 76, 77 & 78 of the Finance Act, 1994.

Analysis:
1. Service Tax Demand under Business Auxiliary Services:
The appellants, textile manufacturer-exporters, engaged overseas commission agents for procuring export orders and paid commission. The issue revolved around whether the commission paid to overseas agents for export promotion activities falls under Business Auxiliary Services and is subject to service tax under reverse charge mechanism. The Notification No.14/2004-ST exempted taxable services related to business auxiliary services in agriculture, printing, textile processing, or education. The Tribunal found that the commission paid to overseas agents was incidental to textile processing, making the appellants eligible for exemption under the notification.

2. Exemption under Notification No.14/2004-ST:
The Tribunal analyzed the scope of the exemption provided under Notification No.14/2004-ST for services related to business auxiliary services in specific industries, including textile processing. The appellants' activities were deemed to fall under the category of textile processing, as the commission paid to overseas agents was considered an auxiliary activity to the production of textile goods for export. Therefore, the Tribunal concluded that the appellants were entitled to the exemption and not liable to pay service tax under reverse charge.

3. Penalty Waiver under Section 76, 77 & 78:
Regarding the penalty waiver, the Tribunal considered the arguments presented by both sides. The appellants contended that penalties should be waived, citing previous decisions supporting their stance. On the other hand, the Revenue argued against the waiver of penalties under Section 80 of the Finance Act, 1994. The Tribunal, after careful consideration, found in favor of the appellants, as the demand for service tax under reverse charge was set aside, rendering the question of imposing penalties moot. Consequently, the Revenue's appeal on penalty imposition was rejected, and the appellants' appeals were allowed.

In conclusion, the Tribunal ruled in favor of the appellants, setting aside the service tax demand under reverse charge and rejecting the Revenue's appeal on penalty imposition due to the waiver of penalties. The judgment emphasized the applicability of exemption provisions for textile manufacturers and exporters under Notification No.14/2004-ST and highlighted the importance of considering the nature of services provided in relation to the relevant industry for determining tax liabilities and exemptions.