2015 (12) TMI 442 - AT - Service Tax

Demand of service tax - Business Auxiliary service - Car rental service and Service tax on foreign exchange currency - Held that - Adjudicating authority has confirmed service tax demand on crate rentals under Business Auxiliary Service (BAS). The appellant has contended that the supply of crates amounted to deemed sale, which was liable to VAT/sales tax as the effective control and possession of the goods were transferred by the appellant. It is seen that Customs, Excise and Service Tax commissionerate, Thane-I, vide Order-in-Original No.93/BR-93/ Th-I/2012, dated 28.02.2012 confirmed the demand of central excise duty on amount collected as crate rental holding that the same was includible in the assessable value for the purpose of central excise duty. Hyderabad Commissionerate vide its Order-in-Original No.31/2011/Hyd-III/Adjn-ST, dated 15.12.2011 has dropped a similar service tax demand on crate rental. The onus to prove that the service tax is leviable is totally on Revenue. Similarly, the observation of the adjudicating authority that because the appellant never clarified as to why such amount was spent, it can be deduced that the payments made in foreign exchange were undoubtedly for the services received by the appellant in India in relation to the said taxable services is completely devoid of legal basis because it is Revenue which is required to establish that the amount of foreign exchange spent was for receiving taxable service from abroad. Further, the observation of the adjudicating authority that the appellant never clarified as to why such amount was spent is also not correct as the appellant gave details of the foreign exchange expenses and the purposes thereof. The observation of the adjudicating authority that, hence it is invariably admitted and stand proved that there is a direct nexus between the said expenditure and the taxable service is factually incorrect because the appellant never so admitted. While Revenue may not be required to prove the case with mathematical precision, it does not mean that Revenue can simply presume that all the foreign exchange payments were for obtaining taxable services from abroad and abdicate its responsibility to establish the case on the principle of preponderance of probability (though admittedly not with mathematical precision). Demand of service tax and penalty is set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Service tax demand on crate rentals under Business Auxiliary Service (BAS).
2. Service tax demand on foreign currency expenditure under reverse charge mechanism.

Detailed Analysis:

1. Service Tax Demand on Crate Rentals:

The major part of the demand pertains to service tax under Business Auxiliary Service (BAS) on crate rentals. The appellant contended that the crate rental collected was a consideration towards the transfer of the right to use (deemed sale) and was liable to VAT/CST (sales tax), not service tax. The appellant referenced the Andhra Pradesh High Court's judgment in W.P. No.25588 of 2007, which held that such rentals were liable to VAT/sales tax as they amounted to deemed sales. Additionally, various jurisdictional authorities had different interpretations, with some dropping the service tax demand and others confirming excise duty on crate rentals. The Tribunal concluded that transactions deemed as sales cannot be liable to service tax, making the service tax demand on crate rentals unsustainable.

2. Service Tax Demand on Foreign Currency Expenditure:

The appellant argued that the service tax liability on foreign currency expenditure should be based on actual payments rather than accrual basis. The adjudicating authority had confirmed the demand based on figures from the balance sheet prepared on an accrual basis, assuming all foreign currency payments were for taxable services received from abroad. The Tribunal found this approach legally unsound, stating that the onus to prove service tax liability rests with the Revenue, not the appellant. The adjudicating authority failed to provide specific transaction-wise reasons for the demand and did not properly address the appellant's contentions and evidence, including a Chartered Accountant's certificate and detailed breakup of foreign currency expenses. The Tribunal emphasized that not all foreign exchange expenditures are liable to service tax and that the Revenue must identify the specific taxable services imported.

Conclusion:

The Tribunal set aside the demands and penalties relating to crate rentals, deeming them unsustainable. Regarding the foreign currency expenditure, the Tribunal remanded the case for de novo adjudication, instructing the adjudicating authority to consider the appellant's contentions and provide a fair hearing. The penalties were to be recomputed based on the confirmed demand in the de novo proceedings. The stay applications filed by the appellant were also disposed of in light of the appeal's disposal.