2015 (10) TMI 2728 - AT - Service Tax

Reverse Charge Mechanism - relevant time - appellant had availed the services of the Consultant who are situated abroad - case of appellant is that the Service Tax liability under the reverse charge mechanism is applicable from 18-4-2006 only and prior to that tax liability would not arise on the appellant - invocation of extended period of limitation - Penalty - Circular No. 276/8/2009-CX-8A dated 26-9-2009. Held that - The Service Tax demand for the period April 2009 to Dec. 2009 is to be upheld as confirmed by the adjudicating authority along with interest as undoubtedly Service Tax liability is due under the provisions of Section 66A of the Finance Act 1994 - the Service Tax liability for the period April 2009 to December 2009 upheld along with interest. Penalty - Held that - There is no necessity to impose the penalty on the appellant as the entire issue was disputed and it is a question of interpretation - penalty set aside. Appeal allowed in part.

Summary

Issues:
1. Liability to discharge Service Tax under reverse charge mechanism for services availed from foreign consultants.
2. Applicability of Service Tax liability for the period April 2005 to December 2009.
3. Imposition of penalties under various categories.

Analysis:

Issue 1: Liability to discharge Service Tax under reverse charge mechanism for services availed from foreign consultants
The appellant was issued a show cause notice for not discharging Service Tax liability on amounts remitted to foreign consultants under the reverse charge mechanism. The investigating authority confirmed the demands raised with interest and penalties. The appellant argued that the tax liability under reverse charge mechanism is applicable from 18-4-2006 onwards and not prior to that date. The Tribunal agreed with the appellant, citing the settled law by the Hon'ble Bombay High Court and the Apex Court that the Service Tax liability under reverse charge mechanism does not arise before 18-4-2006. Therefore, the demand for the period prior to 18-4-2006 was set aside, including interest and penalties.

Issue 2: Applicability of Service Tax liability for the period April 2005 to December 2009
For the period from 18-4-2006 to December 2009, the appellant contested the imposition of the extended period for demand of Service Tax liability. The Tribunal noted that the issue was being debated in various forums, and the Central Board of Excise and Customs (C.B.E. & C.) clarified the liability under reverse charge mechanism starting from 18-4-2006. Considering the confusion and ongoing legal discussions during the relevant period, the Tribunal held that the extended period cannot be invoked. The appeal was allowed for this period, and demands, interest, and penalties were set aside.

Issue 3: Imposition of penalties under various categories
The Tribunal upheld the Service Tax demand for the period April 2009 to December 2009, along with interest, as the liability was confirmed by the adjudicating authority. However, regarding penalties, the Tribunal found no necessity to impose them on the appellant due to the disputed nature of the issue and it being a question of interpretation. Therefore, the penalties imposed were set aside.

In conclusion, the appeal was disposed of with relief granted to the appellant for the periods where the demands were set aside based on the non-applicability of the reverse charge mechanism and the lack of necessity for penalties due to the disputed nature of the issue.