2019 (8) TMI 1508 - AT - Service Tax

Change of Classification - Advertising Agency Service to Business Auxiliary Service - period prior to April,18, 2006 - reverse charge mechanism - HELD THAT - It is now well settled that the reverse charge mechanism became effective only from 18.04.2006, when Section 66A was enacted and inserted in the Finance Act, 1994 - The Revenue cannot argue in respect of the aforesaid amount on the ground that no proceeding can be initiated claiming service tax on reverse charge basis for the period prior to 18.04.2006, when Section 66A of the Finance Act, 1994, was enacted and the reverse charge mechanism became effective. Demand under the category of Advertising Agency Service - period from 18.04.2006 - HELD THAT - The foreign buyers raised debit notes in respect of the cost of the free samples, which was reimbursed by the respondent. The Commissioner has analyzed the provisions of the Finance Act, 1994 relating to taxation of Advertising Agency Service and held that reimbursement of cost of free samples, was not taxable under the said category. It would appear from the grounds (iii) of appeal that the Revenue now seeks to tax the amount under Business Auxiliary Service upon the basis that the non-resident was the agent of the respondent and distributed the samples in order to promote the product. Revenue has sought to change the classification from Advertising Agency Service to Business Auxiliary Service . Not only that, the change of classification, is based on the new factual allegation that the non-residents were the respondent s agent. No such case on facts was made out in the show-cause notice. It is found that the respondent sold its goods to overseas customers, who paid the full value of the invoices. The overseas customers provided some of the goods free to their customers as samples and raised debit notes upon the respondents for reimbursement of such free samples. Such reimbursement by the respondent in effect amounted to providing discount to the customers, who had already paid for the goods purchased from the respondents. The overseas customers merely sold the goods purchased from the respondent and gave free samples to their customers as part of their selling effort. The overseas customers did not thereby render any service to the respondent and the question of any consideration for any service does not arise. The overseas customers only sought reimbursement of the cost of the goods provided free to their customers - It is now well settled law, in view of the decision of the UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT that prior to 14.05.2015, the service tax was not payable in respect of reimbursements - In the present case, the period involved is 2006-07. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Appeal against dropping of demand under show-cause notice.
2. Taxability of specific claims under different service categories.
3. Change of classification from "Advertising Agency Service" to "Business Auxiliary Service."
4. Applicability of reverse charge mechanism for the period prior to 18.04.2006.

Analysis:

1. The appeal was filed by the Revenue against the dropping of the demand under a show-cause notice. The period in dispute ranged from October 2002 to 31.03.2007. The appeal specifically addressed claims related to Management Consultancy Service, Courier Service, Advertising Service, and Reimbursement of Expenses.

2. Regarding the amount of Rs. 1,15,44,169/- for the period prior to April 18, 2006, the Tribunal referred to the enactment of Section 66A in the Finance Act, 1994, which established the reverse charge mechanism effective from 18.04.2006. Citing various High Court judgments and a Board instruction, it was concluded that no proceeding could be initiated for service tax on a reverse charge basis for the period before 18.04.2006.

3. The remaining amount of Rs. 37,47,412/- for the period from 18.04.2006 was in dispute under the category of "Advertising Agency Service." The Commissioner had previously ruled that the reimbursement of the cost of free samples was not taxable under this category. However, the Revenue sought to tax this amount under "Business Auxiliary Service" by alleging that the non-resident acted as the respondent's agent in distributing samples to promote the product.

4. The argument presented by the respondent's advocate emphasized that the change in classification from "Advertising Agency Service" to "Business Auxiliary Service" was based on new factual allegations not included in the show-cause notice. It was contended that the reimbursement of the cost of free samples amounted to providing discounts to customers who had already paid for the goods, and no service tax could be levied on such discounts. The Tribunal agreed with this argument, citing established law and the fact that the overseas customers did not render any service to the respondent.

5. Ultimately, the Tribunal found no reason to interfere with the impugned order and upheld the decision. The appeal filed by the Revenue was rejected, and the operative part of the order was pronounced in open court.