2016 (8) TMI 797 - HC - Service Tax

Business auxiliary services - reverse charge mechanism sales promotion expenses pertained to business expenditure to promote its products by conducting the doctor meetings, scientific sessions with doctors, distributing physician samples, printing of literatures, printing of gimmicks, printing of visual aids, supporting hospitals and clinics to purchase medical instruments, field business meeting to discuss about market trends and strategies, sales target related incentives to field personnel etc. failure to obtain registration and file ST-3 returns. Held that - The service provider is not situated outside India - No case was set up by the department that in the present case, such reverse charge mechanism applies. - no reverse charge mechanism exists. Calling upon the service recipient to pay service tax in absence of reverse charge mechanism is an unsustainable premise. Providing taxable service by petitioner receiving taxable service by petitioner under section 66A - absence of proposal in SCN Held that - Mere reference to the statements of the officers of the company which may have a hint of any such providing of service, would not enable the department to levy service tax without a show cause notice and adjudication on this aspect. Relegate the petitioner to appellate remedy Held that - Commissioner had no jurisdiction to levy tax in absence of any finding that the petitioner had provided a taxable service. When the issue rests only on admitted facts and when on the basis of such admitted facts, it is found that the Commissioner of Service Tax had no jurisdiction to levy service tax on the petitioner, relegating the petitioner to appellate remedy would be futile and would cause unnecessary hardship to the petitioner impugned order set aside - petition allowed decided in favor of petitioner.

Issues Involved:
1. Liability of the petitioner to pay service tax on sales promotion expenses.
2. Jurisdiction of the Commissioner of Service Tax to levy service tax on the petitioner.
3. Applicability of reverse charge mechanism.
4. Alleged suppression of facts by the petitioner.
5. Imposition of interest and penalties under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Liability of the petitioner to pay service tax on sales promotion expenses:
The petitioner, a company engaged in the manufacture and distribution of pharmaceutical products, was issued a show cause notice by the Commissioner of Service Tax, Daman, demanding service tax for sales promotion expenses under the category of 'Business Auxiliary Service'. The petitioner contended that these expenses were incurred for business promotion activities such as doctor meetings, scientific sessions, and distribution of physician samples, which were services obtained from Indian service providers. Therefore, the petitioner argued that they were not liable to pay service tax on such services.

2. Jurisdiction of the Commissioner of Service Tax to levy service tax on the petitioner:
The petitioner challenged the jurisdiction of the Commissioner to levy service tax, arguing that service tax is generally levied on the service provider unless a reverse charge mechanism is applicable. The court noted that the show cause notice and the final order did not establish that the petitioner provided any taxable service. The court concluded that the Commissioner had no jurisdiction to levy service tax on the petitioner based on the facts presented.

3. Applicability of reverse charge mechanism:
The court examined the provisions of Section 66A of the Finance Act, 1994, which pertains to the reverse charge mechanism. The court found that the show cause notice and the final order did not make a case for the applicability of the reverse charge mechanism. The court held that the petitioner, as a recipient of services, was not liable to pay service tax in the absence of a specific notification or provision invoking the reverse charge mechanism.

4. Alleged suppression of facts by the petitioner:
The show cause notice alleged that the petitioner had intentionally suppressed facts by not obtaining service tax registration and not filing ST-3 returns. The court, however, found that the department's case was based on the premise that the petitioner had received services in the nature of Business Auxiliary Service. The court noted that the petitioner had disclosed the nature of expenses and had contended that these were routine business expenses. The court did not find sufficient grounds to uphold the allegation of suppression of facts.

5. Imposition of interest and penalties under the Finance Act, 1994:
The Commissioner of Service Tax, in the impugned order, confirmed the demand for service tax along with interest and imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The court, however, quashed the impugned order, holding that the petitioner was not liable to pay service tax on the sales promotion expenses. Consequently, the question of interest and penalties did not arise.

Conclusion:
The court quashed and set aside the impugned order dated 29.1.2016 passed by the Commissioner of Service Tax, holding that the petitioner was not liable to pay service tax on the sales promotion expenses. The court found that the Commissioner had no jurisdiction to levy service tax on the petitioner based on the facts and the applicable legal provisions. The petition was allowed and disposed of, and the court did not find it necessary to remand the proceedings for fresh consideration.

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