2016 (11) TMI 522 - AT - Service Tax

Demand during the period 09.07.2004 to 31.12.2008 - Foreign Agent Commission - reverse charge mechanism - Held that - till 17.04.2006, no demand of service tax on reverse charge basis can be raised against the assessee in terms of law declared by the Hon ble Bombay High Court. For the subsequent period, we have seen that the Board circular holding that services provided outside India are not taxable was withdrawn only on 10.05.2007. Otherwise also, we note that the fact that the service tax of reverse charge was recently introduced and its scope was not clear and entertained various doubts, requiring issuance of various clarifications by the Board. In the facts and circumstances of the case that the services were provided outside India and tax liability fell on the appellant on reverse charge basis, a bona fide belief entertained by the appellant was justified. Further, the appellant has been reflecting the payment of commission in their balance sheet in which case, it can be held that there was no suppression or mis-statement on the part of the assessee so as to avoid the service tax payment with a mala fide intention. Reliance placed on the decision of the case Kirloskar Oil Engines Ltd. Vs. CCE, Nasik 2004 (8) TMI 259 - CESTAT, MUMBAI where it was held that balance sheet being a publicly available document, suppression of such information cannot be alleged and therefore, extended period was not invocable, interest not demandable and penalty not imposable under Sections 11A, 11AB and 11AC of Central Excise Act, 1994. The longer period of limitation is not available to the Revenue and accordingly demand beyond the period of limitation is set aside with confirmation of demand falling within the limitation period. Accordingly, we remand the matter to the original adjudicating authority for fresh decision. Such quantification should be done by the original adjudicating authority. As we have already held that there is no suppression or mala fide intention on the part of the appellant, the penalty imposed upon them is set aside in toto - appeal disposed off.

Summary

Issues:
Demand of service tax on reverse charge basis for 'Foreign Agent Commission' service received during a specific period. Invocation of longer period of limitation for subsequent period. Applicability of law prior to the introduction of Section 66A in the Finance Act, 1994. Bona fide belief of the assessee regarding service tax liability. Justification of penalties and interest imposition.

Analysis:

1. Demand of Service Tax on Reverse Charge Basis:
The judgment confirms a demand of service tax amounting to ?66,13,175 against the appellant for 'Foreign Agent Commission' service received between 09.07.2004 to 31.12.2008. The demand was based on the requirement to pay service tax on a reverse charge basis. The Show Cause Notice was issued on 27.05.2009.

2. Invocation of Longer Period of Limitation:
The appellant contested the demand for the subsequent period, arguing that the demand was confirmed by invoking a longer period of limitation. The appellant relied on the decision of the Hon'ble Bombay High Court prior to the introduction of Section 66A in the Finance Act, 1994, which held that no service tax liability would arise on reverse charge basis before 18.04.2006.

3. Applicability of Law Prior to Section 66A Introduction:
The appellant's advocate highlighted that the issue was subject to litigation and was finally decided by the Hon'ble Bombay High Court on 11.12.2008. The appellant believed that no service tax liability existed on reverse charge basis before the introduction of Section 66A. The withdrawal of a circular by the Board on 10.05.2007 further added to the confusion regarding the tax liability.

4. Bona Fide Belief of the Assessee:
The Tribunal acknowledged the appellant's bona fide belief regarding the service tax liability. It noted that the appellant had reflected the commission payments in their balance sheet, indicating transparency. The Tribunal cited a previous decision to support that balance sheet information is public and suppression of such details cannot be alleged.

5. Justification of Penalties and Interest Imposition:
The Departmental Representative argued against entertaining the appellant's bona fide belief, stating that the payments made were not available to the Revenue. However, the Tribunal found in favor of the appellant, setting aside the penalty and confirming the demand within the limitation period. The matter was remanded to the original adjudicating authority for a fresh decision.

6. Conclusion:
The Tribunal ruled that the longer period of limitation was not applicable to the Revenue, setting aside the demand beyond the limitation period. It upheld the demand falling within the limitation period and set aside the penalty imposed on the appellant. The appeal was disposed of accordingly, emphasizing the absence of suppression or mala fide intention on the part of the appellant.