2017 (3) TMI 420 - AT - Service Tax

Reverse charge mechanism - service of foreign agents - commission - demand for the period prior to 18.04.2006 in dispute - penalty - extended period - Held that - during the relevant period, there was admittedly a lot of confusion in the field and law was not clear either to the assessee or to the Revenue itself and lot of litigation was going on legal issue of payment of tax on reverse charge basis. The Tribunal in the case of Royal Travels vs CCE, Vadodara 2010 (9) TMI 104 - CESTAT AHMEDABAD has observed that once the penalty is not imposed or is set aside, the longer period of limitation cannot be invoked inasmuch as ingredients for both are same - the demand to be barred by limitation and accordingly, set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Imposition of penalty under Sections 76, 77, and 78 of Finance Act, 1994 for service tax demands.
2. Exemption of service tax on commission paid to foreign agents.
3. Willful mis-statement or suppression by the appellants.
4. Time limitation for demands beyond one year.

Analysis:

1. The appellants were issued two Show Cause Notices for different periods, and the demands were confirmed by the original adjudicating authority. However, penalties under Sections 76, 77, and 78 were not imposed for the demand pertaining to the extended period due to interpretational issues. The Order-in-Appeal corrected a mistake in the demands and deducted the overlapping amount. The Tribunal noted that if penalties were not imposed for the extended period due to interpretational issues, sustaining the demand for the extended period becomes questionable.

2. The appellants argued that the service tax on commission paid to foreign agents is exempt under Notification No. 41/2007-ST or available as Cenvat credit. The Tribunal considered this argument but focused on the issue of time limitation due to interpretational challenges regarding the reverse charge mechanism during the relevant period.

3. The appellants claimed no willful mis-statement or suppression on their part. The Tribunal acknowledged that the legal clarity during the relevant period was lacking, leading to confusion and ongoing litigation on the payment of tax on a reverse charge basis. The Tribunal referenced previous judgments highlighting the confusion in the field and the absence of clear law during that time.

4. The Tribunal referred to a Division Bench decision and observed that the confusion regarding the liability on a reverse charge basis existed before the introduction of Section 66A in the Finance Act, 1994. Considering the lack of clarity in the law and the absence of malafide intention on the appellants' part, the Tribunal held the demand to be barred by limitation. Citing precedents, the Tribunal set aside the impugned order and allowed the appeal with consequential relief, emphasizing that the longer period of limitation cannot be invoked when penalties are not imposed or are set aside.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT NEW DELHI addresses the issues raised by the appellants and the Tribunal's considerations regarding penalty imposition, service tax exemption, willful mis-statement, and time limitation for demands beyond one year.