2017 (3) TMI 616 - AT - Service Tax

Franchise Service - Extended period of limitation - it is submitted that since the business activities of the appellant were known to the Department, suppression of facts cannot be alleged - Held that - relying on the Code of Ethics and Rules provided by the appellant, ld. Adjudicating authority has arrived at the conclusion that the services provided by the appellant confirmed to the definition of Franchise Service for the purpose of levy of Service Tax. The consistent position of law with regard to applicability of the proviso to Section 73(1)/Section 11A ibid has been that suppression cannot be established where material facts were within the knowledge of the Revenue. Accordingly, where there is no suppression, the pre-condition for applicability of proviso to Section 73(1) cannot be said to be met and hence, extended period of limitation contemplated therein cannot be invoked - In the case in hand, since the modus operandi adopted by the appellant for selling its products were known to the Department and based on the information/documents furnished by the appellant in 2005, the show cause proceedings were initiated by the Department on 12.03.2009, seeking confirmation of service tax demand under Franchise Service for the period October 2003 to March 2007, we are of the considered view that the proceedings are barred by limitation of time - the appeal should succeed on the ground of limitation. Whether service tax amounting to ₹ 1,60,68,000/- under Business Auxiliary Service and ₹ 46,08,759/- on Intellectual Property Right Service under reverse charge mechanism are required to be demanded along with interest? - Held that - It is an admitted fact on record that the amount of ₹ 7,38,61,083/- and ₹ 23,24,00,000/-, reflected in the books of accounts of appellant as outstanding as on 10.05.2008, were towards services received from abroad from the associated companies. Since on the date of amendment of Section 67 ibid and Rule 6 ibid, such amounts were reflected under outstanding receipts, the appellant is liable to pay service tax on such amount under reverse charge mechanism as per Section 66A ibid - service tax amounting to ₹ 46,08,759/- and ₹ 1,60,68,000/- paid by the appellant and appropriated in the impugned order are in conformity with the service tax statute - Since, the appellant had delayed in making such payment, interest amount thereon are required to be paid, since the same is compensatory in character. Appeal disposed off - decided partly in favor of appellant.

Issues Involved:
1. Whether the demand for service tax under 'Franchise Service' is barred by limitation.
2. Whether service tax under 'Business Auxiliary Service' and 'Intellectual Property Right Service' is payable along with interest.

Detailed Analysis:

1. Limitation on Demand for Service Tax under 'Franchise Service':
The appellant argued that the demand for service tax under 'Franchise Service' is barred by limitation since the Department had complete knowledge of the appellant's business activities as early as 2005. The appellant had provided detailed information to the Department in response to a summons, and thus, suppression of facts could not be alleged. The appellant cited several Supreme Court judgments to support their claim that in the absence of fraud, collusion, or wilful misstatement, the extended period of limitation could not be invoked.

The Department contended that the extended period of limitation was applicable as the audit conducted in 2008 revealed the appellant's activities, which were previously suppressed. The Department relied on Supreme Court judgments to argue that the extended period of limitation was justified.

The Tribunal found that the Department had knowledge of the appellant's business activities since 2005, based on the documents submitted by the appellant. The Tribunal emphasized that the extended period of limitation could only be invoked in cases of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade tax. Since the relevant facts were already within the Department's knowledge, the extended period of limitation could not be invoked. Consequently, the demand for service tax under 'Franchise Service' was barred by limitation.

2. Service Tax under 'Business Auxiliary Service' and 'Intellectual Property Right Service':
The appellant had paid service tax amounts of ?1,60,68,000 and ?46,08,759 under 'Business Auxiliary Service' and 'Intellectual Property Right Service' respectively, based on the audit findings. The appellant contended that the amendment to Section 67 of the Finance Act, 1994, which included amounts debited or credited in the books of accounts for associated enterprises, could not be applied retrospectively.

The Tribunal noted that Section 67 and Rule 6 of the Service Tax Rules, 1994, were amended w.e.f. 10.05.2008 to include amounts debited or credited in the books of accounts for associated enterprises. The amounts in question were reflected as outstanding in the appellant's books of accounts as on 10.05.2008, and thus, the appellant was liable to pay service tax under the reverse charge mechanism as per Section 66A of the Finance Act, 1994. The Tribunal held that the service tax amounts paid by the appellant and appropriated in the impugned order were in conformity with the service tax statute. Additionally, the interest on delayed payment was justified as it was compensatory in nature.

Conclusion:
The appeal was partly allowed. The Tribunal set aside the impugned order to the extent of the confirmation of service tax demand of ?8,01,68,254 along with interest and imposition of penalties under 'Franchise Service'. However, the demand for service tax under 'Business Auxiliary Service' and 'Intellectual Property Right Service' along with interest was upheld.

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