2017 (4) TMI 225 - AT - Service Tax

Delayed payment of tax - reverse charge - whether a notice u/s 73(1) of FA, can demand interest or, for that matter, whether a penalty can be imposed for non-payment of interest? - Held that - The inclusions and exclusions with particular reference to the transactions of associate enterprise for computation of the tax liability is the intention of the valuation section. It does not purport or pretend to determine the point in time when tax becomes liable. That is envisaged elsewhere but, not having been invoked in the show cause notice, is not relevant in this proceeding. Consequently, the finding advanced in the impugned order to fix the moment of taxability by reference to the quantification provision does not have to be examined further - appeal allowed - decided in favor of assessee.

Summary

Issues:
- Applicability of Explanation (c) in section 67 of Finance Act, 1994 to tax held as payable under section 66A of Finance Act, 1994.
- Dispute regarding interest liability on 'intellectual property services' and royalty payment to an associated enterprise.

Analysis:

1. The appeal involved a dispute regarding the applicability of Explanation (c) in section 67 of the Finance Act, 1994 to tax held as payable under section 66A of the same Act. The appellant, a manufacturer registered under the Act for service tax on a reverse charge basis, was alleged to have delayed payment of tax on various services during an audit, leading to the identification of interest liabilities.

2. The appellant contested the interest liability on 'intellectual property services,' specifically related to royalty payments made to an associated enterprise. The disagreement stemmed from the timing of the payment made to the associated enterprise, with the appellant arguing that the payment was made in 2009, not in the period under consideration (2008), thereby disputing the interest liability.

3. The appellate authority considered the contentions of both parties and examined the relevant provisions of the Finance Act, 1994. The appellant's argument centered around the date on which the service was rendered and the tax liability thereon. The authority also noted the insertion of Explanation (c) in section 67 of the Act, which influenced the determination of the amounts due in 2008 itself.

4. The original authority invoked penalty provisions under section 76 of the Finance Act, 1994, for imposing penalties on the appellant. However, the appellate tribunal found that the penalty provisions were not intended to cover interest but only tax that was due on the date of the notice for the demand of tax. The tribunal concluded that the penalty imposed was disproportionate to the interest amount in dispute, leading to the setting aside of the impugned order.

5. The tribunal emphasized that the determination of the tax liability and the point in time when tax becomes payable are distinct concepts. The valuation section of the Act, particularly regarding transactions with associated enterprises, aims to assess the tax liability and does not determine the precise moment when tax becomes due. As such, the tribunal ruled in favor of the appellant, allowing the appeal and setting aside the impugned order.

In conclusion, the appellate tribunal's judgment delved into the intricacies of tax liability, interest payments, and penalty provisions under the Finance Act, 1994, ultimately ruling in favor of the appellant based on the interpretation of relevant legal provisions and the specific circumstances of the case.