2017 (5) TMI 1303 - AT - Service Tax

Business Auxiliary Service - commission paid to the overseas agents as a consideration for providing marketing services - reverse charge mechanism - Held that - a purported revenue neutral situation cannot, by any means, mitigate a tax liability of an assessee, which is otherwise payable in view of clear legal position of charging section and the tax entry, found correctly applicable to the assessee. The whole scheme of CENVAT credit as envisaged by the Cenvat Credit Rules, 2004 will become redundant if the proposition of revenue neutrality is invoked for non-payment of service tax or duty on inputs/input services. Such interpretation of law will be against the very basis of value added taxation and leaves the discharge of tax liability to the discretion of the assessee. Extended period of limitation - Held that - the tax liability under reverse charge basis itself is a new concept and was subjected to various litigations and clarifications. In such situation, there is no scope for invoking extended period for demand of service tax. There is no case for fraud, collusion, willful mis-statement or suppression of facts with intent to evade service tax in these cases. Accordingly, we hold the service tax liability should be restricted to the normal period available u/s 73 (1) of the FA, 1994. The Hon ble Supreme Court in Thirumalai Chemicals Ltd. vs. Union of India 2011 (4) TMI 489 - SUPREME COURT OF INDIA held that law of limitation is generally regarded as procedural and its object is not to create any right but to prescribe periods within which legal proceedings be instituted for enforcement of rights which exist under substantive law. The appellants are liable to service tax on reverse charge basis in respect of commission paid to foreign agents. Such liability will be only w.e.f. 18/04/2006 and restricted to the normal period of demand - penalty set aside - appeal disposed off - decided partly in favor of assessee.

Issues Involved:
1. Service tax liability on reverse charge basis for commission paid to overseas agents.
2. Entitlement to Cenvat credit and its refund.
3. Revenue neutrality as a defense.
4. Applicability of time bar for demands.
5. Validity of demands for the normal period when extended period demands are unsustainable.
6. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Service Tax Liability on Reverse Charge Basis:
The core issue in these appeals was the service tax liability of the appellants on a reverse charge basis concerning the commission paid to overseas agents for marketing services, categorized under "Business Auxiliary Service" (BAS). The period in question ranged from 18/04/2006 to 06/07/2009. The Original Authority confirmed the service tax liability from 18/04/2006 as per Section 66A of the Finance Act, 1994. The appellants did not contest the categorization of services under BAS but raised other technical grounds.

2. Entitlement to Cenvat Credit and Its Refund:
The appellants argued that they were entitled to Cenvat credit on the service tax demanded and that this credit was refundable under Rule 5 of the Cenvat Credit Rules, 2004, or Rule 18 of the Central Excise Rules, 2002. They also claimed eligibility for exemption under Notification 41/2007-ST, as amended by Notification No.17/2008-ST for part of the period. However, the Tribunal noted that the eligibility for credit and refund was subject to various conditions and supporting evidence, which were not before them for decision.

3. Revenue Neutrality as a Defense:
The appellants contended that the situation was revenue neutral, as the tax paid would be available as credit, making the demand unsustainable. They cited case laws, including Taxyard International vs. CCE, Trichy, where the Tribunal set aside the demand due to revenue neutrality and limitation. However, the Tribunal clarified that revenue neutrality could not be a general defense for non-payment of tax. It could only support the appellants' case of bonafide belief against service tax liability and defend against penal action or extended period demands.

4. Applicability of Time Bar for Demands:
The appellants argued that major portions of the demands were time-barred, citing a bonafide belief regarding the non-taxability of services rendered abroad and a Board Circular dated 08/10/2001. The Tribunal found that the demands invoking the extended period were not sustainable, as the issue involved interpretation of law, and there was no fraud, collusion, willful mis-statement, or suppression of facts with intent to evade tax. Thus, the service tax liability was restricted to the normal period under Section 73 (1) of the Finance Act, 1994.

5. Validity of Demands for the Normal Period When Extended Period Demands Are Unsustainable:
The appellants contended that if the demand for the extended period was unsustainable, it could not be upheld for the normal period either. They referenced the amendment to Section 73 effective from 10/05/2013 and the decision in Infinity Infotech Parks Ltd. vs. Union of India. The Tribunal, however, noted that the normal period demand could still stand even if the extended period demand was invalid. The Tribunal cited the Hon'ble Supreme Court's decision in Thirumalai Chemicals Ltd. vs. Union of India, emphasizing that the right to recover unpaid tax is substantive, while the period of limitation is procedural.

6. Imposition of Penalties:
The Original Authority had not imposed penalties except in two cases. The Tribunal found no justification for penalties, as the issue was one of law interpretation, and there was no evidence of suppression or intent to evade tax. Therefore, the penalties imposed in the two cases were set aside.

Conclusion:
The appellants were liable to pay service tax on reverse charge basis for the commission paid to foreign agents, but only for the normal period starting from 18/04/2006. The demands for the extended period were not sustainable, and no penalties were justified. The appeals were disposed of accordingly.

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