2017 (8) TMI 603 - SC - Service Tax

Belated appeal - Import of services before 1.4.2006 - Business Auxiliary Service - commission paid to overseas agents - service tax was paid but no interest and penalty - maintainability of appeal - alternative remedy of appeal - Held that - The Joint Commissioner had passed the orders on February 27 2008. No statutory appeal was preferred by the appellant challenging that order. The writ petition was filed only in March 2012. During this period the appellant was also making payment towards service tax demanded by the respondents without challenging the order. The appellant now wants to take advantage of other litigation pending in respect of same subject matter. When the appellant had not challenged the demand and was merely sitting on the fence watching the proceedings in other similar cases the decision in those cases cannot furnish any cause of action to the appellant to file the writ petition. Law on this behalf is crystal clear. Though the service tax levied for the period in question was to the tune of 11, 62, 728/- which stands paid by the appellant liability on account of penalty and interest is also fastened upon the appellant. The legal position which is settled is that this service tax was not payable for the period in question i.e. July 9 2004 to March 31 2006 inasmuch as such a liability arises only w.e.f. April 18 2006 after the insertion of the relevant charging Section 66A in the Finance Act 1994. This legal position is not confined to only those who approached the Court but is a declaration of law. Equities would be balanced by not insisting on payment of penalty and interest. Thus when the appellant approached belatedly it may not be entitled to refund of service tax already paid but at the same time the appellant should not be called upon to pay any interest and penalty levied on a tax which was not payable at all in law. The High Court to this extent committed an error by not dealing with this aspect of the matter and dismissing the writ petition in its entirety - appeal allowed - decided partly in favor of appellant.

Summary

Issues Involved:
1. Validity of demand confirmed by the Joint Commissioner of service tax.
2. Dismissal of writ petition due to delay and laches.
3. Applicability of service tax on commission paid to overseas agents.
4. Explanation for delayed approach to the Court.
5. Impact of other litigations and Ministry of Finance circular on the appellant's case.
6. Liability for penalty and interest on the service tax.

Issue-wise Detailed Analysis:

1. Validity of demand confirmed by the Joint Commissioner of service tax:
The appellant challenged the demand confirmed by the Joint Commissioner of service tax dated February 27, 2008, for non-payment of service tax on 'commission paid to overseas agents' under 'Business Auxiliary Service'. The High Court dismissed the writ petition as barred by delay and laches of four years, which was affirmed by the Division Bench.

2. Dismissal of writ petition due to delay and laches:
The writ petition was filed in March 2012, four years after the demand was confirmed. The High Court dismissed it due to delay and laches. The Supreme Court noted that the appellant did not file a statutory appeal immediately and started making payments towards the service tax in installments, indicating acquiescence.

3. Applicability of service tax on commission paid to overseas agents:
The appellant contended that service tax was not payable on amounts remitted to overseas agents prior to June 16, 2005, due to the inapplicability of The Finance Act, 1994. However, the Joint Commissioner confirmed the demand, and the appellant paid the service tax but did not pay the penalty and interest.

4. Explanation for delayed approach to the Court:
The appellant explained the delay by citing the loss of the file due to a managerial change and the dissolution of the partnership firm. Additionally, the appellant relied on other litigations where it was held that service tax was not payable before April 18, 2006, when Section 66A was inserted in the Finance Act, 1994.

5. Impact of other litigations and Ministry of Finance circular on the appellant's case:
The appellant argued that the Ministry of Finance's circular dated September 26, 2011, stated that service tax liability on services provided by non-residents would arise only from April 18, 2006. The Supreme Court noted that this circular applied to 'pending disputes' and not to cases already resolved, thus not aiding the appellant.

6. Liability for penalty and interest on the service tax:
The Supreme Court acknowledged that the legal position was settled that service tax was not payable for the period in question (July 9, 2004, to March 31, 2006). Therefore, while the appellant was not entitled to a refund of the service tax already paid, it should not be liable for penalty and interest on a tax that was not payable in law. The appeal was partly allowed by setting aside the demand for interest and penalty.

Conclusion:
The Supreme Court concluded that the High Court erred in dismissing the writ petition in its entirety without addressing the issue of penalty and interest. The appeal was partly allowed by setting aside the demand for interest and penalty, ensuring that the appellant was not unduly penalized for a tax liability that was not legally enforceable. No costs were awarded.