2017 (9) TMI 1002 - AT - Service Tax

Business Auxiliary Services - appointment of general sales agents (GSAs) to perform various tasks - Held that - there is no dispute on the fact that the appellant appointed general sales agents (GSAs) to perform various tasks on their behalf as mentioned in the relevant agreement - General Sales Agents on behalf of the appellant were required to perform various functions which are mainly in the nature of promotion and marketing of business of the appellant in their respective territories and towards their main function of promotion of the business of the appellant, the GSAs could undertake incidental and ancillary activities related to the main function. Services which have been mentioned above and which are covered under the definition of Business Auxiliary Service (BAS) and under the definition of Maintenance or Repair Service have been factually received by the appellant, though receipt is outside India. The appellant does not dispute the fact of receipt of these services. The appellant contests that these services have been provided to them wholly outside India and they have been received by their branches/entities outside India; therefore, they cannot be taxed under reverse charge mechanism contained in Section 66A of the Finance Act, 1994. However, the agreement made with the foreign vendors in case of repaired maintenance service also makes an express provision that service was to be provided both outside India and within India. But this provision that service was to be provided both outside and inside India will not affect the liability of Service Tax of the appellant. The fact is that the appellant was provided these services outside India and under reverse charge mechanism (Section 66A of the Finance Act, 1994) the appellant is liable for payment of Service Tax for such services - thus, from the provisions of Section 66A given above, it is clear that the appellant is liable for payment of Service Tax on subject services received with effect from 18/04/2006, when the provisions of Section 66A of the Finance Act, 1994 came into force, mainly for the reason that they have their main established business, fixed establishment and permanent address in India only. There is no dispute that the appellant is located in India. There is also no dispute that the services of GSAs and the foreign vendors providing repair and maintenance service have been received and consumed by the appellant; the appellant paid for the same to GSAs & foreign vendors and they are the beneficiary of the same. The fact that those services were received outside India will not change the fact that the services have been paid for by the beneficiary appellant, who is located in India and benefits have been received by the appellant, who has got their fixed establishment and permanent address in India only. Thus they fulfill the conditions mentioned in the provisions of Section 66A of the Finance Act, 1994 for levying the Service Tax under the reverse charge mechanism provided therein for the subject services. As per the facts on record the appellant fails to establish their bonafide belief, therefore, they cannot find any relief in law either from liability of payment of service tax, or imposition of penalty, even when the SCN has been issued for the extended period of five years in terms of Section 73 (1) of the Finance Act of 1994 - Further the appellant has failed to prove their bonafides and when the lapse of non-payment of Service Tax cannot be attributed to any bonafide belief or genuine reason on the part of the appellant, they are not entitled to the benefit of waiver of penalty under the provisions of Section 80 of the Finance Act, 1994 also. Appeal dismissed - decided against appellant.

Issues Involved:
1. Liability to pay service tax on services received from outside India.
2. Applicability of the "Business Auxiliary Service" and "Maintenance or Repair Service" definitions.
3. Invocation of the extended period for issuing a show cause notice.
4. Imposition of penalties on the appellant.

Detailed Analysis:

1. Liability to Pay Service Tax on Services Received from Outside India:
The appellant, M/s Air India Limited, was alleged to have not paid service tax on services received from foreign service providers under "Maintenance & Repairs Services" and "Business Auxiliary Services." The services were paid for in convertible foreign exchange and performed outside India. Under Section 66A of the Finance Act, 1994, services received from outside India are taxable if the recipient is located in India. The Tribunal held that the appellant, having its main establishment in India, is liable to pay service tax under the reverse charge mechanism, regardless of where the services were performed.

2. Applicability of "Business Auxiliary Service" and "Maintenance or Repair Service" Definitions:
The services provided by General Sales Agents (GSAs) and foreign vendors were categorized under "Business Auxiliary Services" and "Maintenance or Repair Services" as per Sections 65(19) and 65(64) of the Finance Act, 1994. The Tribunal found that the activities performed by GSAs, such as marketing and sales promotion, fall under "Business Auxiliary Services." Similarly, services related to the maintenance and repair of aircraft components are covered under "Maintenance or Repair Services." The Tribunal confirmed that these services, although performed outside India, were received and paid for by the appellant, making them liable for service tax under the reverse charge mechanism.

3. Invocation of the Extended Period for Issuing a Show Cause Notice:
The appellant argued against the invocation of the extended period for issuing a show cause notice, claiming no intention to evade tax and citing their status as a government entity. The Tribunal noted that the appellant was aware of the service tax liability from January 2006 but failed to comply. This negligence and failure to disclose relevant information constituted suppression of facts, justifying the extended period for issuing the show cause notice under Section 73(1) of the Finance Act, 1994.

4. Imposition of Penalties on the Appellant:
The appellant contended that penalties should not be imposed due to their bona fide belief that no tax was payable. However, the Tribunal rejected this defense, emphasizing that the appellant's negligence and failure to act diligently resulted in non-payment of service tax. The Tribunal cited the case of Bharat Petroleum Corporation Ltd. to assert that public sector entities are not exempt from tax laws. Consequently, the Tribunal upheld the imposition of penalties, finding no grounds for waiver under Section 80 of the Finance Act, 1994.

Conclusion:
The Tribunal dismissed the appeal, sustaining the impugned order. The appellant was held liable for service tax on services received from outside India under the reverse charge mechanism, and the extended period for issuing a show cause notice was deemed applicable. Penalties were imposed due to the appellant's failure to demonstrate bona fide belief or genuine reason for non-payment of service tax. The judgment emphasized the uniform application of tax laws to both public and private sector entities.

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