2018 (9) TMI 503 - AT - Service Tax

Banking and Other Financial services - reverse charge mechanism - Section 66A of the Finance Act, 1994 read with Rule 2 (1)(4) of Service Tax Rules, 1994, and read with Rule 3 of Taxation of Services (provided from outside and received in India) Rules 2006 - appellant assessee have availed services of certain foreign based agencies for receiving external foreign commercial borrowings (ECB) from abroad - Time Limitation. Held that - As per the provisions of Section 66A of the Finance Act, 1994 read with Rule 3 of Taxation of Services (provided from Outside India and received in India) Rules, 2006, the recipient of services needs to discharge their service tax liability as if such services have been performed in India. It is categorically been provided that even if a part of borrowings have been used abroad for the business purposes, the facts remain that recipient of services is based in India and therefore, as per the provisions Section 66A of Finance Act, 1994 read with relevant rules, the appellant assessee should have discharged their service tax liability in India, on the amount of commission paid by them as the value of services received by them from abroad - Thus, the appellant-assessee are legally liable to pay service tax on the service of foreign institutions availed in getting their ECBs. Time Limitation - Held that - Since the noticee is already registered with the Central Excise department and is also regularly filing his Excise and Service tax returns, they cannot plead ignorance about the provisions of reverse charge mechanism for payment of service tax on the services received from abroad - even when the assessee has become aware that in July, 2007 itself that there may be certain legal issues regarding service tax liability on the services availed by them from abroad, however, we find that they have not stirred themselves to final take certain conclusive steps, in making compliance of service tax law - the extended time proviso under Section 73(1) of Finance Act, 1994 rightly invoked. Appeal dismissed - decided against appellant.

Summary

Issues:
- Liability of service tax on commission paid to foreign service provider under reverse charge mechanism.
- Applicability of period of limitation for the demand.

Analysis:

Issue 1: Liability of service tax on commission paid to foreign service provider under reverse charge mechanism
The appellant, engaged in manufacturing insulated wire and cables, raised funds for business activities through external commercial borrowings facilitated by foreign agencies. The department contended that service tax liability under banking and financial services category was not discharged by the appellant. The department invoked Section 66A of the Finance Act, 1994, requiring service tax payment on the commission paid to foreign service providers under the reverse charge mechanism. The Order-in-Original confirmed a demand of &8377; 48,79,542, with penalties under the Finance Act. The appellant argued that since services were received and consumed abroad, service tax was not payable in India. They also claimed the demand was time-barred due to ongoing correspondence with the department since 2007. The Tribunal held that as per Section 66A, the appellant was liable to pay service tax on the commission paid to foreign institutions for ECBs, even if part of the funds were used abroad for business purposes.

Issue 2: Applicability of period of limitation for the demand
The appellant contended that the demand was time-barred, citing correspondence with the department since 2007 and withdrawal of a show cause notice by another Commissionerate. The Tribunal noted that the appellant, aware of potential service tax liability since 2007, failed to take proactive steps to comply with the law. The Tribunal rejected the appellant's argument that the extended time proviso under Section 73(1) was not applicable, emphasizing the appellant's responsibility to pay service tax as per the law. The Tribunal held that the department had valid grounds to invoke the extended time proviso under the Finance Act, dismissing the appeal and upholding the order-in-appeal.

In conclusion, the Tribunal upheld the liability of the appellant to pay service tax on commission paid to foreign service providers under the reverse charge mechanism. The Tribunal also ruled that the demand was not time-barred, as the appellant failed to discharge their service tax liability in a timely manner despite being aware of the legal requirements since 2007.