2018 (9) TMI 1373 - AT - Service Tax

Reverse Charge Mechanism - appellants had made remittances in foreign currency on 11.12.2008, 26.08.2009 and 03.11.2009, to the total extent of ₹ 11,03,167/- - Revenue treated the said amount to be amount towards payment of services received from a foreign entity - Held that - Revenue could not make out the case that the remittances were for the purpose of receiving any services from foreign country - on the said remittances service tax was not leviable - appeal allowed - decided in favor of appellant.

Issues:
1. Challenge to service tax leviability based on remittances made to a foreign entity.
2. Interpretation of 'Reverse Charge Mechanism' in the context of the case.
3. Evaluation of evidence provided by the appellant to support their claim.
4. Assessment of the Revenue's failure to establish the purpose of remittances.

Issue 1: Challenge to service tax leviability based on remittances made to a foreign entity

The appellant, engaged in the manufacturer and export of textile made-ups and articles, was issued a show cause notice by the Revenue for making remittances in foreign currency to a total extent of ?11,03,167. The Revenue alleged that these remittances were payments for services received from a foreign entity, leading to a demand of ?1,26,785 under the 'Reverse Charge Mechanism'. The appellant contested this claim, stating that the remittances were for their own office expenses in Germany and for export business travel, and provided a certificate from the bank to support their assertion. After considering the submissions from both sides, the Tribunal found that the Revenue failed to establish that the remittances were for receiving any services from the foreign country. Consequently, the Tribunal held that service tax was not leviable on the remittances and set aside the impugned order, allowing the appeal and granting the appellant consequential relief as per law.

Issue 2: Interpretation of 'Reverse Charge Mechanism' in the context of the case

The case involved an assessment of the 'Reverse Charge Mechanism' under which service tax liability is shifted from the service provider to the service recipient. The Revenue contended that the remittances made by the appellant to a foreign entity constituted payments for services received, hence attracting service tax under this mechanism. However, the appellant argued that the remittances were for their own office expenses and export business travel, not for services received from any organization in a foreign country. The Tribunal, after evaluating the evidence and submissions, found that the Revenue did not provide sufficient proof to establish that the remittances were indeed for services received. Consequently, the Tribunal ruled in favor of the appellant, concluding that service tax was not leviable on the remittances.

Issue 3: Evaluation of evidence provided by the appellant to support their claim

The appellant presented a certificate from the bank certifying that the remittances made were for the appellant's office expenses and export business travel, not for services received from foreign organizations. This evidence was crucial in supporting the appellant's argument that the remittances were not subject to service tax under the 'Reverse Charge Mechanism'. The Tribunal considered this evidence along with the submissions made by the appellant during the hearing. Ultimately, the Tribunal found the evidence provided by the appellant to be persuasive, as it contradicted the Revenue's claim that the remittances were for services received from a foreign entity. This evaluation played a significant role in the Tribunal's decision to set aside the impugned order and allow the appeal.

Issue 4: Assessment of the Revenue's failure to establish the purpose of remittances

One of the key aspects of the case was the Revenue's inability to establish with concrete evidence that the remittances made by the appellant were indeed payments for services received from a foreign organization. Despite the Revenue's contention that the remittances fell under the 'Reverse Charge Mechanism', the Tribunal noted that no substantial evidence was presented to support this claim. In the absence of conclusive proof linking the remittances to services received, the Tribunal concluded that the service tax was not leviable on the remittances. This failure on the part of the Revenue to establish the purpose of the remittances played a crucial role in the Tribunal's decision to allow the appeal and grant relief to the appellant.

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