2018 (12) TMI 876 - HC - Service Tax

Demand of service tax - Freight charges - extended period of limitation - penalty - Held that - The arrangement arrived at between the appellant and its dealers was so as to reduce the payment of service tax obligation of the appellant. This factual finding of the authorities was based on detailed scrutiny of the invoices and documents in particular the ledger account maintained by the appellant which shows the amount which was reduced from the invoice is also accounted as freight reimbursement. It was in these facts that the authorities have held that the freight paid by the dealers was for and on behalf of the appellant. Thus the appellant would be liable for payment of service tax. Extended period of limitation - Held that - Once the authorities have found on facts that there was an arrangement arrived at between the parties so as to reduce the payment of service tax invocation of extended period of limitation cannot be faulted with - extended period rightly invoked. Appeal dismissed - decided against appellant.

Issues:
1. Challenge to the order passed by the Customs, Excise and Service Tax Appellate Tribunal.
2. Interpretation of Rule 2(1)(d)(v) of Service Tax Rules, 1994 regarding service tax on freight charges.
3. Applicability of extended period of limitation and imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:

Issue 1: Challenge to the Tribunal's Order
The appellant challenged the Tribunal's order dated 28th February, 2017, under Section 83 of the Finance Act, 1994 r/w Section 35G of the Central Excise Act, 1944. The appellant raised two questions of law for consideration: (i) the justification of confirming the demand of service tax on freight charges and (ii) the correctness of invoking the extended period of limitation and upholding the imposition of equivalent penalty.

Issue 2: Interpretation of Rule 2(1)(d)(v) of Service Tax Rules
The appellant, engaged in the production of seeds and fertilizers, supplied goods to dealers with freight charges included in the price. The Revenue alleged that the appellant reimbursed freight to consignees, making the appellant liable for service tax. The show-cause notice demanded service tax for the period April 2006 to March 2011, asserting that consignees paid freight on behalf of the appellant. The Tribunal upheld the demand, citing invoicing arrangements to reduce service tax liability.

Issue 3: Applicability of Extended Period of Limitation and Penalty
The Additional Commissioner confirmed the show-cause notice, emphasizing that consignees acted as agents of the appellant in paying freight. The Commissioner of Central Excise (Appeals) and the Tribunal upheld the decision, noting that the appellant's arrangements aimed to reduce service tax obligations. The Tribunal found no fault with the invocation of the extended period of limitation, as suppression was evident. The Tribunal's decision was based on detailed scrutiny of invoices and ledger accounts, concluding that consignees paid freight on behalf of the appellant.

In conclusion, the High Court dismissed the appeal, as the questions raised did not present substantial legal issues. The Court upheld the findings that consignees paid freight on behalf of the appellant, making the appellant liable for service tax. The Court supported the Tribunal's decision on the interpretation of Rule 2(1)(d)(v) and the applicability of the extended period of limitation and penalty under the Finance Act, 1994.

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