2019 (1) TMI 179 - AT - Service Tax

Non-payment of Service tax - the appellant required finance in the year 2006-2007 and they raised capital by issuing external commercial borrowing and foreign currency convertible bond (FCCB) and by offering share to procure subscribers for Global, Depository Receipt (GDR) - appellant did not pay any service tax being under the belief that the service s have been received and consumed outside India - reverse charge mechanism - Held that - Neither the transaction is relating to the Bhiwadi Unit nor there were any account of said transaction maintained in the books of accounts maintained at Bhiwadi factory office. The Audit objection was raised on the basis of the annual accounts or report, a copy of which was available at the Bhiwadi Unit and the said audit objection was raised as per the balance sheet and Director report, etc. Further, the provisions of Central Excise and Service Tax Act Rules thereunder do not provide for multiplicity of the proceedings. The ld. Commissioner has rightly dropped the demand and erred in upholding the part of the show cause notice and also erred in objecting the part of the show cause notice relating to the suo moto taking of the re-credit by the appellant - this appeal is allowed for statistical purposes only as the main issue having been held against the appellant/assessee.

Summary

Issues involved:
1. Liability to pay service tax under Reverse Charge Mechanism for services received from foreign-based providers.
2. Bar on the demand by the statute of limitation.
3. Jurisdictional issues regarding the show cause notices issued by different Commissionerates.

Detailed Analysis:
1. The main issue in the judgment was the liability of the appellant to pay service tax under the Reverse Charge Mechanism for services received from foreign-based providers. The appellant, a manufacturer of wire & cables, raised capital through external commercial borrowing and foreign currency convertible bonds for setting up a unit in the United Kingdom. The appellant believed that since the services were received and consumed outside India, they were not liable to pay service tax under Section 66A of the Finance Act. However, the Division Bench of the Tribunal held that the appellant was legally liable to pay service tax as the recipient of services, even if part of the funds were used abroad, based on the provisions of the Finance Act and relevant rules. The Tribunal also rejected the argument of ignorance of the law and upheld the demand for service tax under the Reverse Charge Mechanism.

2. The second issue addressed was whether the demand for service tax was barred by the statute of limitation. The Tribunal noted that the appellant was registered with various Commissionerates of Central Excise and Service Tax and regularly filed returns. The Tribunal held that the appellant could not plead ignorance of the reverse charge mechanism for service tax payment on services received from abroad. The Tribunal found that the appellant had not taken proactive steps to discharge their service tax liability despite being aware of potential legal issues. Therefore, the Tribunal concluded that the extended time proviso under Section 73(1) of the Finance Act could be invoked, and the demand was not barred by limitation.

3. The final issue involved jurisdictional matters regarding the show cause notices issued by different Commissionerates. The Commissioner of Central Excise, Jaipur-I dropped the proceedings related to the demand for service tax due to a parallel show cause notice issued by the Addl. Commissioner of Service Tax, Delhi-I. However, the Commissioner held that the suo moto credit taken by the appellant was not valid and ordered its recovery. The Tribunal analyzed the jurisdictional aspects and concluded that the part of the show cause notice objected to by the Jaipur Commissionerate did not survive, as the transaction was not related to the Bhiwadi Unit and there were no accounts maintained there. The Tribunal set aside the order of the Commissioner, Jaipur, and allowed the appeal for statistical purposes, as the main issue had been decided against the appellant by the Division Bench of the Tribunal.