2019 (2) TMI 1299 - AT - Central Excise

Reverse charge mechanism - non-payment of service tax - royalty payment to NML for the period from July 2010 and March 2011 - demand of interest - CENVAT Credit - Rule 9 of Cenvat Credit Rules, 2004 - Held that - Appellant has submitted that the tax liability demanded in the impugned order dt. 28.02.2013 of ₹ 6,21,24,362/- is not contested by the appellant and is contesting the interest and penalty liability - the impugned order demanding the said tax liability upheld - penalty u/s 78 set aside - penalty u/s 77 upheld. Service tax on technical assistance fees which the appellants paid up although no tax was payable - remaining liability of ₹ 62,12,436/- relates to service tax on trade mark fees which also was deposited before issue of the SCN - Held that - Appellant submits that though appellants are not contesting liability on merits, however, they are required to have discharged only ₹ 5,79,21,902/- against the demand of ₹ 6,21,24,362/- and excess amount of ₹ 42,02,460/- has been paid. The Ld. Consultant has made a prayer for remand of the matter for the limited purpose of enabling reworking of the tax liability - this is a fair request and is therefore acceded to. Demand of Interest - Held that - Section 73 (3) of the Finance Act, 1994 provides for very similar situation where the assessee can pay up the tax liability short paid on the basis of his own assessment or being pointed by the proper officer before issue of notice on him. However Explanation (1) to sub-section clearly indicates that interest under Section 75 ibid shall also be payable on the amount so paid by the person under Section 73 (3). This being so, there is no escape from interest even when the appellants had paid up the entire tax liability before issue of SCN - demand of interest upheld. CENVAT Credit - invocation of Rule (9) (1) (bb) of CCR - Held that - Since the tax amount of ₹ 6,21,24,362/- has been paid by them under reverse charge mechanism which specifically fits under Section 9 (e) ibid, the credit has therefore been availed by the appellants not under Rule 9 (bb) but under Rule 9 (e) of the CCR 2004 - this contention is found to be correct - There is no doubt that the demand of ₹ 6,21,24,362/- was made under the premise that the same was required to be paid under reverse charge basis. This being so, such payment will only within the ambit of Rule 9(e) ibid and not Rule 9 (bb) of the CCR 2004 - no suppression can be foisted on the appellant in respect of tax liability of ₹ 6,21,24,362/- which has been paid after being pointed out to them, before issue of SCN - the impugned order cannot be sustained and will require to be set aside. Appeal disposed off.

Issues Involved:
1. Exigibility of service tax on royalty payments.
2. Applicability of interest on the tax liability.
3. Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.
4. Denial of Cenvat credit invoking Rule 9(1)(bb) of the Cenvat Credit Rules, 2004.
5. Quantum of tax demanded and excess payment.

Detailed Analysis:

1. Exigibility of Service Tax on Royalty Payments:
The appellants, engaged in manufacturing motor vehicles, had entered into a Manufacturing Licensing Agreement with Nissan Motor Co. Ltd., Japan, involving royalty payments for the use of trademarks and technical information. Investigations revealed that the appellants made provisions for royalty payments but did not discharge the service tax liability as a recipient of service. A show cause notice was issued demanding ?6,21,24,362/- with interest and penalties. The Commissioner confirmed the demand, appropriated the amount paid by the appellant, and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. The appellants contested the interest and penalty but not the tax liability.

2. Applicability of Interest on the Tax Liability:
The appellants argued that interest should not be levied as they had paid the tax liability before the issuance of the show cause notice. However, the Tribunal held that interest is leviable even if the tax is paid before the issuance of the notice. Section 73(3) of the Finance Act, 1994, mandates that interest under Section 75 is payable on the amount paid by the person under Section 73(3). Therefore, the Tribunal did not interfere with the interest liability.

3. Imposition of Penalties under Sections 77 and 78 of the Finance Act, 1994:
The Tribunal found merit in the appellants' contention regarding the penalty under Section 78. The tax demand primarily related to technical assistance fees, which, according to judicial precedents, did not attract service tax under Intellectual Property Service. The Tribunal noted that the appellants had made provisions in their books of accounts and paid the tax liability immediately upon being pointed out, indicating no intention to evade tax. Consequently, the penalty under Section 78 was set aside, but the penalty under Section 77 was upheld.

4. Denial of Cenvat Credit Invoking Rule 9(1)(bb) of the Cenvat Credit Rules, 2004:
The second show cause notice demanded recovery of allegedly wrongly availed credit of ?6,21,24,362/- with interest and penalties, invoking Rule 9(1)(bb) of the Cenvat Credit Rules, 2004. The Tribunal held that the credit was availed under Rule 9(1)(e) since the tax amount was paid under reverse charge mechanism. The Tribunal relied on the decision in Essar Oil Ltd. Vs CCE Rajkot, which clarified that credit availed under reverse charge mechanism falls under Rule 9(1)(e) and not Rule 9(1)(bb). Therefore, the impugned order was set aside.

5. Quantum of Tax Demanded and Excess Payment:
The appellants contended that they had paid ?42,02,460/- in excess of the demanded tax liability. The Tribunal acceded to the request for remand to rework the tax liability. The adjudicating authority was directed to examine the appellant’s contention regarding the excess payment.

Conclusion:
(A) In Appeal ST/42260/2013:
1. The matter is remanded to examine the contention of excess payment of ?42,02,460/-.
2. Interest on the revised tax liability is to be paid by the appellants.
3. Penalty under Section 78 is set aside.
4. Penalty under Section 77 is upheld.
5. Appeal partly allowed on these terms.

(B) In Appeal E/42153/2014:
1. The impugned order is set aside.
2. Appeal allowed with consequential benefits as per law.

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