2019 (4) TMI 932 - HC - Central Excise

Vailidity of Notification issued by CBEC dated 10.5.2009 - whether clarificatory in nature or not - period involved in the SCN - Held that - There is an overlap in the periods in the show cause notices. The first show cause notice was issued to the respondent on 17.8.2007 invoking the extended period of five years on the basis of commission paid to the OCA on account of export sales for the period 09.07.2004 to 31.03.2006. The second show cause notice dated 27.9.2007 was issued for the period May, 2006 to March, 2007. The Tribunal noticed that the notification regarding the associated enterprises was issued on 10.5.2008 and the entire period in the show cause notice dated 21.4.2009 was prior to that date. The department had no material to issue such a show cause notice alleging transaction between associated enterprises. Further, the show cause notice could not invoke the allegation of associated enterprises when the law at the time did not provide for the same and the notification was introduced on 10.5.2008 without it being made expressly retrospective. Since the payment of commission to the OCA were well within the knowledge of the department prior to the issuance of show cause notice dated 21.4.2009, the extended period could not have been invoked in the third show cause and the same is barred by time. No question of law much less a substantial question of law arises in this appeal - appeal dismissed.

Summary

Issues:
1. Interpretation of Notification dated 10.5.2009 regarding associated enterprises
2. Validity of demand for service tax for the period 2004-2008
3. Invocation of extended period for demand recovery
4. Adjudication of penalty under Sections 77 and 78 of the Act

Interpretation of Notification dated 10.5.2009 regarding associated enterprises:
The appeal by the revenue under Section 35G of the Central Excise Act, 1944 challenged the Tribunal's order dated 5.4.2017, questioning the nature of the Notification issued by the CBEC on 10.5.2009. The Tribunal found that the show cause notice issued on 21.4.2009, alleging transactions between associated enterprises, was not supported by law as the relevant provision introduced on 10.5.2008 was not made retrospective. Since the department was aware of the commission payments to Overseas Commission Agents (OCA) before issuing the notice, the extended period invoked in the notice was deemed time-barred. The Tribunal held that the show cause notice was invalid due to the absence of legal support for invoking the associated enterprises allegation.

Validity of demand for service tax for the period 2004-2008:
The respondent was providing services in Goods Transport Agency and Business Auxiliary and was found to have paid short service tax for the period from 2004-05 to 2007-08. A show cause notice was issued demanding service tax, interest, and penalty. The adjudicating authority confirmed the demand for the period from 18.4.2006 to 31.3.2008. However, the demand for the period from 1.4.2005 to 17.4.2006 was dropped. The Tribunal allowed the respondent's appeal and set aside the demands raised by the department, leading to the revenue's appeal. The High Court dismissed the appeal, finding no merit in challenging the Tribunal's decision.

Invocation of extended period for demand recovery:
The show cause notices overlapped in periods, with the first notice invoking the extended period of five years for the period 09.07.2004 to 31.03.2006. The subsequent notice was issued for the period May 2006 to March 2007, and the third notice dated 21.4.2009 sought recovery for the period 2004-05 to 2007-08. The Tribunal held that the extended period in the third notice was time-barred as the department was aware of the commission payments to OCA before issuing the notice. The Tribunal's decision was upheld by the High Court, dismissing the revenue's appeal.

Adjudication of penalty under Sections 77 and 78 of the Act:
The adjudicating authority imposed penalties under Sections 77 and 78 of the Act against the respondent. However, the Tribunal set aside the demands raised by the department, leading to the revenue's appeal. The High Court found no illegality or perversity in the Tribunal's findings, leading to the dismissal of the revenue's appeal as no substantial question of law arose for consideration.