2019 (4) TMI 1558 - AT - Service Tax

Classification of service - Business Auxiliary Service or not? - services of foreign commission agents availed for booking of orders for export - time limitation - HELD THAT - The department was fully aware about the facts of the matter and therefore the impugned second show cause notice which came to be issued should have been issued for normal period of demand under Section 73 and not by invoking the extended time proviso. Thus the issue of the show cause notice by invoking extended time proviso is legally not sustainable. Matter remanded to the Original Adjudicating Authority to restrict the demand to the normal period of demand under Section 73 (1) of the Finance Act 1994 - appeal allowed by way of remand.

Summary

Issues:
1. Taxability of services provided by foreign commission agents for booking export orders.
2. Validity of show cause notice for recovery of service tax.
3. Applicability of extended time proviso under Section 73 of the Finance Act, 1994.
4. Imposition of penalty on the appellant.
5. Legal sustainability of invoking extended time proviso for issuing show cause notice.

Analysis:

1. The appellants engaged in the manufacture and export of guar gum powder availed services of foreign commission agents for booking export orders. The department contended that such services constitute taxable business auxiliary services under the Finance Act, 1994. The issue was whether the recipient of the service (appellant) is liable to pay service tax on the commission paid to foreign agents under the reverse charge mechanism basis.

2. A show cause notice was issued for recovery of service tax on commission paid to foreign agents. The order-in-original confirmed the charges, which was upheld by the Commissioner (Appeals). The appellant argued that the show cause notice was time-barred as there was no intention to evade duty, citing a Circular stating services beyond Indian territorial waters are not taxable. The Tribunal found that the department was already aware of the facts, making the second show cause notice invoking extended time proviso legally unsustainable.

3. The Tribunal remanded the matter to the Original Adjudicating Authority, directing to restrict the demand to the normal period under Section 73 of the Finance Act, 1994. It was held that there was no valid ground for imposing a penalty as there was no suppression or intent to evade service tax. The Tribunal emphasized that the department was already informed about the issue, making the invocation of extended time proviso and penal provisions unwarranted.

4. The appeal was allowed by way of remand, instructing the Original Adjudicating Authority to confirm the demand only for the normal period of limitation under Section 73 (1) of the Finance Act, 1994. The Tribunal concluded that the imposition of penalty on the appellant was not justified, given the circumstances and the department's prior knowledge of the situation.

This judgment highlights the importance of adherence to procedural requirements and the need for a valid basis for invoking extended time provisos and imposing penalties in tax matters.