2019 (7) TMI 653 - AT - Service Tax

Extended period limitation - Taxability - sales commission paid by the appellant to overseas Sales Commission Agent - reverse charge mechanism - Section 66A of Finance Act, 1994 - revenue neutrality - HELD THAT - During the relevant period, in the light of the Hon'ble Punjab Haryana High Court judgment in the case of Ambika Overseas (supra), the appellant was entitled for the Cenvat credit in respect of the service tax payable on commission paid to overseas commission agent. Therefore, even if the service tax was payable, there was a Revenue neutral situation hence, since there is no gain to the appellant, it cannot be said that there was malafide intention on the part of the appellant in non-payment of service tax. Therefore, extended period was clearly not invokable in the facts of the present case. The demand for the longer period is set aside - the demand for the normal period is maintained, if any - penalty imposed under Section 76 and 78 is also not sustainable - appeal allowed in part.

Summary

Issues involved: Taxability of sales commission paid to overseas Sales Commission Agent under reverse charge mechanism in terms of Section 66A of Finance Act, 1994; Contesting demand on merit and limitation; Entitlement to Cenvat credit; Sustainability of demand for the extended period; Penalty under Section 78 and Section 76.

Analysis:

1. Taxability of sales commission: The issue revolved around the taxability of sales commission paid by the appellant to an overseas Sales Commission Agent under the reverse charge mechanism as per Section 66A of the Finance Act, 1994.

2. Contesting demand on merit and limitation: The appellant did not contest the demand on merit but strongly contested on limitation grounds. The appellant argued that there were multiple litigations regarding the taxability of services received from overseas, citing judgments from the Hon'ble Bombay High Court and the Supreme Court. The appellant contended that until the issue was conclusively settled, there was no suppression of facts.

3. Entitlement to Cenvat credit: The appellant claimed entitlement to Cenvat credit during the relevant period based on a judgment from the Punjab & Haryana High Court. The appellant argued that even if the service was taxable, they were entitled to Cenvat credit, leading to a revenue-neutral situation. This claim was supported by citing various judgments in similar cases.

4. Sustainability of demand for the extended period: The tribunal considered the submissions from both sides and concluded that the demand for the extended period was not sustainable. Citing the judgment from the Punjab & Haryana High Court, the tribunal found that the appellant was entitled to Cenvat credit for the service tax paid on the commission to the overseas agent. As there was no financial gain to the appellant, the tribunal held that there was no malafide intention in non-payment of service tax, and hence, the extended period was not applicable.

5. Penalty under Section 78 and Section 76: The tribunal set aside the penalty imposed under Section 78 as it was deemed unsustainable. Similarly, the penalty under Section 76 was also set aside based on a judgment from the Hon'ble Gujarat High Court. The appeal was partly allowed, and the demand for the normal period was maintained while setting aside the demand for the extended period and penalties under Sections 78 and 76.