2020 (6) TMI 258 - AT - Service Tax

Consulting Engineer Service - Import of services - cost is included in the value of goods imported and customs duty paid - Reverse Charge Mechanism (RCM) - service provider located outside India and was not having any permanent establishment or office in India - Time Limitation - Interest - penalty - HELD THAT - Undisputedly Appellants have entered into contract for provision of services with the overseas service provider. The terms of Contracts are univocal and clear to this effect. The defence put forth by the Appellants for not paying the service tax on the service received by them in terms of Section 68 of Finance Act, 1994, is that they have discharged the customs duty, on the documents, drawing and designs received by them by adding the value of these as per the decision of Apex Court in case of ASSOCIATED CEMENT COMPANIES LTD. VERSUS CC 2001 (1) TMI 248 - SUPREME COURT , and hence demand of service tax on the same is contrary to the view expressed by the Apex Court, treating drawing and designs as goods. There are no merits in the submissions made by the learned Chartered Accountant to effect that since the value of services received by the Appellant from the overseas suppliers was included in the value of the goods imported by them, these services could not be subjected to service tax leviable under Finance Act, 1994. Time Limitation - HELD THAT - By not making proper and complete declaration in respect of the services received from overseas service provider, before the jurisdiction Service Tax Authorities and in their ST-3 return, on which service tax was to be discharged by the Appellant s as per section 68 of Finance Act, 1994, Appellant have suppressed the necessary information and for the said suppression service tax demand invoking extended period limitation as per proviso to Section 73(1) is justified - the demand made in this Show Cause Notice by invoking the extended period of limitation as per proviso to Section 73(1) of Finance Act, 1994 is upheld. Interest - HELD THAT - Since the demand of tax has been upheld the demand for interest will follow. It is now settled law that interest under Section 75, is for delay in the payment of tax from the date when it was due. Since appellants have failed to pay the said Service Tax by the due date interest demanded cannot be faulted. Penalties - HELD THAT - Taking note of the fact that Appellants are a public sector undertaking, amounts demanded as service tax will be admissible to the Appellants will be admissible to them as CENVAT Credit and the provisions of Section 80 of the Finance Act, 1994, though the penalties under Section 76, 77 78 are imposable, they should be waived by the application of Section 80. The appeal is partly allowed to the extent of setting aside the penalties imposed on the Appellant.

Summary

Issues Involved:
1. Classification of services received by the appellant.
2. Applicability of service tax on services received from overseas service providers.
3. Invocation of the extended period of limitation for demand.
4. Revenue neutrality argument.
5. Imposition of interest on the unpaid service tax.
6. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
7. Applicability of Section 80 of the Finance Act, 1994 for waiver of penalties.

Detailed Analysis:

1. Classification of Services Received by the Appellant:
The appellant received document, design, and engineering drawings from an overseas service provider. The appellant argued that these should be classified as goods, citing the Supreme Court's decision in Associated Cement Company Ltd., which held that drawings and designs are tangible movable articles liable for customs duty. However, the tribunal concluded that the services received were classifiable under "Consulting Engineer Services" as per Section 65(105)(g) of the Finance Act, 1994, and not as goods.

2. Applicability of Service Tax on Services Received from Overseas Service Providers:
The tribunal held that since the service provider was located outside India and had no permanent establishment in India, the appellant, as the service receiver, was required to discharge the service tax liability under Section 68 of the Finance Act, 1994. The argument that customs duty had already been paid on these drawings and designs was rejected, as the nature of the contract was for services, not goods.

3. Invocation of the Extended Period of Limitation for Demand:
The appellant contended that all facts were disclosed to the customs authorities at the time of importation, and hence, there was no suppression of facts. However, the tribunal found that no disclosure was made to the jurisdictional service tax authorities or in the ST-3 returns. Therefore, the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, was justified.

4. Revenue Neutrality Argument:
The appellant argued that paying service tax on a reverse charge basis would be revenue neutral as they could claim CENVAT credit. The tribunal dismissed this argument, stating that revenue neutrality cannot be a ground for non-payment of tax. The Supreme Court's decision in Star Industries and Dharampal Satyapal was cited to support this view.

5. Imposition of Interest on the Unpaid Service Tax:
The tribunal upheld the demand for interest under Section 75 of the Finance Act, 1994, for the delay in payment of service tax. The interest is for the delay from the due date until the date of payment, and several judicial precedents were cited to support this.

6. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The tribunal acknowledged that the appellant contravened the provisions of the Finance Act, 1994, by not making proper declarations and disclosures. However, penalties under Sections 76, 77, and 78 were considered in light of the appellant being a public sector undertaking.

7. Applicability of Section 80 of the Finance Act, 1994 for Waiver of Penalties:
The tribunal invoked Section 80 of the Finance Act, 1994, which allows for the waiver of penalties if the assessee proves there was reasonable cause for the failure. Considering the appellant was a public sector undertaking, the penalties under Sections 76, 77, and 78 were waived.

Conclusion:
The appeal was partly allowed by setting aside the penalties imposed on the appellant. The demand for service tax along with interest was upheld, but the penalties were waived under Section 80 of the Finance Act, 1994. The impugned order was modified to this extent.