2020 (6) TMI 554 - AT - Service Tax

Validity of SCN - Intellectual property service - appellant had incurred various expenses which were recorded in their accounts as Foreign Expenses (Miscellaneous Foreign Expenses) - period 2006-07 to 2007-08 - Case of appellant is that the SCN is so vague that it does not even specify the taxable service for which these demands were made - HELD THAT - The appellant has not been put to notice alleging that they have either rendered a taxable service which made them liable to pay service tax or have received any taxable service from overseas service provider, which rendered them liable to service tax under the reverse charge mechanism. As the show cause notice is very vague and wants to charge service tax only on the ground that the appellant had made some payments to their overseas counterparts, the impugned order needs to be set aside. If the allegations in the show cause notice are true, the department could have undertaken more serious investigations using all the powers available to the officers under the law including taking legal action against anyone dishonouring the summons. However, this cannot be a ground to issue a show cause notice without clarifying under what head the tax has to be paid and for which taxable services received by the appellant. The impugned order confirming demands made in such a nebulous show cause notice is bad in law and cannot sustain and needs to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Demand of service tax on foreign expenses
- Vagueness in the show cause notice
- Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994

Analysis:
1. The appellant, registered with the Service Tax Department for intellectual property services, faced a demand for service tax on unremitted foreign expenses after an audit. The appellant paid tax on a portion of the expenses but not on the rest. The Department issued a show cause notice under Section 73(1) of the Finance Act, 1994, proposing tax, interest under Section 75, and penalties under Sections 76, 77, and 78. The Commissioner confirmed the demand and penalties, excluding Section 76 due to a penalty under Section 78.

2. The appellant argued that the expenses not taxed did not relate to any taxable service from overseas providers, citing the vague show cause notice lacking specific taxable service details. The Departmental Representative supported the order.

3. The Tribunal observed that the show cause notice did not specify any taxable service or the basis for the tax demand related to overseas payments. The notice lacked clarity on the services necessitating tax payment. Despite attempts to gather information, the appellant did not cooperate fully. The Tribunal emphasized the necessity of clear allegations for tax demands.

4. The Tribunal noted that the Department could have conducted thorough investigations if the allegations were genuine, rather than issuing a vague notice. The lack of specificity in the notice rendered the order unsustainable in law. The Tribunal set aside the order, emphasizing the importance of clarity in tax demands based on specific taxable services received.

5. Consequently, the Tribunal overturned the impugned order, allowing the appeal with any consequential relief for the appellant. The decision highlighted the need for precise allegations and investigations to support tax demands, ensuring legal validity and clarity in tax enforcement procedures.