2023 (2) TMI 291 - AT - Service Tax

Extended Period of Limitation - benefit of section 73 (3) and Section 80 of the Finance Act, 1994 - service received from foreign based service provider - reverse charge mechanism - HELD THAT - The issue about taxability on reverse charge basis in respect of service received from foreign based service provider was not free from doubt as the issue was finally decided by the Hon ble Supreme court in a landmark judgment in the case of Indian National Shipowners Association 2009 (12) TMI 850 - SC ORDER . Moreover the appellant have paid the entire service tax even for the period prior to its levy i.e. before 18.04.2006 and the appellant have filed ST-3 returns wherein details of payments have been declared. In this fact the demand for the extended period is not sustainable. The appellant alternatively claimed the benefit of Section 73 (3) of finance Act, 1994 on the ground that the entire service tax along with interest paid prior to show cause notice. Considering this position the demand for extended period is not sustainable hence the same is set aside. Demand for the normal period if any, is sustained along with interest. The penalties are not sustainable hence the same is set aside. Since we have considered appellant s submission on the point of Section 73 (3) we are not going into other issue such as jurisdiction and taxability. Appeal allowed in part.

Summary

Issues:
1. Jurisdictional authority for service tax payment.
2. Taxability of services under franchise service category.
3. Application of Section 73(3) and Section 80 of the Finance Act, 1994.
4. Imposition of penalties.

Jurisdictional Authority for Service Tax Payment:
The appellant received franchise services for manufacturing rabies vaccine and remitted royalty to CB GmbH. The appellant registered for service tax under the franchise service category. The appellant discharged the service tax liability under the belief that it should be computed on the net royalty amount after deducting TDS. An investigation initiated in 2009 led to a show cause notice alleging short payment of service tax. The appellant contended that the notice lacked jurisdiction as they paid taxes under the Mumbai head office registration. The Commissioner (Appeals) partially dropped the demand but upheld a balance for a specific period. The appellant argued that the agreement with CB GmbH did not qualify as franchise service, as it involved a license to manufacture products, not a franchise arrangement.

Taxability of Services under Franchise Service Category:
The appellant's counsel argued that the services provided by CB GmbH did not meet the criteria for franchise services under the taxable category. They contended that the grant of an exclusive license to manufacture a product did not constitute a franchise service. The appellant paid service tax under a mistaken belief that the services qualified as franchise services. They claimed there was no suppression of facts and that the extended period should not have been invoked due to the ongoing litigation regarding the tax liability on services received from abroad.

Application of Section 73(3) and Section 80 of the Finance Act, 1994:
The appellant sought the benefit of Section 73(3) and Section 80 of the Finance Act, 1994, arguing that since they paid the entire service tax and interest before the show cause notice, no penalty should be imposed. The Tribunal considered the appellant's submissions on limitation and found that the demand for the extended period was not sustainable. They set aside the penalties and sustained the demand for the normal period, along with interest.

Imposition of Penalties:
The Tribunal concluded that the penalties were not sustainable in the circumstances of the case and set them aside. They modified the impugned order, setting aside the demand for the extended period and partially allowing the appeal. The judgment emphasized the appellant's compliance with tax payments and the lack of jurisdiction in issuing the show cause notice. The decision was pronounced on 06.02.2023 by the members of the Appellate Tribunal CESTAT Ahmedabad.