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2023 (9) TMI 926 - AT - Service TaxService or not - service of promoting and marketing the products - demand issued based on the data recovered from M/S SSOMPL is sustainable, without adducing any corroborative evidence - invocation of extended period of limitation - penalty u/s 78 of FA. Whether the activities undertaken by the Appellant would fall within the ambit of Service as defined under Clause (44) of Section 65B of the Finance Act, 1994? - Whether the demand issued based on the data recovered from M/s.SSOMPL is sustainable, without adducing any corroborative evidence? - HELD THAT - It is observed from the records that the Notice was issued to the Appellant based on the data recovered from the premises of M/s SSOMPL, during the course of investigation at their end. The impugned order has confirmed the demand based on this data and the statements recorded from Shri. Rajat Verma, Director of M/s.SSOMPL. It is observed that there is no information available on record to indicate that what type of commission mentioned above was received by the Appellant in this case. No investigation was carried out with the Appellant to ascertain the nature of service rendered by them to M/s.SSOMPL and whether the amount received was towards rendering of any taxable service or not. In the impugned order Service tax has been demanded on the gross amount of commission received by the Appellant and no distinction has been made between the commission earned by a Distributor from M/s SSOMPL based on his/her own volume of purchase and the commission earned by him/her on the basis of the volume of purchases of M/s SSOMPL products made by his/her sales group. As no investigation was conducted with the Appellant to ascertain whether the Appellant has rendered any taxable service as defined under, section 65B(44) of the Finance ACT, 1994, the demand confirmed in the impugned order merely on the basis of the data received from M/s.SSOMPL alone is not sustainable. Whether in the facts and circumstances of the case, extended period invocable or not? Consequently, penalty under Section 78 of the Finance Act, 1994 is imposable or not? - HELD THAT - In the present appeal also the Appellant did not apply for Service Tax Registration, did not file ST-3 Returns and did not declare their activities to the jurisdictional central excise authorities. The contention of the Appellant is that on these ground alone it cannot be inferred that there was a wilful act with an intent to evade payment of service tax - It is observed that extended period cannot be invoked to demand service tax for mere inaction or failure or negligence on the part of the Appellant. There must be deliberate defiance of law to invoke extended period, which is not there in this case. The Notice has also not brought in any evidence of deliberate defiance of law warranting invocation of extended period of limitation. In the case of UNION OF INDIA VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS AND COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VERSUS M/S. LANCO INDUSTRIES LTD. 2009 (5) TMI 15 - SUPREME COURT , Hon ble Supreme Court held that if there is no element of deception or malpractice, neither extended period of limitation invocable nor penalty under Section 11AC would be imposable. In the case of M/S. MAHADEV LOGISTICS VERSUS CUSTOMS AND CENTRAL EXCISE SETTLEMENT COMMISSION (PRINCIPALBENCH) , THE COMMISSIONER, CENTRAL EXCISE, CUSTOMS SERVICE TAX, NALWA STEEL POWER LTD. 2017 (4) TMI 1180 - CHHATTISGARH HIGH COURT , the Hon ble Chhatisgardh High Court held that the presence of mensrea is absolutely necessary for imposition of penalty under Section 78 of the Finance Act, 1994. The ratio of the decisions cited above is squarely applicable in this case. There is no mensrea or intention to evade payment of duty established in this case. In fact, there was no verification done at the Appellant s end to ascertain their liability of service tax. Accordingly, the demand confirmed in the impugned order by invoking extended period is not sustainable. For the same reason, penalty under Section 78 is also not imposable. Appeal allowed.
Issues Involved:
1. Whether the activities undertaken by the Appellant fall within the ambit of 'Service' as defined under Clause (44) of Section 65B of the Finance Act, 1994. 2. Whether the demand issued based on the data recovered from M/s SSOMPL is sustainable, without corroborative evidence. 3. Whether the extended period is invocable under the facts and circumstances of the case, and consequently, whether the penalty under Section 78 of the Finance Act, 1994 is imposable. Summary: Issue 1: Definition of 'Service' The Tribunal examined whether the activities of the Appellant, a Direct Selling Agent (DSA) for M/s SSOMPL, fall within the definition of 'Service' under Clause (44) of Section 65B of the Finance Act, 1994. The Appellant cited the case of Charanjeet Singh Khanuja, where it was held that commissions earned for purchasing goods could not be considered as consideration for promoting or marketing goods. The Tribunal observed that the Appellant's income streams included profit margins from selling products, commissions based on purchases, and commissions based on the performance of their sales group. It was concluded that only the third category of income (commissions based on the sales group's performance) could be considered as taxable service. However, no investigation was conducted to ascertain the nature of the service rendered by the Appellant. Therefore, the Tribunal held that the demand based solely on data from M/s SSOMPL without corroborative evidence was not sustainable. Issue 2: Sustainability of Demand The Tribunal noted that the demand was confirmed based on data recovered from M/s SSOMPL and statements from its Director. There was no investigation to determine the nature of the commission received by the Appellant. The Tribunal referenced the Charanjeet Singh Khanuja case, which distinguished between taxable and non-taxable income streams. Without corroborative evidence, the Tribunal found that the demand was based on presumptions and not sustainable. Issue 3: Invocability of Extended Period and Penalty The Tribunal examined whether the extended period for demand was invocable and whether penalties under Section 78 of the Finance Act, 1994 were imposable. The Appellant argued that there was no intention to evade tax, and the demand was time-barred. The Tribunal referenced the Charanjeet Singh Khanuja case, which held that mere non-registration and non-filing of returns did not imply intent to evade tax. The Tribunal also cited other judicial precedents, concluding that the extended period could not be invoked without evidence of deliberate defiance of law. Consequently, the penalty under Section 78 was also deemed not imposable. Conclusion: The Tribunal set aside the impugned order, holding that the demand based on data from M/s SSOMPL and statements from its Director was not sustainable. The extended period for demand was not invocable, and the penalty under Section 78 of the Finance Act, 1994 was not imposable. The appeal filed by the Appellant was allowed.
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