2023 (10) TMI 1254 - AT - Service Tax

Recovery of service tax alongwith interest and penalty - failure to discharge tax on guarantee commission under reverse charge mechanism - non-declaration of the said guarantee commission in the periodical ST-3 returns filed - period prior to 01.04.2016 - invocation of extended period of limitation - penalties - HELD THAT - There are no merit in the argument of the appellant, in as much as reading the definition of service and support service in juxtaposition, it is clear that the said definition of support service is exhaustive and takes in its fold all activities of infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract etc. - the appellant is liable to discharge service tax on the Guarantee commission paid to Government of Karnataka during the period 01.07.2012 to 31.03.2016 for providing unconditional and irrevocable guarantee in raising funds from the debt market. Extended period of limitation - HELD THAT - The extended period of limitation could be invoked only when evidence collected lead to an inference that there has been fraud, collusion, suppression, misdeclaration or contravention of any of the provisions with intent to evade payment of duty. In the present case, the Department has failed to place on record evidence indicating that there has been intention not to discharge service tax on the guarantee commission even though the appellant has been aware of the legal position that service tax is payable on guarantee commission paid to the State government of Karnataka for providing irrevocable guarantee in raising funds from debt market. Moreover, the appellant is a public sector undertaking and in the absence of specific evidence to support that there has been intentional evasion of service tax, extended period cannot be invoked merely on finding the failure on their part to discharge service tax. The demand is confirmed for the normal period of limitation with interest. Penalties imposed are set aside - Appeal disposed off.

Summary

Issues Involved:
1. Whether service tax is payable on the commission paid by the appellant to the Government of Karnataka under reverse charge mechanism for the period from 01.07.2012 to 31.03.2016.
2. Whether invoking the extended period of limitation and imposition of penalties is justified.

Summary:

1. Service Tax Liability:
The appellant, a public sector undertaking, engaged in irrigation projects, paid guarantee commission to the Government of Karnataka for raising funds but did not discharge service tax on this commission for the period from 01.07.2012 to 31.03.2016. The appellant argued that the financial guarantee issued by the Government of Karnataka is governed by the Karnataka Ceiling on Government Guarantees Act, 1999, and thus, not a business transaction liable to service tax. They contended that the definition of "support service" under Section 65B(49) of the Finance Act, 1994, does not cover financial guarantees. However, the Tribunal held that the definition of "support service" is exhaustive and includes raising finance for day-to-day operations, thereby making the guarantee commission taxable under reverse charge mechanism for the period in question.

2. Extended Period of Limitation and Penalties:
The Tribunal found that the appellant did not reflect the payment of guarantee commissions in their periodical ST-3 returns, indicating an intention to evade tax. However, it was noted that the investigation did not examine key officials to ascertain the reasons for non-payment of service tax. The Tribunal emphasized that the extended period of limitation could only be invoked with evidence of intent to evade tax, which was not sufficiently established in this case. Given the appellant's status as a public sector undertaking and the lack of specific evidence of intentional evasion, the Tribunal concluded that the extended period could not be invoked, and penalties were not justified.

Conclusion:
The impugned order was modified to confirm the demand for the normal period of limitation with interest, while penalties were set aside. The appeal was disposed of on these terms.

Order Pronounced: 26/10/2023