2023 (12) TMI 1009 - AT - Service Tax

Levy of service tax - Business Auxiliary service or not - commission paid by the appellants to the commission agents - reverse charge mechanism - Revenue neutrality - extended period of limitation - HELD THAT - The appellants are manufacturers of tyres; they are clearing the tyres in the domestic market and are also exporting to other countries; they have appointed agents, overseas, to procure orders for such tyres; as per the orders confirmed by the agents, the appellants export the tyres and pay the agents a certain commission. The services rendered by agents abroad results in the export of the goods manufactured by the appellant. Thus, the services rendered by the agents are in the direction of promoting the business of the appellants. Undoubtedly, the business of the appellant is in India - It is found that the effect of the services rendered by the overseas agents, results in export of tyres by the appellant, which is their business; to this extent, it is found that the categorization of the services under Business Auxiliary Service is correct. Moreover, it cannot be said that the services are received abroad though, they are certainly performed outside India; as long as the recipient and his business are in India, it cannot be said that the said service is not received in India. Receipt of the service takes the colour of recipient of the service that is to say receipt of service is decided by the recipient. The services rendered by the agents are not a personalized service availed by the appellants on their visit to abroad; moreover, by no stretch of imagination, the appellant being a body corporate, services cannot be held to have been received and enjoyed overseas, as they have no place of business abroad. Understandably, the benefit of the service accrued to the business of the appellant in India and therefore, to that extent, receipt of the services is certainly in India and not abroad. To this extent, the contention of the Revenue is correct - there are no infirmity in the findings of the OIO and OIA to the extent that the appellants have received services from foreign agents who have procured order outside India against which they had supplied the goods and thus have rendered themselves liable to pay service tax on Reverse Charge Mechanism in terms of Section 66A of Finance Act, 1944 and the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006. Revenue neutrality - HELD THAT - It is found that the Scheme of Service Tax and Excise Duty work on the principle of a chain of paying the duty and availing the credit. It is not correct to argue that the service tax paid could have been availed as credit and therefore, non-payment of service tax has not made any material difference to the Revenue. The principle of netting of duty is not in operation. For a smooth flow of goods and seamless procedures, a system of payment of duty and availing credit has been put in place. Breaking of this chain for whatever logic would entail in chaos which is neither a principle envisaged nor an intended result under the Scheme of taxation. Extended period of limitation - HELD THAT - It is apparent from the records that the appellant and the Department were in constant correspondence and litigation in this regard. Thus Revenue has not made out any case for invocation of the extended period. Therefore, we are of the considered opinion that extended period cannot be invoked to this extent. Both the appeals are partially allowed to the extent of limitation - it is held that the demands be restricted to the normal period; however, penalties imposed on the appellants are set aside - appeal allowed in part.

Summary

Issues Involved:
1. Taxability of commission paid to foreign agents under Reverse Charge Mechanism.
2. Applicability of extended period for issuing show-cause notices.
3. Neutrality of revenue in the context of service tax credit.

Summary:

1. Taxability of Commission Paid to Foreign Agents:
The appellants, M/s Goodyear India Limited, engaged in the manufacture of tyres and tubes, paid commissions to foreign agents for services related to exports. The Revenue contended that this commission is chargeable to service tax under the Reverse Charge Mechanism. The appellants argued that the services were rendered and received entirely outside India and thus not taxable. The Tribunal examined Section 66A of the Finance Act, 1994, and Rule 2(1)(d)(iv) of the Service Tax (Fifth Amendment) Rules, 2005, and concluded that the services, though performed outside India, were received by the appellants in India. Therefore, the commission paid to the foreign agents is taxable under the Reverse Charge Mechanism.

2. Applicability of Extended Period for Issuing Show-Cause Notices:
The appellants argued that the show-cause notice dated 25.04.2008 was time-barred, as the Department was aware of the facts as early as 08.03.2007 and had previously attempted to tax the same transaction under a different service category. The Tribunal noted that there was continuous correspondence and litigation between the appellants and the Department. Citing previous judgments, the Tribunal held that the extended period could not be invoked due to the lack of suppression of material facts by the appellants. Thus, the demand was restricted to the normal period, and penalties imposed were set aside.

3. Neutrality of Revenue in the Context of Service Tax Credit:
The appellants contended that the issue was revenue neutral, as any service tax paid would be available as credit. The Tribunal clarified that the principle of netting of duty is not in operation and emphasized the importance of maintaining the chain of payment of duty and availing credit for a smooth flow of goods and seamless procedures. The argument of revenue neutrality was not accepted.

Conclusion:
The appeals were partially allowed, restricting the demands to the normal period while setting aside the penalties imposed on the appellants. The Tribunal upheld the taxability of the commission paid to foreign agents under the Reverse Charge Mechanism and rejected the invocation of the extended period for issuing show-cause notices.