2024 (1) TMI 525 - AT - Service Tax

Levy of service tax - Business Auxiliary Service - Technical Inspection and Certification Service - GTA Service - Extended period of limitation - revenue neutrality. Business Auxiliary Service - Technical Inspection and Certification Service - HELD THAT - It is brought out from evidence that garments are sold by the appellant to M/s.Bonprix, Germany. M/s.JPS Trading, Dubai has played a role of middleman in making arrangements. The quality test is done by M/s.Fashion Force in India. According to the department, it is an agent of M/s.JPS Trading, Dubai. However, there is no payment made by the appellant to M/s.Fashion Force. We therefore do not understand how there would be a service rendered by M/s.Bonprix, Germany to the appellant so as to be taxable under reverse charge mechanism. Even if there was any service rendered in regard to quality checking, the demand ought to have been raised against M/s.Fashion Force, who is the service provider for quality checking. If the department is of the view that Fashion Force, Tiruppur is the branch office of JPS Trading, Dubai then it would be M/s.Fashion Force, Tiruppur who is liable to pay service tax. It cannot be said that the deductions made in the invoices raised in the name of M/s.Bonprix, Germany is a payment made to Fashion Force, Tiruppur - the demand raised under BAS , Technical Inspection and Certification Service is without any factual or legal basis and requires to be set aside - The issue on merits is answered in favour of the appellant and against the Revenue. GTA Service - HELD THAT - The authorities below have extended the benefit of abatement after the period 1.3.2008. The show cause notice has been issued invoking the extended period. Even if the appellant paid tax on GTA services, the appellant would be eligible for availing cenvat credit of the tax paid. The entire situation is revenue-neutral. In such situation, the extended period cannot be invoked as decided in the case of NIRLON LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI 2015 (5) TMI 101 - SUPREME COURT . The impugned order is modified to the extent of setting aside the demand, interest and penalties under Business Auxiliary Service , Technical Inspection and Certification Services - demand, interest and penalties in regard to GTA Service is set aside for the extended period. The details as to whether GTA services were used only for export is present. Therefore, the appellant is liable to pay the tax on GTA services for the normal period along with interest. For the same reasons of revenue neutral situation, the penalties are set aside entirely. The appeal is partly allowed.

Summary

Issues involved:
The issues involved in the judgment are whether the appellant is liable to pay service tax under 'Business Auxiliary Service', 'Technical Inspection and Certification Service', and 'GTA Service'.

Business Auxiliary Service and Technical Inspection and Certification Service:
The appellant, engaged in the manufacture and export of knitted garments, receives orders for supply of goods to M/s.Bonprix, Germany through M/s.JPS Trading, a sourcing agent based in Dubai. The department alleged that deductions made by the appellant in the invoice for bonus, inspection charges, and recycling compensation are payments for services provided by M/s.JPS Trading, Dubai, and are taxable. However, the tribunal found that the deductions were discounts in the sale transaction, not payments for services. The quality testing of garments was done by M/s.Fashion Force in India, an agent of M/s.JPS Trading, Dubai. The tribunal held that the demand under 'BAS' and 'Technical Inspection and Certification Service' lacked factual and legal basis, setting it aside.

GTA Service:
Regarding the demand under GTA service, the authorities granted abatement after 1.3.2008 but invoked the extended period for the period before. The appellant argued that services related to export are not subject to service tax, and even if paid, tax would be eligible as credit. Citing precedents, the tribunal held that the extended period cannot be invoked in a revenue-neutral situation. The demand, interest, and penalties under 'GTA Service' for the extended period were set aside. However, the appellant is liable to pay tax on GTA services for the normal period along with interest, with penalties entirely set aside due to the revenue-neutral situation.

Conclusion:
The tribunal partly allowed the appeal, setting aside the demand, interest, and penalties under 'Business Auxiliary Service' and 'Technical Inspection and Certification Services'. For 'GTA Service', the demand, interest, and penalties for the extended period were set aside, but the appellant is liable to pay tax for the normal period along with interest. The penalties for GTA services were entirely set aside.