2024 (2) TMI 1512 - AT - Service Tax

Recovery of service tax with interest and penalty - Business Auxiliary service - lease rent paid by the appellants for ISO Tanks used in a non-taxable territory - Applicability of provision of Section 66A of the Finance Act 1994 and the Taxation of Services (Provided from Outside India and Received in India) Rules 2006 - applicability of POPOS rules - reverse charge mechanism - extended period of limitation - penalty. Business Auxiliary service - HELD THAT - The activity of giving ISO Tanks to the appellant by the foreign service provider for transportation of Aluminium Chloride manufactured by the appellants shall come under Section 65(19)(iv) i.e. procurement of goods or service provided on behalf of the client and therefore it can be termed as Business Auxiliary Service and is taxable as such. Applicability of POPOS rules - HELD THAT - In the instant case the tangible goods ISO tanks were made available by the service provider to the service recipient. Thus the appellant used such ISO Tanks for storage and transportation of Aluminium Chloride manufactured by the appellants. Accordingly the contention of the appellant that Rule 4 is applicable in the present case does not hold much water. There is no applicability of the Rule 4 (ibid) in the facts of the case and the department s contention in this regard to apply Rule 3 is correct and proper. Reverse charge mechanism - HELD THAT - Since the provider of service is located in Non-taxable Territory and is not having any office in India the recipient has to discharge the service tax liability under RCM in accordance with Provisions of Section 68 (2) of the Finance Act 1994 read with Notification No. 30/2012-ST (Srl. No. 10). Hence there is no infirmity or illegality in the confirmation of the demand by the adjudicating authority and the pleas of the appellant that no service tax is leviable at first place is not legally sustainable. Applicability of provision of Section 66A of the Finance Act 1994 and the Taxation of Services (Provided from Outside India and Received in India) Rules 2006 - HELD THAT - It has been clearly mentioned that the provision of Section 66A of the Finance Act 1994 and the Taxation of Services (Provided from Outside India and Received in India) Rules 2006 had ceased to apply w.e.f. 1st July 2012 and hence w.e.f. 1st July 2012 the provision Section 66C of the Finance Act 1994 read with Rule 3 of the Place of Provisions of Service Rules 2012 and Rule 7 of Point of Taxation Rules 2011 shall be applicable to the present case. It has also been mentioned that it is well accepted legal principle that non-mentioning/wrong mentioning of the provisions would not vitiate the proceedings particularly when allegations and charges against the appellant are mentioned explicitly in the Show Cause Notice. Extended period of limitation - levy of penalty - HELD THAT - No evidence has been adduced by them that they had ever approached the department for any clarification in the matter. On the contrary when the EA-2000 Audit was conducted and the impugned transactions were scrutinised it was revealed that they had not paid the service tax under Reverse Charge Mechanism in accordance with Rule 3 of POPS Rules 2012 and not paid the service tax on impugned services in Reverse Charge by mis-stating the same as covered under Rule 4 of POPS Rules 2012 which is not the case on hand as discussed above. Had the audit not pointed it out they would have continued to enrich themself at the cost of Government Revenue - The extended period has been rightly invoked in the present case and as all the ingredients mentioned in proviso to Section 73 (1) (ibid) and Section 78 of the Finance Act 1994 are present in the instance case. Therefore there is no infirmity in the confirmation of the demand of service tax invoking extended period along with interest and imposition of penalty on the appellant as specified in Section 78 of the Finance Act 1994. Conclusion - i) The services received in a taxable territory are subject to service tax under RCM regardless of the service s use in a non-taxable territory. ii) The classification of services under Business Auxiliary Service was upheld confirming the taxability of services facilitating business operations. iii) The applicability of Rule 3 of the Place of Provision of Services Rules 2012 was affirmed emphasizing the location of the service recipient as the determining factor for taxability. iv) There is no infirmity in the confirmation of the demand of service tax invoking extended period along with interest and imposition of penalty on the appellant as specified in Section 78 of the Finance Act 1994. Appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the lease rent paid by the appellants for ISO Tanks used in a non-taxable territory is subject to Service Tax under the Reverse Charge Mechanism (RCM) as per the Finance Act, 1994.
• Whether the service provided by the foreign lessor of ISO Tanks falls under the category of 'Business Auxiliary Service' as defined under Section 65(19) of the Finance Act, 1994.
• Whether the provisions of Section 66A of the Finance Act, 1994, and the Place of Provision of Services Rules, 2012, apply to the services in question.
• Whether the extended period for demand and imposition of penalties under Section 73(1) and Section 78 of the Finance Act, 1994, is applicable in this case.

ISSUE-WISE DETAILED ANALYSIS

1. Applicability of Service Tax under Reverse Charge Mechanism

• Legal Framework and Precedents: The Finance Act, 1994, along with Notification No. 30/2012-ST, governs the applicability of Service Tax under the Reverse Charge Mechanism for services provided by a person in a non-taxable territory to a person in a taxable territory.
• Court's Interpretation and Reasoning: The Tribunal held that the Place of Provision of Services Rules, 2012, particularly Rule 3, applies, indicating that the place of the recipient of the service (appellant) is the place of provision, thus subjecting the service to tax.
• Key Evidence and Findings: The ISO Tanks were used for storing and transporting Aluminium Chloride, and the lease rent was paid to a foreign entity. The Tribunal noted that the appellant had previously paid service tax for similar services.
• Application of Law to Facts: The Tribunal found that the appellant is liable to pay service tax under RCM as the service is received in a taxable territory.
• Treatment of Competing Arguments: The appellant argued that the service was not taxable as it was used in a non-taxable territory. However, the Tribunal emphasized the location of the service recipient as the basis for taxability.
• Conclusions: The Tribunal concluded that service tax is applicable under RCM, and the appellant's contention regarding non-taxability was dismissed.

2. Classification under 'Business Auxiliary Service'

• Legal Framework and Precedents: Section 65(19) of the Finance Act, 1994, defines 'Business Auxiliary Service' and includes activities related to procurement of goods or services as inputs for the client.
• Court's Interpretation and Reasoning: The Tribunal interpreted the lease of ISO Tanks as falling under the procurement of services for the client, thus classifying it as 'Business Auxiliary Service'.
• Key Evidence and Findings: The Tribunal found that the services provided by the foreign lessor facilitated the appellant's business operations, thereby qualifying as auxiliary services.
• Application of Law to Facts: The Tribunal applied the definition of 'Business Auxiliary Service' to the lease arrangement, affirming its classification under this category.
• Treatment of Competing Arguments: The appellant contended that the service did not fit the definition. However, the Tribunal found the service incidental to the appellant's business activities.
• Conclusions: The Tribunal upheld the classification of the service as 'Business Auxiliary Service', making it taxable.

3. Applicability of Section 66A and Place of Provision of Services Rules

• Legal Framework and Precedents: Section 66A ceased to apply post-2012, and the Place of Provision of Services Rules, 2012, determine the taxability based on the location of the service recipient.
• Court's Interpretation and Reasoning: The Tribunal noted that the reference to Section 66A was erroneous but did not vitiate the proceedings as the correct provisions were applied.
• Key Evidence and Findings: The Tribunal found that the appellant's reliance on Rule 4 was misplaced, as Rule 3 was applicable.
• Application of Law to Facts: The Tribunal applied Rule 3, confirming the taxability based on the recipient's location.
• Treatment of Competing Arguments: The appellant argued for Rule 4's applicability, but the Tribunal found no merit in this argument.
• Conclusions: The Tribunal confirmed the applicability of Rule 3, reinforcing the tax liability.

4. Extended Period for Demand and Penalties

• Legal Framework and Precedents: Section 73(1) and Section 78 of the Finance Act, 1994, allow for an extended period in cases of willful misstatement or suppression of facts.
• Court's Interpretation and Reasoning: The Tribunal found that the appellant's actions indicated an intent to evade tax, justifying the extended period and penalties.
• Key Evidence and Findings: The Tribunal noted the appellant's previous tax payments and subsequent non-compliance without seeking clarification.
• Application of Law to Facts: The Tribunal applied the provisions for extended demand and penalties due to the appellant's conduct.
• Treatment of Competing Arguments: The appellant's arguments against penalties were dismissed based on their previous tax behavior.
• Conclusions: The Tribunal upheld the extended period for demand and penalties.

SIGNIFICANT HOLDINGS

• The Tribunal established that services received in a taxable territory are subject to service tax under RCM, regardless of the service's use in a non-taxable territory.
• The classification of services under 'Business Auxiliary Service' was upheld, confirming the taxability of services facilitating business operations.
• The applicability of Rule 3 of the Place of Provision of Services Rules, 2012, was affirmed, emphasizing the location of the service recipient as the determining factor for taxability.
• The Tribunal justified the extended period for demand and penalties, highlighting the appellant's intent to evade tax.
• The appeals were dismissed, reinforcing the legal principles applied in the adjudication process.