2024 (4) TMI 724 - AT - Service Tax

Levy of service tax - Business Auxiliary Services (BAS) - expenses reimbursed to the foreign distributors under reverse charge mechanism - Extended period of limitation - HELD THAT - Hon ble Apex Court held in the case of COLLECTOR OF CENTRAL EXCISE CALCUTTA VERSUS PRADYUMNA STEEL LTD. 1996 (1) TMI 127 - SUPREME COURT that mere mention of wrong provision of law when the power exercised is available even though under a different provision is by itself not sufficient to invalidate the exercise of that power. It is found that the show-cause notice was issued alleging that the appellants have not paid the service tax for the various services received by them from their overseas dealers/ distributors and that such services fall under Business Auxiliary Service . It is found that the show-cause notice mentions at Para 7 that the appellants are incurred an expense on account of advertisement for sale promotion which appear to be covered under BAS. Thus it is seen that in the instant case the purport of the show-cause notice is to put the appellants on notice that they have received services from their foreign dealers and have not discharged due service tax under the BAS. Whether the appellants have received services under Business Auxiliary Services from their overseas distributor/ dealers and if so whether they are liable to discharge duty on Reverse Charge Mechanism? - HELD THAT - It is pertinent to note that though the free repairs during the warranty period are undertaken by the dealer the customer perceives that the same are provided by the manufacturer of the car. The dealers/ distributors are always associated with the manufacturer. To that extent it is understood that the dealer/ distributor is performing his work on behalf of or as an agent of the manufacturer in this case the appellants. Similarly in advertising promotion of good-will overseeing the network of dealers/ distributors business interest of the manufacturer of the motors is taken care even though the activity aids for his own business promotion. Therefore the submission of the appellant not agreed upon that the relationship between the appellant and the overseas dealers is on a principal-to-principal basis. As long as the overseas dealers/ distributors are rendering some service on behalf of/ on account of/ in connection with the business of the appellant they take the role of the manufacturer/ appellant. The overseas dealer/ distributor is receiving a consideration for this purpose. Therefore there is a force in the argument of the Department that the services rendered are in the nature of BAS. The Chennai Bench of the Tribunal has gone into an identical issue concerning a similarly placed manufacturer of motor cars i.e M/S. HYUNDAI MOTOR INDIA PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE SERVICE TAX 2019 (6) TMI 856 - CESTAT CHENNAI having similar arrangements with the overseas dealers has decided that the overseas dealers/ distributors are rendering services classifiable under BAS to the appellants therein. It is found that as contended by the learned Authorized Representative for the Department the exemption under Notification No.12/2003-ST dated 20.06.2003 is admissible only when goods are sold during the course of provision of service; there is documentary evidence in relation to the sale of said goods and if the appellants have not availed CENVAT credit - in the instant case the gross value of taxable service for the purpose of computation of service tax shall be the gross amount paid by the recipient of such service. Time Limitation - suppression of facts - HELD THAT - It is found no case has been made by the Department to show any positive act with an intent to evade payment of duty. It is found that it was held in the case of SUNSHINE STEEL INDUSTRIES VERSUS COMMISSIONER OF CGST CUSTOMS CENTRAL EXCISE JODHPUR (RAJ.) 2023 (1) TMI 638 - CESTAT NEW DELHI upheld by Supreme Court in COMMISSIONER OF CGST CUSTOMS AND CENTRAL EXCISE VERSUS SUNSHINE STEEL INDUSTRIES 2023 (7) TMI 479 - SC ORDER that extended period cannot be invoked for a demand raised on the basis of audit. Therefore the extended period cannot be invoked and the demand needs to be sustained only for the normal period. Looking into this background the imposition of penalties is also not justified in the instant case. The impugned order is modified to the extent of confirming the demand for the normal period; penalties imposed are set aside; the appeal is partially allowed.

Summary

Issues Involved:
1. Classification of services rendered by foreign distributors.
2. Applicability of Service Tax under "Business Auxiliary Services" (BAS).
3. Validity of Show Cause Notice (SCN).
4. Nature of relationship between the appellant and foreign distributors.
5. Revenue neutrality and CENVAT credit.
6. Reimbursement of expenses and its inclusion in taxable value.
7. Invocation of the extended period of limitation.
8. Imposition of interest and penalties.

Summary:

1. Classification of Services Rendered by Foreign Distributors:
The primary issue was whether the services provided by the foreign distributors to the appellant fall under "Business Auxiliary Services" (BAS) u/s 65(19) of the Finance Act, 1994. The Tribunal held that the services rendered by the overseas dealers/distributors, including handling warranty claims, monitoring repairs, and establishing a network of authorized repairers, are customer care services provided on behalf of the appellant and thus fall under BAS.

2. Applicability of Service Tax under BAS:
The Tribunal concluded that the services rendered by the foreign distributors qualify as BAS. The appellant, being the service receiver, is liable to pay service tax under the reverse charge mechanism. The relationship between the appellant and the foreign distributors was deemed not to be on a principal-to-principal basis but rather as one where the distributors act on behalf of the appellant.

3. Validity of Show Cause Notice (SCN):
The Tribunal addressed the appellant's contention that the SCN did not specify the sub-clause under BAS. It was held that the SCN's purpose is to inform the recipient of the allegations to enable a defense. The SCN in this case was found to be sufficient in informing the appellant of the allegations, thus not vitiating the proceedings.

4. Nature of Relationship Between the Appellant and Foreign Distributors:
The Tribunal found that the relationship between the appellant and the foreign distributors is not on a principal-to-principal basis. The distributors are seen as performing services on behalf of the appellant, thus qualifying the services under BAS.

5. Revenue Neutrality and CENVAT Credit:
The appellant's argument of revenue neutrality was rejected. The Tribunal held that the argument would disturb the scheme of CENVAT credit. The appellant's reliance on the revenue neutrality principle was not accepted.

6. Reimbursement of Expenses and Its Inclusion in Taxable Value:
The Tribunal held that the reimbursement of expenses forms part of the consideration for the purposes of valuation of the taxable service u/s 67 of the Finance Act, 1994. The exemption under Notification No. 12/2003-ST dated 20.06.2003 was found to be inapplicable as the appellant did not provide the necessary documentary evidence.

7. Invocation of the Extended Period of Limitation:
The Tribunal agreed with the appellant that the extended period of limitation could not be invoked. The demand for the period 18.04.2006 to 2008 was issued on 08.06.2009. The Tribunal found no evidence of wilful suppression of facts by the appellant and held that the extended period could not be invoked.

8. Imposition of Interest and Penalties:
Given the Tribunal's findings on the extended period of limitation, the imposition of penalties was deemed unjustified. The Tribunal set aside the penalties imposed on the appellant.

Conclusion:
The Tribunal modified the impugned order to confirm the demand for the normal period only and set aside the penalties. The appeal was partially allowed.