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2024 (4) TMI 725 - AT - Service TaxPoint of Taxation rules - service received from associate enterprises on the taxable value as determined in terms of section 67 of the Finance Act, 1994 - demand made in the present case on the basis of certain provisional entries made by the appellant in their book of accounts, as expenses towards the payments to be made to their associate enterprises, for the services of professionals visiting them - Extended period of Limitation - Penalty - HELD THAT - By not paying the service tax at the time of making the expense entries in their book of accounts, appellant has failed to pay the service tax at the relevant time, as per Rule 6 (1) of the Service Tax Rules, 1994. Even if it is concluded that appellant have correctly discharged the service tax liability subsequently they are required to pay interest on the delayed payment of the tax as per Section 75 of the Finance Act, 1994. Extended period of Limitation - HELD THAT - The submissions made by the appellant to effect that the demand is barred by limitation for the reason that the audit was conducted on various dates between 24.09.2012 to 06.05.2013, so the fact was in the knowledge of the department within the normal limitation period and the show cause has been issued only on 05.10.2015, not agreed upon. Proviso to Section 73 (1) of the Finance Act,1994 provides that extended period of limitation can be invoked if the necessary ingredients as prescribed therein exist. The fact that appellant was making the expense entries in the book of accounts, in case of the receipt of services from the associated enterprises was well in knowledge of the appellant and the provisions of the Section 67 read with Rule 6(1) and Rule 7 of the Point of Taxation Rules, 2011 clearly laid down the manner in which the service tax liability was to be discharged in respect of these entries. By not following the said procedure appellant have sought to short pay the service tax, by suppressing the fact of the said entries in their book of accounts with intent to evade payment of tax at time and in the manner prescribed as per law. In case of COMMISSIONER OF C. EX., SURAT-I VERSUS NEMINATH FABRICS PVT. LTD. 2010 (4) TMI 631 - GUJARAT HIGH COURT Hon ble Gujarat High Court has held The language employed in the proviso to sub-section (1) of Section 11A, is, clear and unambiguous and makes it abundantly clear that moment there is non-levy or short levy etc. of central excise duty with intention to evade payment of duty for any of the reasons specified thereunder, the proviso would come into operation and the period of limitation would stand extended from one year to five years. This is the only requirement of the provision. Once it is found that the ingredients of the proviso are satisfied, all that has to be seen as to what is the relevant date and as to whether the show cause notice has been served within a period of five years therefrom. Penalty - HELD THAT - As the invocation of the extended period of limitation as per Section 73 of the Finance Act, 1994 is upheld, the penalty as per Section 78 becomes mandatory as has been held by Hon ble Apex Court in case of UNION OF INDIA VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS AND COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VERSUS M/S. LANCO INDUSTRIES LTD. 2009 (5) TMI 15 - SUPREME COURT . For re-computation of the demand of tax and interest, and the penalties imposable the matter need to be remanded back to the original authority - appeal allowed in part.
Issues Involved: Service Tax liability on provisional entries, interest under Section 75, penalty under Section 78, and CENVAT credit disallowance. Issue 1: Service Tax Liability on Provisional Entries The Appellant, engaged in the manufacture of goods and registered for various services, was receiving technical know-how and IT software services from its associated enterprise in South Korea. The Appellant created provisional entries for estimated expenses in its books, which were reversed and actual expenses were remitted later with service tax paid on reverse charge basis. The Department's audit alleged that the liability to pay service tax arises at the time of making the entry in the books of accounts, leading to a show cause notice demanding Rs. 82,60,318.00 for the period 2011-12 to 2013-14. The adjudicating authority confirmed a demand of Rs. 50,43,814/- along with applicable interest and penalties. The Commissioner (Appeal) upheld the order regarding provisional entries but set aside the disallowance of CENVAT credit. Issue 2: Interest under Section 75 The adjudicating authority confirmed that interest is automatically applicable once the duty liability is upheld. The Appellant argued that the demand was revenue neutral and that service tax on provisional entries should not attract interest. However, the Tribunal upheld the interest liability, stating that the Appellant failed to discharge the tax liability at the correct time, thus attracting interest for delayed payment. Issue 3: Penalty under Section 78 The show cause notice also proposed penalties for contravention of various sections of the Finance Act, 1994. The adjudicating authority imposed penalties equivalent to the confirmed service tax amount and inadmissible CENVAT credit. The Tribunal upheld the invocation of the extended period of limitation, thus making the penalty under Section 78 mandatory, as the Appellant was found to have suppressed facts with the intent to evade tax. Issue 4: CENVAT Credit Disallowance The Commissioner (Appeal) set aside the original authority's order regarding the disallowance of CENVAT credit. The Tribunal noted that the demand was based on differences in the rate of taxation applied and the computation of actual tax paid by the Appellant. The Tribunal directed the adjudicating authority to recompute the demand after determining the taxable value as per Section 67 and adjusting the tax actually paid by the Appellant. Conclusion: The Tribunal summarized its findings as follows: a. The Appellant is required to pay Service Tax on services received from associated enterprises based on the taxable value determined under Section 67 of the Finance Act, 1994. b. The service tax liability must be discharged in accordance with Rule 6 of the Service Tax Rules, 1994, read with Rule 7 of the Point of Taxation Rules, 2011. Interest under Section 75 is applicable for any delay. c. The extended period of limitation under Section 73 is invokable. d. The demand of service tax needs to be recomputed after determining the taxable value and adjusting the tax actually paid. e. Penalty under Section 78 is imposable but needs to be redetermined after computing the tax short paid. f. The matter is remanded back to the original authority for re-computation of the demand, interest, and penalties. The appeal is partly allowed in terms indicated above.
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