2024 (8) TMI 319 - AT - Service Tax

Levy of service tax - Design Services on the remittances made by the Appellant to certain foreign entities - reverse charge mechanism - validity of SCN. Vague SCN or not - HELD THAT - The impugned order is unsustainable in law in as much as the SCN itself was vague, non-specific and invalid. As is evident from the perusal of paragraphs 5 and 9 of the SCN, the design charges paid by the Appellant were considered liable to be taxed under reverse charge simultaneously under two taxable categories, viz. Design Services and Commercial and Industrial Construction services. Service tax on Design services - reverse charge mechanism - HELD THAT - There was no provision or supply of any independent services of Design and Drawings by M/s. Corus to the Appellant in terms of the contract. The separate consideration in the form of foreign remittances paid by the Appellant to M/s. Corus was not only for any independent supply or provision of any Design or Drawings services. Moreover, the consideration so paid was also for the provision of a gamut of services as described above, including design and drawings, and which were an integral part of the entire contract, incapable of being segregated or vivisected. The Revenue has also not brought any evidence on record nor has been able to establish before us that the design and Drawings covered within the scope of the Contract constituted an independent aim of the contractual arrangement between the contracting parties, and that the entire consideration described as 'Design Charges' paid by the Appellant was only for the provision/supply of Design and drawings - the attempt of the Revenue to artificially vivisect the supply of Design and Drawings from the above indivisible contract cannot be sustained, and the demand of service tax raised and confirmed on this basis cannot be upheld. The Department, however, failed to discharge this burden cast upon it in the present case. The SCN was vague, non-specific and void ab initio as it simultaneously alleged the classification and taxability of the said service under two specified table categories viz. Design Service and Commercial and Industrial Construction Service which was not permissible in law. The observations and findings are also beyond the scope of the SCN dated 22.04.2014 in as much as no such basis was laid down in the notice for alleging the classification of the services under 'Design Services'. The impugned order passed by the Commissioner holding the services under dispute under the taxable category viz. Design Services and confirming the demand of service tax under reverse charge thereunder cannot be sustained in law. The impugned order cannot be sustained - Appeal allowed.

Issues Involved:
1. Validity of the Show Cause Notice (SCN).
2. Classification of services under the taxable category.
3. Demand of service tax under reverse charge.
4. Indivisibility of the contract.
5. Limitation period for raising demand.

Detailed Analysis:

1. Validity of the Show Cause Notice (SCN):
The Appellant argued that the SCN was vague, non-specific, and invalid as it simultaneously alleged the disputed services under two taxable categories: Design Services and Commercial and Industrial Construction Services. The Tribunal found substantial force in this argument, noting that the SCN was per se bad in law and invalid as it failed to establish the classification of the said services under any specified taxable category. The SCN's contradictory conclusions rendered it void ab initio, making the impugned order without the authority of law.

2. Classification of Services under the Taxable Category:
The Appellant contended that the services provided by M/s. Corus could not be classified under Design Services as defined in Section 65 (36b) read with Section 65 (105) (zzzzd) of the Act. The Tribunal agreed, stating that the definition of Design Services was exhaustive and did not cover the structural components like Kalzip Aluminium Roofing Sheets. The Tribunal found that the services under dispute were outside the scope of Design Services, rendering the demand of service tax under this category unjustified and unsustainable in law.

3. Demand of Service Tax under Reverse Charge:
The SCN raised the demand of service tax under reverse charge on the design charges paid by the Appellant to the foreign entities, in terms of Section 66A of the Act. The Tribunal found that the attempt to artificially vivisect the supply of Design and Drawings from the indivisible contract could not be sustained, and the demand of service tax raised and confirmed on this basis could not be upheld.

4. Indivisibility of the Contract:
The Appellant argued that the contract with M/s. Corus was an indivisible contract involving the supply of goods and services, and the provision of design, detailing, drawings, submittals, etc., was an integral and inseparable part of the contract. The Tribunal agreed, stating that the contract did not involve nor envisage the provision of Design and Drawing services independently. The separate consideration paid by the Appellant was not for any independent supply of Design or Drawings services but for a gamut of services integral to the contract.

5. Limitation Period for Raising Demand:
The Appellant contended that the demand was barred by limitation as the SCN was issued beyond the normal period. The Tribunal found that the Appellant had recorded all transactions in its books of accounts, and there was no attempt to hide or camouflage any transaction. The demand was based on information already available to the Department through an audit conducted in 2010. The Tribunal held that the invocation of the extended period of limitation was illegal and unjustified.

Conclusion:
The Tribunal set aside the impugned order, holding that the SCN was vague and invalid, the services could not be classified under Design Services, the demand of service tax under reverse charge was unsustainable, the contract was indivisible, and the demand was barred by limitation. The appeal was allowed with consequential relief as per the law.

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