2024 (9) TMI 777 - AT - Service Tax

Non-payment of service tax - sales commission under the category of business auxiliary service - Demand of Service Tax in respect of sales promotion expenditure - Demand under the head of other charges under reverse charge mechanism - period from 01.10.2007 to 31.03.2012 - suppression of facts or not - time limitation. Demand of Service Tax under the head of sales commission under the category of business auxiliary service - Suppression of facts or not - time limitation - HELD THAT - It is observed that this demand has been raised for the period from 2007-08 to 2010-11 and the show cause notice was issued only on 18.04.2013 beyond the normal period of limitation; the appellant has been filing returns regularly and declaring about the expenditure incurred towards foreign currency in their Annual Financial Statements - the issue is revenue neutral as the service tax paid under reverse charge would be available to the appellant as credit to them. When the issue is revenue neutral, extended period of limitation cannot be invoked to demand Service Tax from the assessee - the demand of Service Tax confirmed by invoking the extended period of limitation is not sustainable. Demand of Service Tax in respect of sales promotion expenditure - time limitation - HELD THAT - Most of the expenses are in the form of discounts / bonuses offered on account of sale and related purchase of goods. There is no evidence brought on record by the Revenue to show that these expenses were incurred by the appellant towards receipt of any service , for demanding Service Tax from the appellant under reverse charge mechanism - Further, the fact is noted that all these details have been declared by the appellant in their financial statements. Hence, the extended period of limitation cannot be invoked to demand Service Tax under this head - the demand of Service Tax confirmed under the head of sales promotion expenses' is not sustainable, on merits as well as on limitation. Demand under the head of other charges under reverse charge mechanism - HELD THAT - The appellant has disclosed the expenses in foreign currency under this head in their financial statements. The impugned order has not demanded service tax on this amount under any particular category of service. It is also observed that the Department has failed to bring any evidence on record to show that these have been incurred towards the receipt of any service, to demand Service Tax under reverse charge mechanism from the appellant. Accordingly, the demand of Service Tax under this head is not sustainable. The demands of Service Tax confirmed in the impugned order are not sustainable and accordingly, the same are set aside - Appeal allowed.

Summary

Issues:
- Service Tax liability on foreign currency expenditure under Reverse Charge mechanism.
- Applicability of exemption notifications.
- Invocation of extended period of limitation.
- Revenue neutrality and availability of credit.
- Sustainability of Service Tax demands under different heads.

Analysis:
1. The case involves M/s. Maple Exports Private Limited, a merchant exporter of leather goods, facing a Service Tax demand for not paying tax on foreign currency expenditure under Reverse Charge mechanism. The Officers observed non-payment of Service Tax, leading to a Show Cause Notice proposing a demand of Rs.51,68,799 for the period from 01.10.2007 to 31.03.2012.

2. The Ld. Commissioner confirmed the demand along with interest and penalties, leading to the appellant filing an appeal. The appellant contended that the demand was barred by limitation, and the issue was revenue neutral as the tax paid under reverse charge would be available as credit to them.

3. The appellant argued that the demand for sales commission and sales promotion expenses was not sustainable as they were eligible for exemptions under specific notifications. They also highlighted that the expenses did not relate to any taxable service under the category of business auxiliary service under reverse charge mechanism.

4. The Tribunal observed that the demand for sales commission beyond the normal period of limitation was not sustainable as there was no suppression of facts, and the issue was revenue neutral. The demand for sales promotion expenses was also found unsustainable as the expenses did not relate to any taxable service, and the Department failed to provide evidence supporting their claim.

5. The demand for other charges was deemed unsustainable as the Department did not establish that these expenses were incurred towards any taxable service. Consequently, the Tribunal set aside the demands of Service Tax, leading to the dismissal of interest and penalty imposition.

6. Ultimately, the Tribunal allowed the appeal filed by the appellant, holding that the demands of Service Tax confirmed in the impugned order were not sustainable. The decision was based on the lack of evidence supporting the taxable nature of the expenses and the absence of suppression of facts by the appellant.