2025 (1) TMI 544 - AT - Service Tax

Levy pf service tax on payment made to commission agents on export of goods for period September 2013 to September 2014 under reverse charge - Revenue Neutrality - invocation of Extended period of limitation - service tax on intermediary service provided by commission agents located outside India - denial of CENVAT Credit - levy of interest and penalty. Invocation of Extended period of limitation - HELD THAT - The impugned order has held that as the appellant did not inform the department regarding commission paid to the foreign agent and had audit not been conducted, the said fact would not have been revealed. The appellant had suppressed material fact with an intent to evade payment of service tax. Such a finding recorded that suppression of facts is enough to invoke the extended period of limitation under the proviso to section 73 (1) of the Finance Act and there is no necessity of any intent to evade payment of service tax, is against the well settled principles. Suppression of facts has to be primarily examined whether it was wilful and with an intent to evade payment of service tax. Hon ble Supreme Court has held that suppression of facts has to be wilful‟ and there should also be an intent to evade payment of service tax. The Hon ble Supreme Court in Pushpam Pharmaceuticals Company, examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The Hon ble Court observed that the proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression. In the instant case, it is an admitted fact that all the transactions were declared in the financial records and the objection arose on scrutiny of such financial documents by the audit team. The Department has not been able to establish any positive act of the appellant with an intent to evade. As that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act. Conclusion - The extended period of limitation cannot be invoked without evidence of wilful suppression or intent to evade tax. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

• Whether the demand of service tax on payments made to commission agents for the period September 2013 to September 2014 is time-barred, given that the appellant was entitled to input credit, thus making it a case of revenue neutrality.
• Whether the demand of service tax on intermediary services provided by commission agents located outside India during the specified period is sustainable on merits.
• Whether the denial of CENVAT Credit availed during 2013-14 and 2014-15 is justified.
• Whether the imposition of interest and penalties under the relevant provisions is sustainable.
• Whether the show cause notice (SCN) is barred by time.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Time-barred Demand of Service Tax

• Relevant Legal Framework and Precedents: The Tribunal examined the applicability of the extended period under proviso to Section 73(1) of the Finance Act, 1994, and related precedents, including the Supreme Court's rulings in Pushpam Pharmaceuticals and Anand Nishikawa.
• Court's Interpretation and Reasoning: The Tribunal noted that the extended period could not be invoked without evidence of wilful suppression or intent to evade tax. The appellant's transactions were recorded in financial documents, and the non-payment of tax was detected during an audit, indicating no deliberate suppression.
• Key Evidence and Findings: The appellant had declared commission payments in shipping bills, submitted as proof of export, and filed excise returns on time. The Department's reliance on audit findings to allege suppression was insufficient to establish intent to evade tax.
• Application of Law to Facts: The Tribunal found that the Department failed to demonstrate any positive act of suppression or intent to evade by the appellant, thus rendering the invocation of the extended period unjustified.
• Treatment of Competing Arguments: The Tribunal rejected the Department's argument that the appellant's failure to disclose commission payments constituted suppression, emphasizing the need for a deliberate act to invoke the extended period.
• Conclusions: The demand was held to be time-barred, as the extended period was inapplicable without evidence of wilful suppression or intent to evade tax.

Issue 2: Demand of Service Tax on Intermediary Services

• Relevant Legal Framework and Precedents: The Tribunal considered the Place of Provision of Services Rules, 2012, and relevant notifications and judgments.
• Court's Interpretation and Reasoning: The Tribunal did not delve into the merits of this issue, as the primary question of limitation was dispositive.
• Key Evidence and Findings: Not addressed due to the resolution of the limitation issue.
• Application of Law to Facts: Not addressed due to the resolution of the limitation issue.
• Treatment of Competing Arguments: Not addressed due to the resolution of the limitation issue.
• Conclusions: Not addressed due to the resolution of the limitation issue.

Issue 3: Denial of CENVAT Credit

• Relevant Legal Framework and Precedents: The Tribunal considered the CENVAT Credit Rules, 2004, and relevant legal principles.
• Court's Interpretation and Reasoning: The Tribunal did not address this issue on merits due to the resolution of the limitation issue.
• Key Evidence and Findings: Not addressed due to the resolution of the limitation issue.
• Application of Law to Facts: Not addressed due to the resolution of the limitation issue.
• Treatment of Competing Arguments: Not addressed due to the resolution of the limitation issue.
• Conclusions: Not addressed due to the resolution of the limitation issue.

Issue 4: Imposition of Interest and Penalties

• Relevant Legal Framework and Precedents: The Tribunal considered the provisions of Rule 15 of the CENVAT Credit Rules, 2004, Section 11AC of the Central Excise Act, 1944, and Section 78 of the Finance Act, 1994.
• Court's Interpretation and Reasoning: The Tribunal did not address this issue on merits due to the resolution of the limitation issue.
• Key Evidence and Findings: Not addressed due to the resolution of the limitation issue.
• Application of Law to Facts: Not addressed due to the resolution of the limitation issue.
• Treatment of Competing Arguments: Not addressed due to the resolution of the limitation issue.
• Conclusions: Not addressed due to the resolution of the limitation issue.

Issue 5: Time-barred SCN

• Relevant Legal Framework and Precedents: The Tribunal considered the statutory time limits for issuing SCNs under the Finance Act and related case law.
• Court's Interpretation and Reasoning: The Tribunal found that the SCN was issued beyond the normal period of limitation without sufficient grounds for invoking the extended period.
• Key Evidence and Findings: The Tribunal emphasized the lack of evidence for wilful suppression or intent to evade tax.
• Application of Law to Facts: The Tribunal applied the principles of limitation to conclude that the SCN was time-barred.
• Treatment of Competing Arguments: The Tribunal rejected the Department's arguments for invoking the extended period.
• Conclusions: The SCN was held to be time-barred, rendering the demand unsustainable.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "Suppression of facts has to be 'wilful' and there should also be an intent to evade payment of service tax."
• Core principles established: The extended period of limitation cannot be invoked without evidence of wilful suppression or intent to evade tax.
• Final determinations on each issue: The Tribunal found in favor of the appellant on the question of limitation, setting aside the impugned order and allowing the appeal.