2025 (3) TMI 1186 - AT - Service Tax

Levy of service tax on UCT is undertaking marketing of products procuring customers effecting sale of such products and getting commission for same - service tax under Reverse Charge Mechanism on alleged import of Management or Business Consultancy Services on the ground that the appellant is using third party software for which they have remitted the royalty outside India - suppression of facts or not - extended period of limitation. HELD THAT - The Hon ble Bombay High Court in the case of IDFC First Bank Ltd. vs. Union of India 2023 (8) TMI 1153 - BOMBAY HIGH COURT wherein while deciding whether the time limit as prescribed in S. 73 (4B) of the Act are mandatory or directory in nature the Hon ble High Court laid emphasis on the word shall used in the provision to hold that the time limit prescribed in S. 73 (4B) of the Act is mandatory and held If the interpretation of the provisions as canvassed on behalf of the revenue is accepted it would tantamount to defeating the well settled principles of law that a show cause notice is required to be taken to its logical conclusion within a reasonable period of time and expeditiously as a show cause notices issued under any fiscal legislation and concerning recovery of revenue would have a very serious concern and bearing on the public revenue. Hence there cannot be any laxity much less any lethargic approach on behalf of the officers is delaying adjudication of such notices. The legislative provisions which intend to bring about an expeditious and effective adjudication of a show cause notice cannot be defeated by the officers sitting tight on the show cause notice and/or not expeditiously taking them to the logical conclusion. The Section 73 (4B) provision of the Finance Act 1994 is para materia with the provisions of Section 11A (11) of Central Excise Act 1944 and Section 128 (9) under Customs Act 1962. Under all these Acts the words used are Shall and Where it is possible to do so and in the Manual as far as possible . The importance and significance of these words as well as to whether these are directory or mandatory in nature have already been interpreted in various case laws - In the Kopertek Metals Pvt Ltd. 2024 (12) TMI 269 - CESTAT NEW DELHI decided by the Principal Bench Delhi Tribunal it has been held that non adjudication of the order with no reason being given to the effect that the order could not be passed on time due to circumstance beyond the control of the Adjudicating authority the same would be fatal to the legality of the order. In VOS judgement 2024 (12) TMI 624 - DELHI HIGH COURT the Delhi High Court has also held so and has noted that the delay is required to be viewed from the facts of the case. As per these decisions when the reason for delay is not explained by way of plausible reasons in the Order in question it fails to prove that it was not possible to pass the authority within the time-frame. It is found that if the time-frame given in a statute is not fulfilled the decision as to whether it is correct or erroneous would not depend on the deviation period. The delay whether it is for one day or one year or ten years are all taken as delay only. Similar is the situation even in case of time-frame given for filing of appeals - The Hon ble Supreme Court in the case of Singh Enterprises 2007 (12) TMI 11 - SUPREME COURT has held that in case of such appeals even the Tribunal and Courts have no power to condone the delay. On a factual matrix it is found that even in the present case in many cases the delay is to the extent to 2 years. Therefore there are no merits in the arguments of the Revenue that delay by number of days should be the factor to be considered to apply or otherwise the Tribunal s order in the case of Kopertek Metals. In the Order in Original there is no mention of the circumstances which proved to be impediment in completing the adjudicating process within one year. Another issue weighing in our mind is that in this case the appellant is a duly registered assessee. They have been paying Service Tax and filing their Returns. The demand as per the Revenue emanates from the transactions pertaining to import of service. As submitted by the appellant and also held consistently by the Tribunals and Courts that this is a clear case of revenue neutrality wherein the suppression clause cannot be invoked. This being the case in the first place the Revenue did not have the case in respect of extended period itself. In such a situation the period for adjudication itself gets shortened to six months. However since the SCN was issued invoking the extended period though not invocable the Adjudicating authority cannot be faulted even if the OIO is passed within one year. The ratio laid down by the Tribunal in the case of Kopertek Metals would be squarely applicable. Conclusion - i) The transactions between the Appellant and UCT are sales not Business Auxiliary Services thus not liable for service tax under the reverse charge mechanism. ii) The demand for service tax on alleged consultancy services is not upheld as the use of third-party software did not constitute consultancy. iii) The extended period for demand is not applicable due to lack of suppression and the case being revenue neutral. iv) The adjudication order is set aside for being passed beyond the statutory time limit without justification. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

- Whether the Appellant's transactions with UCT constitute Business Auxiliary Services (BAS) under the reverse charge mechanism, making them liable for service tax.

- Whether the demand for service tax on the alleged import of Management or Business Consultancy Services is justified.

- Whether the extended period for demand under the Finance Act, 1994, is applicable in this case.

- Whether the adjudication order was passed within the statutory time limit as prescribed under Section 73(4B) of the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Business Auxiliary Services

Relevant legal framework and precedents: The demand was based on the premise that UCT was acting as an agent for the Appellant in the sale of software, which falls under BAS, attracting service tax under the reverse charge mechanism.

Court's interpretation and reasoning: The Tribunal examined the nature of the relationship between the Appellant and UCT, emphasizing the contractual terms that defined them as independent contractors and not as principal-agent.

Key evidence and findings: The agreement explicitly stated that UCT was not an agent of the Appellant, and the revenue sharing was not indicative of commission for procuring orders.

Application of law to facts: The Tribunal found that the transactions were sales to UCT, which then resold to end customers, rather than agency services.

Treatment of competing arguments: The Revenue's argument that UCT acted as an agent was countered by the Appellant's evidence of independent contractor status and the nature of transactions.

Conclusions: The demand under BAS was not justified as the transactions were sales, not agency services.

Issue 2: Management or Business Consultancy Services

Relevant legal framework and precedents: The demand was based on the alleged import of consultancy services through the use of third-party software.

Court's interpretation and reasoning: The Tribunal considered whether the use of third-party software constituted consultancy services.

Key evidence and findings: The Appellant argued that the use of third-party software was not consultancy but part of their telecommunication billing solutions.

Application of law to facts: The Tribunal found no basis for treating the use of software as consultancy services.

Treatment of competing arguments: The Tribunal found the Revenue's argument unsubstantiated.

Conclusions: The demand for service tax on alleged consultancy services was not upheld.

Issue 3: Extended Period for Demand

Relevant legal framework and precedents: The extended period under the Finance Act, 1994, was invoked for the demand.

Court's interpretation and reasoning: The Tribunal examined whether there was suppression of facts to justify the extended period.

Key evidence and findings: The Appellant maintained all records and filed returns, indicating no suppression.

Application of law to facts: The Tribunal found the demand based on balance sheet figures, which were disclosed, negating suppression claims.

Treatment of competing arguments: The Appellant's argument of revenue neutrality and proper disclosure was accepted over the Revenue's claim of suppression.

Conclusions: The extended period was not applicable due to lack of suppression.

Issue 4: Adjudication Time Limit

Relevant legal framework and precedents: Section 73(4B) of the Finance Act, 1994, prescribes a time limit for passing orders.

Court's interpretation and reasoning: The Tribunal considered whether the order was passed within the statutory time limit.

Key evidence and findings: The order was passed beyond the one-year limit without justification for delay.

Application of law to facts: The Tribunal applied the principle that statutory time limits are mandatory unless justified by insurmountable exigencies.

Treatment of competing arguments: The Revenue's argument that the delay was minor was rejected as the statutory limit was exceeded.

Conclusions: The order was set aside due to being passed beyond the statutory time limit.

3. SIGNIFICANT HOLDINGS

- The Tribunal held that the transactions between the Appellant and UCT were sales, not Business Auxiliary Services, thus not liable for service tax under the reverse charge mechanism.

- The demand for service tax on alleged consultancy services was not upheld as the use of third-party software did not constitute consultancy.

- The extended period for demand was not applicable due to lack of suppression and the case being revenue neutral.

- The adjudication order was set aside for being passed beyond the statutory time limit without justification.

- The Tribunal emphasized the mandatory nature of statutory time limits for adjudication, aligning with precedents that require adherence unless justified by exceptional circumstances.