2013 (3) TMI 334 - AT - Service Tax

Pre-deposit of Service tax and Penalty - Short payment of Service Tax - Declared less value shown in their Profit & Loss periodical ST-3 returns - Differential Duty with interest - Export of service - Held that - It is seen that the appellants had produced documentary evidences showing services provided to foreign company and receiving the payment in foreign currency. - Admittedly, the commission earned on foreign services is not liable to Service Tax, as held by Board s Circular No. 111/5/2009-S.T., dated 24-2-2009. Commissioner (Appeals) s reasoning that the commission has not been separately shown in Profit & Loss account, cannot be held to be a valid reason to reject the appellant s plea of the commission having been earned from the services provided by them to a foreign client. - Demand set aside - Decided in favor of assessee.

Issues:
1. Short payment of Service Tax and penalty imposition.
2. Exemption of Service Tax on services provided to foreign clients.
3. Validity of Show Cause Notice for the demand of Service Tax.
4. Invocation of longer period for tax demand.
5. Interpretation of statute and penalty imposition.

Analysis:

Issue 1: Short payment of Service Tax and penalty imposition
The appellants were found to have declared less value in their Profit & Loss returns, resulting in a short payment of Service Tax. The Assistant Commissioner confirmed the amount of Service Tax under Section 73(1) of the Finance Act, 1994, along with interest and penalties under Sections 75, 76, and 78 of the Act. The appellants contended that the department's demand was unjustified as the services provided to foreign clients were exempt from Service Tax under the Export of Service Rules, 2005. They argued that they had provided evidence of services to foreign clients, which the department failed to rebut. The Commissioner (Appeals) rejected the appeal based on the lack of separate mention of foreign commission in the Profit & Loss account.

Issue 2: Exemption of Service Tax on services provided to foreign clients
The Tribunal found that the appellants had indeed provided evidence of services to foreign clients and received payment in foreign currency. The Revenue did not rebut this evidence. The Tribunal held that the non-reflection of the source of commission in the Profit & Loss account could not be a valid ground to reject the appellants' claim of earning commission from services provided to foreign clients. The Tribunal also noted that the appellants were paying Service Tax on commissions earned from Indian clients, which did not contradict their claim.

Issue 3: Validity of Show Cause Notice for the demand of Service Tax
The appellants argued that the Show Cause Notice demanding Service Tax for the year 2005-2006 was time-barred. They contended that the longer period was invoked based on assumptions and presumptions, without concrete evidence. They stated that the requirement to mention the value of exempted services in the ST-3 return was not mandatory during the relevant period. The Tribunal did not find the Show Cause Notice sustainable under the law.

Issue 4: Invocation of longer period for tax demand
The Tribunal agreed with the appellants that the invocation of the longer period for tax demand solely based on the non-inclusion of foreign commission in the ST-3 return was not justifiable. They highlighted that the law did not permit the invocation of longer periods on assumptions without proper evidence.

Issue 5: Interpretation of statute and penalty imposition
The Tribunal set aside the impugned order and allowed the appeal, providing consequential relief to the appellants. They emphasized that the commission earned on foreign services was not liable to Service Tax as per relevant circulars and legal positions. The Tribunal clarified that the location of the service receiver was crucial in determining the tax liability, and the benefit of the service accruing outside India exempted it from taxation.

In conclusion, the Tribunal ruled in favor of the appellants, highlighting the exemption of Service Tax on services provided to foreign clients and the unjust nature of the penalties imposed. They emphasized the importance of proper evidence and legal interpretation in tax matters.

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