2016 (12) TMI 1064 - AT - Service Tax

Demand - Foreign Agent Commission - reverse charge mechanism - limitation period - Held that - the services were provided outside India and tax liability fell on the appellant on reverse charge basis, a bona fide belief entertained by the appellant was justified. Further, the appellant has been reflecting the payment of commission in their balance sheet in which case, it can be held that there was no suppression or mis-statement on the part of the assessee so as to avoid the service tax payment with a mala fide intention - longer period of limitation is not available to the Revenue. For quantification of demand falling within the normal period of limitation, matter is remanded - as there is no suppression or mala fide intention on the part of the appellant, the penalty imposed upon them is set aside in toto - appeal allowed by way of remand.

Summary

Issues:
Confirmation of service tax demand on reverse charge basis for 'Foreign Agent Commission' service received during 2006-2009, applicability of Section 66A of the Finance Act, 1994, limitation period for demand, withdrawal of Board circular, suppression of information in balance sheet, imposition of penalties.

Analysis:

1. Service Tax Demand on Reverse Charge Basis:
The judgment confirms the service tax demand against the appellant for the 'Foreign Agent Commission' service received during the period 2006-2009 on reverse charge basis. The appellant contested the demand citing the Hon'ble Bombay High Court's decision pre-Section 66A introduction, which exempted service tax liability on reverse charge before 17.04.2006. The appellant argued that the liability arose only post-18.04.2006, as clarified by the High Court.

2. Limitation Period for Demand:
The appellant raised the issue of limitation, stating that they believed in good faith that no service tax liability existed on reverse charge basis due to ongoing litigation and the withdrawal of the Board circular No.36/4/2001-ST on 10.05.2007. The appellant contended that they had a genuine belief in the non-liability of service tax, especially since the circular was withdrawn after the period in question.

3. Withdrawal of Board Circular and Suppression of Information:
The withdrawal of the Board circular and the appellant's reflection of commission payments in their balance sheet were crucial points in the judgment. The Tribunal acknowledged the withdrawal of the circular on 10.05.2007 and the appellant's transparency in reflecting payments. The Tribunal cited the case of Kirloskar Oil Engines Ltd. Vs. CCE, Nasik, to emphasize that the balance sheet being a public document did not constitute suppression of information, thus negating the invocation of the extended period for demand, interest, and penalties.

4. Imposition of Penalties:
The Tribunal concluded that since there was no suppression or mala fide intention on the appellant's part, the penalty imposed was set aside entirely. The judgment highlighted the appellant's transparency in reflecting the commission payments and the absence of any deliberate attempt to avoid service tax payment.

5. Final Decision:
The Tribunal set aside the demand beyond the limitation period, confirmed the demand within the limitation period, and remanded the matter for quantification. The judgment concluded by dismissing the penalties imposed on the appellant due to the absence of suppression or mala fide intent, thereby disposing of the appeal.

In conclusion, the judgment addressed various issues related to the service tax demand on reverse charge basis, the withdrawal of the Board circular, the limitation period, and the imposition of penalties, ultimately ruling in favor of the appellant based on the bona fide belief and transparency demonstrated in reflecting financial information.