2019 (2) TMI 28 - AT - Service Tax

Reverse charge mechanism - Recipient of service - appellant has been receiving services under Business Auxiliary Services, Re-insurance Premium from foreign based service provider - short payment of service tax - Denial of CENVAT credit in respect of import of taxable services from outside India - Held that - The Insurance Auxiliary Services & Business Auxiliary Services are taxable under sub-clause (zx) and (zzb) respectively of clause 105 of Section 65 of the Act are received by the appellant and that these services fall under the category 3rd to Section 66A, the appellant being the service recipient of those services and being based in India and is liable to pay the service tax. Once appellant is discharging the said liability he is entitled for the credit disallowing the same is therefore an error on the part o the adjudicating authority. Valuation - whether the value in balance sheet or the one in service tax return for the impugned period is to be taken for assessing liability? - Held that - Section 67 of the Act acquires relevance which described valuation of the taxable service. In accordance thereof, such value has to be the gross amount charged, though this liability is fixed on the service provider but in the light of the provisions and in the given facts of the present case, it is apparent that service provider being outside India, it is recipient who is liable to discharge the service tax. From the record, it is observed that there has been difference in foreign exchange expenses reported in the balance sheet and the said expanses reported in the service tax returns. Since Section 67 of the Act, the taxable value shall be the gross amount charged by the service provider for providing such taxable services. It was not available to the appellant to make suo moto adjustments about the claims of the reinsurer, the scheme of availing credit itself is simultaneously in existence. Such suo moto adjustments shall forfeit the entire objective of credit availment scheme. Resultantly, the value assessed under this head need to be rechecked at the end of the authorities below - the difference in balance sheet and the ST-3 return figures, as far as the salary of employees is concerned has to be ignored with respect to the differences for rest of the values - It is for the adjudicating authorities to first verify and then to accordingly adjudicate. Appeal allowed by way of remand.

Issues:
- Short levy of service tax based on discrepancy between balance sheet and service tax return for the appellant during the audit period.
- Interpretation of relevant provisions of the Finance Act, 1994, Service Tax Rules, and circulars concerning liability to pay service tax for services received from foreign-based service providers.
- Assessment of taxable value for services received by the appellant and the implications of differences in financial reporting between balance sheet and service tax return.
- Validity of disallowing credit to the appellant for certain expenses and adjustments made in the balance sheet.

Analysis:
1. Short Levy of Service Tax:
The Department alleged short levy of service tax on the appellant based on discrepancies between the figures reported in the balance sheet and the service tax return during the audit period. The show cause notice proposed a substantial demand, which was confirmed by the Commissioner. The appellant contended that the differences were due to the nature of financial reporting in the balance sheet and the service tax return, arguing that the balance sheet reflects overall financial details, not specifically service-related payments. The appellant requested the demand to be set aside.

2. Interpretation of Relevant Provisions:
The Tribunal analyzed the relevant provisions of the Finance Act, 1994, particularly Section 66A concerning services provided by foreign-based service providers to recipients in India. The Tribunal highlighted the obligations of the appellant as the service recipient under the Act. Additionally, Rule 2(1)(d)(iv) of the Service Tax Rules and Notification No. 36/2004-ST were considered in determining the liability to pay service tax for specific services received by the appellant.

3. Assessment of Taxable Value:
The Tribunal examined the valuation of taxable services under Section 67 of the Act, emphasizing that the gross amount charged by the service provider is the taxable value. In this case, discrepancies were noted in foreign exchange expenses between the balance sheet and the service tax return. The Tribunal provided detailed analysis on specific expenses such as employee salaries, travel abroad expenses, medical check-up costs, and reinsurance premium remittance, addressing the tax implications and the need for further verification by the authorities.

4. Validity of Disallowing Credit:
The Tribunal scrutinized the disallowance of credit to the appellant for certain expenses and adjustments made in the balance sheet, such as salary payments, travel expenses, medical check-up costs, and reinsurance premium remittance. The Tribunal emphasized the importance of verifying the taxability of these expenses and the impact of adjustments on the credit availment scheme. The Tribunal allowed the appeal by remanding the case for further verification and adjudication by the authorities, highlighting the need to recheck the assessed values and consider any limitations.

In conclusion, the Tribunal's judgment addressed the complex issues of short levy of service tax, interpretation of legal provisions, valuation of taxable services, and the validity of disallowing credit, providing detailed analysis and directions for further assessment and verification by the authorities.

← Previous Next →