2019 (3) TMI 190 - AT - Service Tax

Business auxiliary service - appointment of commission agents in foreign countries to promote their business - benefit of N/N. 18/2009ST dated 07.07.2009 denied - Held that - On going through the notification it is seen that the noticee have not informed the department and obtained acknowledgment from the jurisdictional Deputy/Assistant Commissioner; whereas the appellants were required to furnished all relevant documents they fail to furnish the copy of the agreement between them and the commission agents and have not furnished a copy of original documents showing actual payment of commission - appellant have not furnished copies of the bills which Challans as required under table B of the forum EXP-2; the documents whatever submitted by the appellants have not certified by the person who has been authorities by the board of directors; they have not furnished the declaration to the effect that the claim of exemption is not in respect of export of canalized items, product report are export financed underlines of credit extended by Government of India or AXIM Banks or export made by Indian partner in a company with equal participation in an overseas joint-venture are wholly owned subsidiary of the exporter had been produced by the exporter along with the claim. Thus, the appellants failed to comply with the conditions of the notification 18/2009 ST dated 07.07.2009 - It is not open for the appellant to continue to follow the conditions of the notification and claim substantial compliance and thus benefit of the notification. The intention of the Government was to extent the benefit subject to the compliance of the conditions mentioned therein in the notification. The appellant having not complied with the same would forgo the right to avail the benefit of the notification - benefit of notification rightly denied. Penalty - Held that - Having not complied with the conditions of the notification it was not open for the appellants to claim that there was no extent to evade payment of duty - moreover, for the subsequent period they have not discharged their duty liability. They have only paid the duty liable to be paid by them for the year 2007-08 along with interest - the penalty imposed in respect of the demand of ₹ 3,67,133/- can be waived as duty and interest have been paid. However, with respect to the penalty on the service tax confirmed for ₹ 22,69,757/- held that the penalty imposed is sustainable. Appeal allowed in part.

Summary

Issues:
1. Liability to pay service tax on commission agent services provided by overseas agents.
2. Compliance with conditions of Notification No. 18/2009ST for exemption from service tax.
3. Imposition of penalties under Section 76 and 78.

Issue 1: Liability to pay service tax on commission agent services provided by overseas agents

The appellants, engaged in manufacturing and export of pharmaceutical products, appointed commission agents in foreign countries. The department alleged that the services provided by these agents fell under "business auxiliary service" as per Section 65(19) of the Finance Act 1994. The department sought confirmation of service tax paid by the appellants and demanded additional service tax for previous years. The Commissioner confirmed a portion of the service tax and imposed penalties under Sections 76 and 78. The appellant argued that the commission amounts declared were based on actual payments made and not accrual basis. They also highlighted procedural lapses in filing certain documents. The department reiterated the need to comply with conditions for exemption under the notification.

Issue 2: Compliance with conditions of Notification No. 18/2009ST for exemption from service tax

The Notification No. 18/2009ST dated 07.07.2009 provided for exemption from service tax for specified services used for export of goods subject to fulfilling certain conditions. The appellants failed to comply with various conditions of the notification, such as informing the department, furnishing relevant documents, and obtaining acknowledgments. The Commissioner held that compliance with these conditions was not procedural but substantive. The appellants' failure to adhere to these conditions led to the denial of the exemption benefit. The Tribunal agreed with the Commissioner's findings, citing relevant Supreme Court decisions emphasizing strict adherence to notification conditions.

Issue 3: Imposition of penalties under Section 76 and 78

The appellants argued against the imposition of penalties, claiming that their non-compliance was related to fulfilling notification conditions rather than an intent to evade duty. The Tribunal, however, upheld the penalties for the confirmed service tax amount of &8377; 22,69,757, considering the appellants' failure to discharge their duty liability for subsequent periods. The penalty for the demand of &8377; 3,67,133 was waived as duty and interest had been paid for that specific period. The appeal was partly allowed with penalties under Section 76 and 78 being waived for one demand while upheld for another.

This detailed analysis of the judgment covers the issues of liability for service tax on commission agent services, compliance with notification conditions, and the imposition of penalties, providing a comprehensive understanding of the legal intricacies involved in the case.