2024 (11) TMI 12 - AT - Service Tax

Levy service tax and cess under the category of BAS for the commission paid to overseas commission agents along with interest and penalty u/s 76, 77 and 78 of the Finance Act, 1994 - service tax was demanded from the appellant under reverse charge mechanism as the overseas commission agents were located abroad who procured export orders for the appellants. HELD THAT - The issue of chargeability of service tax on the commission paid to overseas agents is no more res-integra and the Tribunal, Chennai has held in the case of Texyard International 2015 (8) TMI 794 - CESTAT CHENNAI that demand of service tax is not sustainable. As decided in case supra appellants are manufacturer-exporters. Service tax if any payable under reverse charge is permissible to be availed as Cenvat credit and that may be refundable under Notification No. 41/2007 unless otherwise deniable by law. The provision made in Central Excise Rules and Cenvat Credit Rules ensures that tax is not added to the cost of export so that Indian exporter can compete with overseas market. The Hon ble Supreme Court in CCE v. Coca Cola India (Pvt.) Ltd 2007 (4) TMI 17 - SUPREME COURT dismissed Revenue s appeal holding that when an assessee is eligible to Modvat credit, the situation becomes revenue-neutral. In the present case, service tax demanded entitles the appellants to the credit thereof and claim refund thereof under 41/2007 since it is stated by appellants that they have no other liability for which the exercise may become revenue-neutral. Thus we cannot sustain the impugned Order-in-Appeal.

Issues Involved:

1. Liability of the appellant to pay service tax on commission paid to overseas agents under Business Auxiliary Service (BAS) on Reverse Charge Mechanism.
2. Allegation of suppression for invoking the extended period of limitation.

Detailed Analysis:

1. Liability to Pay Service Tax:

The primary issue was whether the appellant, engaged in the manufacture and export of knitted garments, was liable to pay service tax on the commission paid to overseas agents under the category of Business Auxiliary Service (BAS). The Department contended that under Section 66A of the Finance Act, 1994, read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, the recipient of services from a foreign entity is deemed to be the service provider and is liable to pay service tax under the Reverse Charge Mechanism. The adjudicating authority confirmed the demand for service tax for the period from 18.04.2006 to 28.02.2009, citing that the services provided by the overseas commission agents fell under the definition of BAS as per Section 65(19) of the Finance Act, 1994.

However, the appellant argued that the proceedings were based on an unsigned Show Cause Notice, rendering them void ab initio. They also contended that the Show Cause Notice failed to invoke the relevant provisions of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, and that the services were performed outside India, thus not taxable under Section 64.

The Tribunal referenced the decision in Texyard International Vs. Commissioner of Central Excise, Trichy, where it was held that the demand of service tax on similar grounds was not sustainable. The Tribunal noted that the commission paid to overseas agents for procuring export orders was incidental or auxiliary to textile processing, which was exempt under Notification No. 14/2004-ST. The Tribunal concluded that the appellant was entitled to this exemption, as the services were related to textile processing, and thus, the service tax demand was not sustainable.

2. Allegation of Suppression and Extended Period:

The second issue was whether suppression could be alleged against the appellant for invoking the extended period of limitation. The appellant argued that the Show Cause Notice was time-barred, as there was no suppression of facts. They maintained that all relevant details were available in their books of accounts, and the extended period could not be invoked due to the absence of any deliberate suppression.

The Tribunal did not delve deeply into this issue, as the appellant succeeded on the merits of the case. However, it was noted that the demand was also hit by limitation, as the appellant was under a bona fide belief, supported by the Foreign Trade Policy, that services rendered abroad were exempt from service tax. The Tribunal emphasized that the appellant's situation was revenue-neutral, as they were eligible to avail credit on the service tax paid under reverse charge.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned Order-in-Appeal, and granted consequential relief to the appellant. The Tribunal's decision was based on the recognition that the services availed by the appellant were exempt under the relevant notification, and the demand for service tax was not sustainable. The Tribunal also acknowledged the revenue-neutral nature of the situation, further supporting the appellant's case.

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