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TMI Blog2019 (5) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... r the provisions of Section 75 of the Finance Act, 1994. 4.3 I impose a penalty of Rs. 1,32,57,559/- (Rupees One Crore Thirty Two Lakhs Fifty Seven Thousand Five Hundred and Fifty Nine only) on M/s Croda Chemicals (India) Private Limited under the provisions of Section 78 of the Finance Act, 1994. 4.4 I impose a penalty of Rs. 10,000/- (Rupees Ten Thousand only) under Section 77 of the Finance Act, 1994 on M/s Croda Chemicals (India) Private Limited." 2.1 Appellant are registered with the department for providing various taxable services viz Technical Inspection and Certification Agency Services, Maintenance and Repair Services, Business Auxiliary Services, Transport of Goods by Road Transport Agency Service, Business Support Service and Information Technology Software Services. 2.2 During the course of CERA audit it was noticed that Appellants had during the period 2008-09 to 2012-13 received from their associated enterprises (M/s Croda International) located abroad a sum of Rs. 12,02,62,275/- for sale of their goods (falling under chapter 29, 34 & 38) in India as detailed in the table below: S No Particulars Amount (Rs) 1 Commission from Overseas Group Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.02.2010 to 30.06.2012: The clause (a) of Rule 3(2) of Export of Services Rule, 2005 which prescribed condition for use of outside India was deleted. Thus the only condition that was required to be satisfied was that the services specified should have been provided to person located outside India and the payment for the same should have been received in convertible foreign exchange. Since in the present case the service recipient was located outside India and the payments were received in convertible foreign exchange, the services provided were squarely covered by the said provisions as export of service. c. Period 01.07.2012 to 31.03.2013: During this period the service tax has been demanded from them treating them as providing intermediary services and thus according to rule 9 of Place of Provision of Services Rules, the place of provision of services is the location of service provider. This approach cannot be sustained because prior to amendments made in the definition of intermediary by Notification No 14/20014-ST dated 11.07.2014 (w.e.f 1.10.2014), the definition did not included intermediary in relation to sale of goods. This exclusion of intermediary in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax no penalty could have been imposed on them in view of following decisions: a. Sarup Tanneries Limited [2005 (184) ELT 217 (T)] b. Explicit Trading [2004 (169) ELT 205 (T)] c. Gamma Consultancy (P) Ltd [2006 (4) STR 591 (T)] vi. Interest is also not payable as there is no service tax payable beyond the due date. 3.3 Arguing for the revenue learned Authorized Representative while reiterating the findings in impugned order submitted that- i. In respect of the demand which appellants claim to have been made in respect of the services exported by them i.e. commission towards sale of good in India from associated overseas companies the fact which is most relevant is whether these services have been utilized outside India. In case it is held that these services were utilized provided and utilized outside India then they can be treated as export of services. However adjudicating authority has relying on the Circular dated 13.10.2011 concluded that these services have been not been used outside India and hence cannot be treated as export of services. The decisions of the Tribunal in case of GAP International referred to by the Appellants is clearly distinguishable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax. II. Whether Service Tax is leviable in respect of reimbursements made by the associated group companies to the appellants towards expenses actually incurred by them. III. Whether in respect of Foreign Exchange remittances made by the appellants to their associated group companies abroad for reimbursement of various expenses incurred by them could be levied to service tax on reverse charge basis treating the services provided as import of services. IV. Whether the demand is hit by limitation as extended period of limitation as per Section 73 of The Finance Act, 1994 is not invokable in the present case. V. Whether demand for interest under Section 75 and penalties imposed under Section 77 and Section of Finance Act, 1994 can be sustained. 4.4 Whether the charges recovered by the Appellants as Commission for sale of goods of associated group of companies abroad are leviable to service Tax under category of Business Auxiliary Service provided in India or the same are in respect of Export of Services as defined from time to time and thus exempt from payment of Service Tax. 4.4.1 Admittedly the services provided by the appellant in respect of the sale of goods for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are satisfied, namely:- a. such service is provided from India and used outside India; and b. payment for such service provided outside India is received by the service provider in convertible foreign exchange. Explanation.- ........ (In sub-rule (2), clause (a) - omitted & Explanation at clause (b) - substituted vide NTF. NO. 06/2010-ST, DT. 27/02/2010) Place of Provision of Services Rules, 2012. 2. Definitions (f) "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the 'main' service) between two or more persons, but does not include a person who provides the main service on his account.; 3. Place of provision generally - The place of provision of a service shall be the location of the recipient of service: Provided that in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service. 9. Place of provision of specified services.- The place of provision of following services shall be the location of the service provider:- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services (that would not fall under category I or II), which would generally include knowledge or technique based services, which are not linked to an identifiable immovable property or whose location of performance cannot be readily identifiable (such as, Banking and Other Financial services, Business Auxiliary services and Telecom services), it has been specified that they would be 'export',- (a) If they are provided in relation to business or commerce to a recipient located outside India; and (b) If they are provided in relation to activities other than business or commerce to a recipient located outside India at the time when such services are provided. 3. It is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within a legislation. Keeping this principle in view, the meaning of the term 'used outside India' has to be understood in the context of the characteristics of a particular category of service as mentioned in sub-rule (1) of rule 3. For example, under Architect service (a Category I service [Rule 3(1)(i)]), even if an Indian architect prepares a design sitting in India for a property located in U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, consultancy, Business Auxiliary Services. For example, it is possible to obtain a consultancy report from a service provider in India, which may be used either at the location of the customer or in any other place outside India or even in India. In a situation where the consultancy, though paid by a client located outside India, is actually used in respect of a project or an activity in India the service cannot be said to be used outside India. 3. It may be noted that the words "accrual of benefit" are not restricted to mere impact on the bottom-line of the person who pays for the service. If that were the intention it would render the requirement of services being used outside India during the period prior to 28.2.2010 infructuous. These words should be given a harmonious interpretation keeping in view that during the period upto 27.2.2010 the explicit condition was provided in the rule that the service should be used outside India. In other words these words may be interpreted in the context where the effective use and enjoyment of the service has been obtained. The effective use and enjoyment of the service will of course depend on the nature of the service. For example e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia" and not "beneficiary of service outside India". In the present case though the beneficiary of service is located outside India, but the use of service is in India for sales promotion of the goods of the beneficiary. The sales promotion of the goods needs to be looked qua the market in which the goods are sold or intended to be sold and not qua the location of manufacturer/ beneficiary of service. The same is the crux of the two circulars issued by CBEC. 4.4.7 Appellants have relied on series of decisions in support of their contention that these services have been issued by the recipient of services located abroad/ outside, hence should be treated as export of service. These decisions are considered in table below: GAP International [2015 (37) STR 757 (T-Del)] The facts of the case are completely distinguishable. The services in case of GAP International were in relation to the procurement of goods and not for the sale of goods in Indian market. The goods by the foreign entity by availing the services of service provider were to be consumed by the foreign entity in foreign land. Since these services were in relation to the procurement of goods and not in relation to mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary's actual expenses, less revenues, incurred in connection with its duties, provided such expenses comply with Subsidiary's budget, as adjusted from time to time, and provided, further, such expenses are not already covered by another Section of this Agreement or covered in another agreement between Subsidiary and MO or any other MSFT affiliate. The reimbursement and additional compensation shall be exclusive of any applicable consumption tax such as a Value Added Tax or a Goods and Services Tax, which consumption tax shall be the responsibility of MO. 6.4 Other Inter-company Services. For other services and/or sales provided pursuant to Article 5, MO or Subsidiary shall invoice the recipient of the sales and/or services for such sales and/or services at a price as may be agreed between the parties from time to time, provided, however, that any amount so invoiced shall be consistent with the arm's length standard (as defined in the OECD transfer pricing guidelines and relevant national legislation). The invoice shall contain a general description of the sales or services and the cost of the sales and/or services to be paid."" From the reading of the said paras in the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd [2014 (34) STR 554 (Bom)] In para 24, Hon'ble Bombay High Court summarizes the fact stating "24. In the present case, the Tribunal has found that the assessee like the respondent rendered services, but they were consumed abroad. The clients of the respondents used the services of the respondent in inspection/test analysis of the goods which the clients located abroad intended to import from India. In other words, the clients abroad were desirous of confirming the fact as to whether the goods imported complied with requisite specifications and standards. Thus, client of the respondent located abroad engaged the services of the respondent for inspection and testing the goods. The goods were tested by the respondents in India. The goods were available or their samples were drawn for such testing and analysis in India. However, the report of such tests and analysis was sent abroad. The clients of the respondent were foreign clients, paid the respondent for such services rendered, in foreign convertible currency. It is in that sense that the Tribunal holds that the benefit of the services accrued to the foreign clients outside India." Since in this decision the service under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble services specified in clause (105) of Section 65 of the Finance Act, 1994, but excluding those in sub-clauses (zzzo) and (zzzv) and those specified in clause (i) of this Rule except when the provision of taxable services specified in sub-clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property. Thus, the classification appears to be of taxable service in relation to immovable property which is situated outside India and if it satisfies the conditions in the proviso below sub-rule (1) of Rule 3, then, there is stipulation in relation to taxable services referred to in several sub-clauses of clause (105) of Section 65 of the Finance Act, 1994 and specified in Rule 3(1)(ii). That is in relation to taxable services, specified in these sub-clauses of clause (105) of Section 65 of the Finance Act, 1994 which sub-clauses have been specified in Rule 3(1)(ii), as are performed outside India. However, in relation to that also if such taxable service is performed partly outside India it shall be considered to have been performed outside India. The further proviso below sub-rule (2) as it then stood stated that for the purpose of sub-rule (2) of Rule 3 of the Export of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that services provided by the appellants were provided for the sale of goods of the associated group companies in India and were thus used in India. According for the period prior to 27.02.2010 the benefit of export of services as claimed by the appellant in respect of commission received by them for sale of goods in India from associated group companies cannot be extended to them. 4.4.10 From 27.02.2010, the condition of "use outside India" has been removed by way of omission of clause "a" of sub-rule (2) of Rule 3 of Export Of Service Rules, 2005. When the said condition has been omitted the only conditions to be satisfied for considering the service to qualify as export of service are in respect of the location of "service recipient" and "the receipt of consideration in convertible foreign exchange". Admittedly in the present case the service recipient is located outside India and the payments toward considerations for providing the service are received in convertible foreign exchange. In our view the benefit of export of services cannot be denied to the Appellant from 27.02.2010 onwards till 30.06.2012. 4.4.11 From 01.07.2012 onwards the Place of Provision of Service Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re "Intermediary Services"? Generally, an "intermediary" is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further processing. Thus, an intermediary is involved with two supplies at any one time: i) The supply between the principal and the third party; and ii) The supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. For the purpose of this rule, an intermediary in respect of goods (such as a commission agent i.e. a buying or selling agent, or a stockbroker) is excluded by definition." Thus while it is true that intermediary includes intermediary in respect of sale of goods, but legislature has while framing these rules deemed it fit to exclude the intermediaries in respect of sale of goods from the definition of intermediary. Hence we cannot sustain the view expressed by the Commissioner, contrary to the express definition of intermediary provided by the Place of Provision of Service Rules, 2012. Hence in our view the services provided by the appellant in respect of the sale of goods of associated group companies ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s associate companies 9,61,505 Trade exhibition, ICMBA Conference, 9,95,690 Training expenses of the employee of overseas company 3,00,067 AMC Charges paid to M/s Ramco Systems Ltd on behalf of M/s PT Croda Indonesia 7,89,374 Salary cost of their seconded employees from respective overseas group companies to which they were seconded on quarterly basis 38,17,754 Detention and Demurrage Cost 1,48,173 Management Consultancy and Testing Services 6,01,833 Repacking Charges on purchase of goods, procurement of designed cartons, price variation on goods purchased. 4,36,770 Total 80,51,166 4.5.2 Appellants have claimed that these reimbursements were made by their associated group companies on actual basis in respect of various expenses incurred by them under various heads. These expenses have been sought to be added in the value of taxable services in view of Rule 5 of the Service Tax (Determination of Value) Rules, 2006. 4.5.3 In case of Intercontinental Consultants & Technocrats (P) Ltd [2018 (66) GST 450 (SC)], Hon'ble Apex Court while holding the said Rule 5 ultra vires the statue held as follows: "21.Undoubtedly, Rule 5 of the Rules, 2006 brings within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25.This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Subsection (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. 26.It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner : "Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with." 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of Foreign Exchange remittances made by the appellants to their associated group companies abroad for reimbursement of various expenses incurred by them could be levied to service tax on reverse charge basis treating the services provided as import of services. 4.6.1 Appellants had made certain payments towards various services received by them from their overseas associate group companies or others. Appellants have claimed that these payments are also in nature of reimbursements for specific activity and not in nature of payment towards the service received from abroad. Since these are reimbursements, they too cannot be added in the value of taxable service, even if the demand of Service Tax in this case is on reverse charge basis. In their view decision of Apex Court in case of Intercontinental Consultant will apply to these charges. 4.6.2 We find that the payments made in the Foreign Currency are for provision of various services to the appellant or its employees by the overseas group associate companies. These charges are not reimbursement but payments towards the specific service provided by the overseas group associate company and are not reimbursements. If the argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is good enough to attract demand of Service Tax for extended period under the proviso clause to Section 73(1). In the present case, the Noticee has suppressed the material facts as discussed above. In the ST-3 returns filed by the Noticee, they did not declare about the impugned commission earned by them which resulted in non payment of service tax. But for audit, non furnishing of commission earned by the Noticee could have gone unnoticed. Under self assessment, onus to declare the information correctly in the statutory ST-3 returns is on the taxable person. 3.15 From the foregoing, it is evident that non declaration of commission earned in the statutory ST-3 returns was deliberate act on the part of the Noticee with intent to evade payment of appropriate Service Tax. Thus, in the instant case, as already discussed above, the Noticee had deliberately suppressed the material facts from the department with intent to evade payment of Service Tax. Hence, the department is justified in demanding the Service Tax with interest by invoking proviso to Section 73(1) of Finance Act, 1994. 3.16 Thus, it is a clear case of suppression of facts and contravention of provisions of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as handloom fabrics, even though they were aware of the fact that the goods were dutiable powerloom fabrics. In the case of G.T.C. Industries (supra), the Tribunal did not find any evidence of the job worker having suppressed any fact with intent to evade payment of duty on the goods manufactured by them and removed under the brand name of G.T.C. Industries Ltd. and, accordingly, it was held that the longer period of limitation was not invocable against the job worker. This decision of the Tribunal is not applicable to the present case of the Mills for reasons already noted by us. In the case of Karmayogi Dyeing Pvt. Ltd. (supra), it was found by the Tribunal that the wrong declaration of fabric by the processor (job worker) was based on the declaration given to them by the supplier of grey fabric, and, in the absence of anything to indicate that the processor had colluded with the other party for wrong declaration, it was held that the extended period of limitation would not be available. This decision is also not applicable to the facts of the present case inasmuch as the grey fabric supplier (Co-optex) has not been shown to have misdeclared the fabrics in their delivery docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of limitation being applicable inasmuch as CESTAT is again correct in saying that as the declaration and RT-12 returns being vital documents submitted by the respondent (appellant herein) did not mention the vital word "hanks", they suppressed a material fact which, to their knowledge, would not bring their sewing thread within the exemption Notification. ......" iv. Reliant Advertising [2013 (31) STR 166 (T)- "17. Ld. Counsel for the respondent/assessee has contended that since no penalty as proposed in the Show Cause Notice was imposed in the adjudication order, invoking the provisions of Section 80, invocation of the extended period of limitation is also unsustainable. This contention does not commend acceptance by this Tribunal. The adjudicating authority clearly recorded a finding that failure of the assessee to disclose the position in conformity with the position in its balance sheet, in the ST- 3 returns filed amounts to suppression of the correct taxable value from the department; that this position is fortified by the figures in the balance sheet of the assessee admitted by Ms. Shaifali Singh, in her statement recorded on 23-8-2006. Since there is a suppression by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. As per Rule 6(3) of The Service Tax Rules, 1994, it is not that every book of account maintained by the Appellant is known to the revenue, but the appellant is required to make a declaration to the jurisdictional officers in respect of the book of accounts maintained by it. Same provision exists in Rule 22 of Central Excise Rules, 2002. Thus without making a enquiry into this aspect that the said book of account were declared to the revenue or not the decision of Tribunal holding that information was made in book of accounts in normal course of business is nothing but per-incuariam to this extent and cannot be binding precedent. In this decision also one member has who has differed with the majority held on limitation aspect stating "20. Being well aware of the requirement of law, the appellants collected excess baggage charges over a long period of time without declaring the same to the department. This shows suppression of facts and intention of the appellant to evade duty. Hence, the extended period under Section 73(1) of the Finance Act has been rightly invoked. Reliance is placed on Bharat Roll Industry (Pvt.) Ltd. v. CCE, Haldia - 2008 (229) E.L.T. 107 (Tri.-Cal.). The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC. 19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section. 20. At this stage, we need to examine the recent decision of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring to a number of decisions on interpretation and construction of statutory provisions, in paragraphs 26 and 27 of the decision, the court observed and held as follows : "26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given. "27. Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case (supra) was not correctly decided but Chairman, SEBI's case (supra) has analysed the legal position in the correct perspectives. The reference is answered.........". 21. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that Section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application. 22. There is another very strong reason for holding that Dharamendra Textile could not have i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty under Section 78, however the same needs to be re-quantified as indicated earlier in the order. 4.8.4 Penalties under Section 77, is for the reason of contraventions of various provisions and acts of omission to perform the task as required to be performed under the provisions of the act. Such penalties are in nature of Civil Liabilities and do not require any contumacious conduct on the behalf of the defaulter. Hon'ble Supreme Court has in case of Gujarat Travancore Agency held as follows: "4.Learned Counsel for the assessee has addressed an exhaustive argument before us on the question whether a penalty imposed under Section 271(1)(a) of the Act involves the element of mens rea and in support of his submission that it does he has placed before us several cases decided by this Court and the High Courts in order to demonstrate that the proceedings by way of penalty under Section 271(1)(a) of the Act are quasi criminal in nature and that, therefore, the element of mens rea is a mandatory requirement before a penalty can be imposed under Section 271(1)(a). We are relieved of the necessity of referring to all those decisions. Indeed, many of them were considered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies imposed under the provisions of Section 77 of the Finance Act, 1994. 4.8.4 Since the demand of tax has been upheld the demand for interest will follow. It is now settled law that interest under Section 75, is for delay in the payment of tax from the date when it was due. Since appellants have failed to pay the said Service Tax by the due date interest demanded cannot be faulted. 4.9 Thus in view of discussions as above we respond to questions framed by us in para 4.3 as follows: I. The demand in relation to the commission received by appellants in respect of sale of goods of associated group companies can be sustained upto 26.02.2010. For period post 26.02.2010, the benefit of export of service will be admissible to them. Matter remanded for re-quantification of demand upto 27.02.2010. II. Demand in respect of reimbursements made by the overseas group associate companies in relation to expenses incurred by the appellant cannot be sustained. The demand is set aside subject to verification of the fact that appellants have not availed any CENVAT credit in respect of such reimbursable expenses. III. Demand in respect of the reimbursements made to the overseas group ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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