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TMI Blog2019 (8) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign counterparts fall within the taxable category of Business Auxiliary Services the same should be treated as export of service and hence should not be subjected to any service tax As per the appellants during the period prior to introduction of Export of Service Rules, 2005, i.e. 14.03.2005, the benefit of exemption under Notification No 21/2003 dated 20.11.2003 should have been extended by the Commissioner to them. However Commissioner has denied the benefit under the said notification stating that appellants have not substantiated their claim under the said notification - the above notification exempts all the payments received by a person in connection to taxable service rendered in convertible foreign exchange. Commissioner has in his order not denied the admissibility of the benefit of said exemption notification but has only stated that appellants have failed to substantiate their claim under the said notification. It is for the appellants to satisfy that they fall strictly with the parameters as specified by the exemption notification - the end of justice will be me if appellants are allowed one more opportunity to produce the requisite documents and records bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, we are inclined to give the benefit of Section 80 of the Finance Act, 1994 in respect of demands made in respect of these services - also appellants have paid the Service Tax demanded under the category of Franchisee Services, albeit by treating the tax to be payable under the category of Intellectual Property Right Service , we are inclined to extend the benefit of Section 80 in respect of this demand. Effectively the demand which is determined against the appellants is only in respect of Business Auxiliary Services . Since appellants have not provided the details of the said services in their ST-3 return and have not paid the service tax in respect of these service we uphold the penalties levied in respect of the services under the section 76, 77 and 78. However the quantum of penalty need to be redetermined after re-determining the demand in respect of these services. Appeal allowed in part. - Service Tax Appeal No. 87762 of 2014 - A/86423/2019 - Dated:- 21-8-2019 - Mr. S.K. Mohanty, Member (Judicial) And Mr. Sanjiv Srivastava, Member (Technical) Shri Vinay Jain, Advocate for the Appellant Shri M. Suresh, Authorised Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure continues or at the rate of 2(two) percent of such tax per month, whichever is higher, starting from the first day after the due date till the date of actual payment of the outstanding amount of service tax for the period 18.04.2006 to 31.03.2008 subject to a maximum of total service tax not paid for the said period. 82.4 I impose a penalty under Section 76 of the Finance Act, 1994 in respect of Franchise Service , Consulting Engineer Service , Technical Testing and Analysis Service on M/s Owens Corning (India) Ltd Raigad 410208, as it existed at material time, on the amount confirmed as at para 82.1(i) which shall be ₹ 200/- for every day during which such failure continues or at the rate of 2(two) percent of such tax per month, whichever is higher, starting from the first day after the due date till the date of actual payment of the outstanding amount of service tax for the period 18.04.2006 to 31.03.2008 subject to a maximum of total service tax not paid for the said period. 82.5 I impose a penalty of ₹ 5000/- (Rupees Five Thousand only) under Section 77 of the Finance Act, 1994, on M/s Owens Corning (India) Ltd Raigad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ELT 841 (T-Del)] Emcure Pharmaceuticals [2016 (342) ELT 172 9Bom)] (iv) In respect of transactions sought to be levied to Service Tax under the category of Business Auxiliary Services, they do not dispute the classification of services as has been made by the Commissioner. Commissioner has allowed them the benefit of exemption under Notification No 13/2003- ST dated 20.06.2003 for the period from 01.07.2003 to 09.07.2004. This notification was modified and restricted only to the services provided by the commission agents in relation to sale and purchase of agricultural produce with effect from 10.07.2004. (v)Commissioner has denied the benefit of exemption under Notification No 21/2003 dated 20.11.2003-ST. This notification exempted taxable services from payment of service tax as long as the payment for services was received in convertible foreign exchange and the amount so received is not repatriated out of India. Commissioner has denied the benefit of exemption stating that they have failed to produce any evidence to show that these amounts received in convertible foreign exchange has not be repatriated outside India. They had produced the FIRC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IOL-580-HC-Mum-ST] (xi) In any case this demand is barred by limitation as the appellants were under a bonafide belief that no service tax was leviable in respect of these services provided by them to OC HK and OCA A. TH issue involved is one of interpretation of statue hence extended period of limitation cannot be invoked. (xii) Since there is no suppression of facts no penalties can be imposed on them. 2.3 Arguing for the revenue learned Authorized Representative while reiterating the findings recorded in order submitted that- i. The dispute in the present case is now limited to two issues viz- a. Whether the amounts paid by the appellant under the taxable category of Intellectual Property Right Service can be adjusted against the service tax demand made under the category of Franchise Services . b. Whether the services under the category of Business Auxiliary Services to OC HK and OC A, can be given the benefit of Export of Services as it was available from time to time. ii. In respect of the service tax payable under the category of Consulting Engineer Services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the course of arguments. The issues that have been considered by the Commissioner in the impugned order have been grouped in following four categories: i. Demand on services received by the appellant from overseas service providers under the category of Consulting Engineer Services. [Amount ₹ 8,41,354/-] ii. Demand on services received by the appellant from overseas service providers under the category of Technical Testing and Analysis Services. [Amount ₹ 55,555/-] iii. Demand on service tax under the category of Franchise Services. [₹ 1,44,71,931/-]. iv. Demand of service tax under the category of Business Auxiliary Services [₹ 65,93,940/-] 3.2 In respect of the services mentioned at i and ii , appellants have during the course of arguments and in their written submissions stated as follows: C.1 The appellants in the present case have paid service tax demanded under the category of Consulting Engineer Services and Technical Testing and Analysis service. The appellants have taken CENVAT credit of the service tax paid. The same has not been objected b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the royalty paid for transfer of technology is not chargeable to Service Tax under Franchise Service . They have also stated in their reply that they are paying Service Tax on the royalty paid by them for transfer of technology under Intellectual Property Rights service w.e.f. 10.09.2004 onwards. However, they have failed to establish along with appropriate legal documents, as to how the said services are taxable under the category of Intellectual Property Rights service. The documents provided by the notice in this regard do not support their contentions. Therefore, I find that the said services received by OCIL are appropriately classifiable under Section 65(105)(zze) read with Section 65(47) and Section 65(48) of Finance Act, 1994 as Franchise Service and the notice is liable to discharge the service tax for the period from 18.04.2006 to 31.03.2008. In our view there appears to be no dispute about the fact that the appellants were required to discharge the service tax liability in respect of these transactions under the category of Franchise Service . However instead of making the payment under said category appellants have paid the service tax under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts of the respondents. The adjudicating authority has given the relief in the service tax only to the extent of amounts which are not to be considered as part of the consideration. The fact that he has taken the support of Chartered Accountant certificate for verification of the figures cannot by itself be taken as a ground for holding that the impugned order is incorrect or bad. Consequently, we find no reason to interfere with the decision of adjudicating authority to restrict the demand. 10. While reducing the demand of Service Tax on supply of tangible goods, the Commissioner has also allowed the respondent to adjust the amount of ₹ 14,43,02,740/- already paid by them considering their activity under service of transport of passengers by air including ₹ 5,83,28,905/- paid through cenvat. Revenue is aggrieved with the fact that before allowing such adjustment, Commissioner failed to undertake detailed verification by supporting documents on the basis of which the above adjustment was allowed. On going through records, we note that adjudicating authority has allowed adjustment of the total Service tax paid by respondent and reported in periodic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he demand itself has been confirmed on the basis of show cause notice issued invoking the proviso to Section 73(1). The adjudicating authority has given detailed reasons for not imposing the penalty and the same are reproduced below :- Whether the assessee is liable for penalty under Sections 76, 77 and 78 of the Act. 48. In this regard, I find that the present SCN has also proposed penal action under sections 76, 77 and 78 of the Act, as they failed to assess the tax, file the return and deposit the tax within the prescribed period as discussed in the preceding paragraphs. However, I find that during the course of investigation, the assessee admitting their liabilities has paid whole of the outstanding service tax amounting to ₹ 15,40,30,674/- (including Cess and SHEC) through Cash and cenvat credit voluntarily along with interest of ₹ 54,00,892/- which shows their bona fide that they had no intention to evade the tax liabilities. I find that there remains no outstanding service tax liability against them. I further find that section 73(3) of the Act provides that an assessee may pay such amount of Service tax not paid or short paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso note from the records of the case that the respondent has disputed the classification of their activity under the supply of tangible goods service. However, during the course of investigation they were convinced and they have discharged the entire service tax liability along with interest. Keeping these circumstances in view, we are convinced that this is a fit case to waive all the penalties under the provisions of Section 80. 3.6 Thus in view of the circular as referred above and the decision of tribunal allowing such adjustment of service tax paid in respect of a transaction, under a wrong taxable category, against the demand of service tax under the category determined by the adjudicating authority, we are not in position to uphold the order of Commissioner disallowing such adjustment. Commissioner should have determined the amount of service tax payable after allowing the benefit of service tax paid albeit under a wrong taxable category. For the purpose of re-computing the demand under this category after taking into account the tax paid by the appellants under category of Intellectual Property Right Services in respect of the same transactions the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in this notification shall apply when the payment received in India in convertible foreign exchange for taxable services rendered is repatriated from, or sent outside, India. In our view the above notification exempts all the payments received by a person in connection to taxable service rendered in convertible foreign exchange. Commissioner has in his order not denied the admissibility of the benefit of said exemption notification but has only stated that appellants have failed to substantiate their claim under the said notification. We are aware that a five member bench Hon ble Supreme Court has in case of Dilip Kumar Co [2018 () ELT (SC)] laid down the law in respect of interpretation and admissibility of exemption notification as follows: 52. To sum up, we answer the reference holding as under - (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation to section 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the Department. Applying the above ratio in respect of selling agents, selling the goods of foreign entity in India, the services rendered for sale of goods in India, cannot be anything but the services rendered in India, even if the sale proceeds of the said goods accrue to foreign entity. Following the ratio of said decision Delhi High Court has in case of EON Technologies Pvt Ltd [Order dated 8th November 2011 in Income Tax Appeal No 1167/2011] held as follows: 14. The term business connection has been interpreted by the Supreme Court to mean something more than mere business and is not equivalent to carrying on business, but a relationship between the business carried on by a non-resident, which yields profits and gains and some activities in India, which contributes directly or indirectly to the earning of those profits or gains. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PML that they have not done any business of the latter type because such business requires permissions from RBI which they have not got. So it is asserted that the dispute before the Tribunal is in relation to remittance from persons abroad to persons in India. This statement is not contradicted by Revenue. In this business the person located abroad approaches any of the offices of the Western Union or its agents and give money to be remitted to a person in India. The office abroad charges the person abroad commission for remitting money to India. They convert the foreign exchange into Indian rupees and pay the recipient in India following a system to ensure the identity of the person to whom the money is delivered. No charges are levied from the recipient of money in India. PML gets their remuneration from Western Union by sharing the commission collected from the person abroad. They also make some profits due to changes in exchange rate between the date of receipt of money abroad and date of delivery of equivalent Indian rupees in India. However this profit is subject to the risk of loss if the exchange rate changes adversely for the Western Union and its agents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguishable. 3.13 There is no dispute about the fact as has been held by various decisions that service tax is destination based consumption tax. However for application of the said principle, the foremost condition is to determine the place of destination based consumption . If the place of consumption of service is in India then the service tax is leviable and if the place of consumption is outside India the services are treated as export. In the present case when we find that the services have been consumed in India, we do not find any merits in the submission made by the appellant, that the services provided by them were export of services . Thus reliance placed by the appellants on (i) Finance Minister Speech and (ii) Decision in case of SGS India Pvt Ltd [2011 (24) STR 360 (T-Mum)] do not advance the case of Appellants any further. 3.14 We do not find any merits in the submissions of the appellant that they were under a bonafide belief that service tax was not leviable on the Commission received by them from their foreign counterparts. It is settled law that it is for the appellant tom establish that such a bonafide belief existed. Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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