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TMI Blog2024 (4) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... h Agency Services, Maintenance Repair Services, Business Auxiliary Services, IPR Services, etc. as well as for payment of service tax on reverse charge basis in respect of certain services received which were chargeable to service tax on reverse charge basis. 2.2. The Appellant was receiving technical know-how and IT software services from its associated enterprise in South Korea. The technical persons visit the Appellant's workplace and by the end of their stay period, they submit their expenses incurred while their stay in India. So, the Appellant, before receipt of such actual expenses, at the end of the Financial Year creates a provision in respect of such estimated expenses in its book of accounts. This provision is not created in respect of any particular service provider. This provision is reversed on the 1st April of the subsequent financial year. Thereafter, the Appellant remit the actual expenses, makes entry in the books of accounts and at that point of time, service tax is paid on such remittance on reverse charge basis. 2.3 The Audit was conducted by the Department on 24/26.02.2012, 10/11/10.2012, 14.01.2013 and 06.05.2013 for the period March 2009 to Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act, 1994 for contravention af the provisions as discussed supra;and 3) I confirm demand of inadmissible CENVAT credit of Rs. 44,10,298/- (Rupees Forty Four Lacs Ten thousand Two Hundred and Ninety eight only) under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 73(2) of the Finance Act, 1994 and order to be recovered from them, along with applicable Interest under Section 75 of the Finance Act, 1994 as amended, as discussed supra. 4) I impose penalty of Rs. 44,10,298/- (Rupees Forty Four Lacs Ten thousand Two Hundred and Ninety eight only) under Rule 15(3) of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 for contravention of provisions of Service Tax law & order to be recovered from them. The adjudged dues shall be paid henceforth" 2.7 Aggrieved appellant filed appeal before the Commissioner (Appeal) who by the impugned order while setting aside the order of original authority to the extent it was in relation to disallowing the CENVAT credit, upheld the order in respect of the provisional entries made in the book of accounts by the appellant. 2.8 Aggrieved appellant have filed this appeal. 3.1 We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an outstanding in the books of the service recipient. * Mere entries made to create provision by the Indian service recipient cannot be an expense until the amount has actually become payable to the foreign associated service provider. The position taken by the revenue to demand service tax on provisional entry would be contradictory to the very nature of the service tax levy. * As per CBEC Circular M.F. (DR) Letter DOF No. 334/1/2008-TRU dated 19.02.2008, the intention behind the introduction of the levy of service tax based on the book entries in the case of transaction with associated enterprise was to put an end to the practice of delayed payment of service tax and. The intention was not to tax something which notional or provisional in nature, but to tax actual confirmed amount payable as debited in books of account. * service tax can be demanded only on the actual amount charged for the services by the foreign associated enterprise. In such a situation, even if it is assumed that the date of provisional entry is the correct date to determine the point of taxation, then in such a case the demand must be limited to the interest leviable on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also that in case of "associated enterprises", where the person providing the service is located outside India, the point of taxation shall be the date of credit in the books of account of the person receiving the service or date of making the payment whichever is earlier. W.e.f. April, 2012 Provided further that in case of "associated enterprises", where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier. 8.3 From the above, it is observed that prior to the period 01.04.2012, wherever accounting entries relating to service transaction finds a place in books of account of the person liable to pay tax, would be relevant for payment of Service Tax. Further, the broad reference of the nomenclature of the account as well as the inclusion of debit and credit is a clear pointer to the intent of the legislation of not allowing books of account to be used for attributing the liability while deferring tax payment in relation to transaction with associated enterprises. In view of this, the claim canv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.'; The impact of the amendment was to amend the definition of the taxable value which has been defined in terms of the gross amount charged in following manner. "(c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited , as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise." Thus the determination of taxable value in case of associated enterprises was to be made on the basis of any amount credited or debited in any book of accounts of the person liable to pay service tax, where the transaction was between the associated enterprises. Thus the determination of taxable value was to be after taking into accounts all the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reverse charge method (Section 66A) as taxable services received from associated enterprises. For this purpose section 67 and rule 6(1) are being amended." 4.7 Rule 7 of Point of Taxation Rules, 2011 as introduced by Notification No 18/2011-ST dated 01.03.2011 read as follows: "7. Determination of point of taxation in case of associated enterprises.- The point of taxation in respect of associated enterprises shall be the date on which the payment has been made, or invoice under rule 4A of the Service Tax Rules, 1994 has been issued, or the date of debit or credit in books of accounts of the person liable to pay service tax, whichever is earlier." This rule was amended by the notification No 21/2011-ST dated 31.03.2011 to read as under: "7. Determination of point of taxation in case of specified services or persons.-Notwithstanding anything contained in these rules, the point of taxation in respect of,- (a) .... (b) the persons required to pay tax as recipients under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Finance Act, 1994; (c) .... shall be the date on which payment is received or made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax liability on the service provider/ service recipient, but only provide for advance payment of tax at the time of making provisional entries in the book of account. 4.9 In view of the above we are in agreement with the submissions made by the appellant that these provisions only provided, for determination of the Point of Taxation, and fixed the time when the tax liability was to be discharged by the appellants. These amendments in any cases did not provided that the value of the taxable service shall be the determined in any manner other than provided by the Section 67 of the Finance Act, 1994. Thus the value of taxable service was to be determined in terms of Section 67 of the Finance Act, 1994 in respect of the service transactions between the associated enterprises. The tax was required to be paid, on the occurrence of any of event as specified. Appellant have failed to discharge the tax liability in the manner as provided, i.e. at the time of making the provisional entries in their book of accounts. In case of General Motors (I) Pvt Ltd [2015 (40) STR 962 (T-Mum)] following has been held: "11. The learned counsel for appellant contends that the scope of the Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deferring tax payment in relation to transactions with associated enterprises. A plain reading of the Explanation does not lend credence to the claim canvassed on behalf the appellant - any debit or credit entry that can be linked to the service is sufficient. 13. Taking this argument forward, learned counsel would have us agree with him that receipts-based valuation has always been the intent in taxation on "reverse charge" basis because of the special treatment accorded in Rule 7 of Point of Taxation Rules, 2011 even after taxation in all other situations was, by these Rules, transformed to "accrual basis". Accordingly, it is contended that the word "credit" which erroneously insinuated itself in second proviso of Rule 7 of Point of Taxation Rules, 2011 was substituted by "debit" with effect from 1st April, 2012. And since this reference to debit after that date concerns itself exclusively with "reverse charge" taxability of "associated enterprises", that is how it should be read in its former avatar in Rule 6 of Service Tax Rules, 1994. We find ourselves unable to subscribe to this view as the alteration made in 2012 has not been officially attributed to any error in the Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not paid or short-paid. This should have been effected in the impugned order but, not having been done, needs to be remedied. 16. The references made by the learned Counsel to the provisions of the Income-tax Act, 1961 and the decisions of the Hon'ble Supreme Court in re Commissioner of Income Tax v. Ashokbhai Chimanbhai [(1965) 56 ITR 42 (SC)], Commissioner of Income Tax v. Birla Gwalior (P) Ltd. [(1973) 89 ITR 266 (SC)], International Auto Ltd. v. Commissioner of Central Excise [2005 (183) E.L.T. 239 (S.C.)] and Commissioner of Central Excise & Customs (Appeals) v. Narayan Polyplast [2005 (179) E.L.T. 20 (S.C.)] and that of the Tribunal in re Jay Yuhshin v. Commissioner of Central Excise [2000 (119) E.L.T. 718 (TLB)] do not come to the direct assistance of the appellant whose liability arises from a plain reading of the deeming provision relating to "associated enterprise" in the law relating to service tax and the system of acknowledging royalty in their books of account. The Explanation in Rule 6 of Service Tax Rules, 2004 lends itself to literal construction without having to look elsewhere for clarity. The observation of the Hon'ble Supreme Court in re Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Mar-12 1,881,981 01-Apr-12 23-May-12 860,805 12.36 % 106,395 23-Jun-12 873,317 12.36 % 107,942 Total 46,710,419 46,505,262 5,185,142 Grand Total 113,234,58 7 113,956,08 9 10,049,069 Appellant have submitted the above details specifically in response to the audit note, vide their letter dated 22nd November 2013. From the above it is quite evident that the demand in the present case has not arisen on the account of the above issue but is on the basis of the difference in the rate of taxation applied and the computation of the actual tax paid by the appellant. While the impugned order is totally silent on the issue of computation of demand, order in original summarily rejects the submissions made, by the appellant even without verifying the quantum of tax actually paid by the appellant. Even if the entire case of revenue is to be upheld then also benefit of the tax that has been actual paid by the appellant need to be verified and allowed to the appellant. Appellant has claimed that they have made payment of Rs 1,00,49,069/- towards service tax, whereas the demand has been made by stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary ingredients as prescribed therein exist. The fact that appellant was making the expense entries in the book of accounts, in case of the receipt of services from the associated enterprises was well in knowledge of the appellant and the provisions of the Section 67 read with Rule 6(1) and Rule 7 of the Point of Taxation Rules, 2011 clearly laid down the manner in which the service tax liability was to be discharged in respect of these entries. By not following the said procedure appellant have sought to short pay the service tax, by suppressing the fact of the said entries in their book of accounts with intent to evade payment of tax at time and in the manner prescribed as per law. In case of Neminath Fabrics [2010 (256) E.L.T. 369 (Guj.)] Hon'ble Gujarat High Court has held as follows: "11. A plain reading of sub-section (1) of Section 11A of the Act indicates that the provision is applicable in a case where any duty of excise has either not been levied/paid or has been short levied/short paid, or wrongly refunded, regardless of the fact that such non levy etc. is on the basis of any approval, acceptance or assessment relating to the rate of duty or valuation under any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority is entirely absent. Hence, if one imports such concept in subsection (1) of Section 11A of the Act or the proviso thereunder it would tantamount to rewriting the statutory provision and no canon of interpretation permits such an exercise by any Court. If it is not open to the superior court to either add or substitute words in a statute such right cannot be available to a statutory Tribunal. 17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation. 18. The Proviso comes into play only when suppression etc. is established or stands admitted. It would differ from a case where fraud, etc. are merely alleged and are disputed by an assessee. Hence, by no stretch of imagination the concept of kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant date" negatory and such interpretation is not permissible. The contention that once knowledge has been acquired by the department, there is no suppression and the ordinary statutory period of limitation prescribed under sub-section (1) of Section 11 would be applicable was rejected as a fallacious argument inasmuch as once the suppression is admitted, merely because the department acquires knowledge of the irregularity, the suppression would not be obliterated." 4.17 Hon'ble Alalhabad High Court (the jurisdictional High Court) has in case of Rathi Steel & Power Ltd. [2015 (321) E.L.T. 200 (All.)] relying on the decision of Hon'ble Gujarat High Court has held as follows: "37. The Division Bench of the Gujarat High Court in the case of Commissioner of Central Excise v. Neminath Fabrics Pvt. Ltd. (supra) has explained that proviso to Section 11 comes into play only when suppression etc. is established or stands admitted. (Reference paragraph no. 18). 38. So far as the judgment of the Apex Court in the case of Continental Foundation Joint Venture (supra) relied upon by the learned counsel for the assessee is concerned, the same is clearly distinguishable in the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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