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TMI Blog2024 (12) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts indicated in the trial balance of the appellant were towards the amortization disclosure required to be made by them as per Indian Accounting Standard (Ind AS) 38A and not consideration for receipt of any service during the period of dispute. In fact appellant have not received any service from foreign vendor during this period for which they were required to pay service tax on reverse charge basis against this expense - the demand made by treating these services under the category of Transfer of Intellectual Property Rights Service cannot be sustained. The findings recorded by the impugned order to the effect that overseas vendors are carrying out some activities for the appellant for consideration, do not stand in the test of law, as no activity has been done by any overseas vendors for these amounts during the period of dispute these amortization cost are only towards account entries towards certain license for license fees, Documentation Fees, Computer Software, License Fee-ALH, Documentation etc. As these amounts are not in respect of any services received by the appellant during the period after 01.07.2012 are book entries, there are no merits in the said findings. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Credit Rules. Appellant imported technologies on payment of royalty, license fee etc. from foreign vendors. 2.2 During audit of records of the appellant for the year 2011-12 to 2014-15 on perusal of trial balances, it was noticed that they had paid charges towards documentation fees, computers software and license fee to foreign aircraft manufacturers appellant contended that these expenses were towards purchase of manual and software relating to manufacture, repair and maintenance of aircraft parts from the foreign vendors and hence not taxable. The contention of the appellant was not accepted by the audit team as these manuals and software were essential in course of use/transfer of technology for manufacture/repair and maintenance of aircraft on a license fee. The term license fee is indicative of fact that the transfer was not final as in the case of sale and purchase. Hence, the same are treated as sale and appellant was liable to pay service tax under Section 66B 68 of the Finance Act, 1994 read with Rule 2(1)(d)(G) of Service Tax Rules, 1994. 2.3 The details of transactions made available in the trial balance of the appellant during the said period as ascertained in tables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suryakant Singh learned Counsel appearing for the appellant and Shri Santosh Kumar learned Authorised Representative appearing for the revenue. 3.2 Arguing for the appellant learned Counsel submits that- The amount against which the demand has been made is in respect of purchase of documentations and manuals and is not in respect of provisions of any service to the appellant, accordingly the same could not have been covered by the definition of services under the Finance Act, 1994. As per the Indian Accounting Standard (Ind AS) 38, these manuals are in nature of intangible assets which are accounted as such. The said assets are defined as identifiable non-maintainable assets without physical contact. In terms of this accounting standard every year on amortized basis of the cost of acquisition of these assets is shown as expenses in the financial accounts of the appellant. The expense is taken from the trial balance which is not the actual expense incurred for acquisition of these assets in that financial year. The same are not in nature of consideration for any services received by them. They are book entries to balance cost of acquisition of the intangible assets in the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for purchasing of computer software, to use / transfer of technology. As far as the claim of the Party that the service tax computation provided in the SCN has been merely calculated on mere entries appearing in the trial balance but the amounts appearing under the head 1501 are nothing but amounts amortized over the period of the time and declared in the books on the basis of general accounting principles. Therefore, the amounts appearing under the trial balance account head 1501 does not represent an amount being paid to the foreign vendor for receipt of license fees, documentation and computer software, I want to reproduce the definition of word Amortize as defined in Merriam-Webster dictionary amortized; amortizing means:- :to reduce (an amount) gradually as a: to pay off (as a loan) gradually usually by periodic payments of principal and interest or payments to a sinking fund b: to gradually reduce the cost of (as an asset) especially for tax purposes by making periodic charges to income over a time span Therefore, I find that the 'amortization' is nothing but an expense made by the Party for respective services procured by the Party from overseas vendors. Prior to N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice in India, and accordingly all the provisions of this Chapter shall apply. Therefore, in view of above discussion, I find that the amount paid under different heads is nothing but the payment made by the Party to overseas for providing taxable service of 'Intellectual Property Service' as defined by Section 65(55b) and 65(105) (zzr) of the Finance Act. 1994 and the Party is liable to pay service fax on the said expenses under reverse charge mechanism as provided by Section 66A of the Finance Act, 1994. In Negative List Regime i.e. from 01.07.2012 onwards Now, I come to the point whether above said activity is under the purview of service Tax i.e. whether the activity is service in the era of Negative List or not? As per Section 658(44) of the Finance Act, 1994 service means any activity carried out by a person for another for consideration, and includes a declared service. The main ingredients of this definition are (i) any activity (ii) carried out by any person for another (i) there is some consideration and (iv) including declared services under Section 66E of the Finance Act, 1994. Now, as per Section 658(37) of Finance Act, 1994 person includes,- (i) an individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice; and in the absence of such places, the usual place of residence of the recipient of service. Therefore, as per Rule 3 of place of provision of services Rules 2012 read with definition as provided in Rule 2(i) ibid, I find that the services (technology transfer) had been received by the Party in taxable territory from a vendor located overseas in non-taxable territory. Now, as per Section [668. Charge of service tax on and after Finance Act, 2012-There shall be levied a tax (hereinafter referred to as the service tax) at the rate of [fourteen per cent.] on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed] And also as per Rule 2(1)(d)(G) in relation to any taxable service provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory, the recipient of such service: SECTION 168. Payment of service tax. (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e called upon to pay interest on the service tax amount in terms of Section 75 of the Finance Act, 1994. The assessee's plea of ignorance does not appear to be appealing inasmuch as it is common man's knowledge that delayed payment of dues will normally carry interest. The interest charged in this case is in terms of Section 75 ibid. Hence, I find that the law is settled with regard to recovery of interest on the amount of service tax not paid. Therefore, the Party is required to pay Interest at applicable rate under the provision of Section 75 of the Finance Act. 1994 on the amount of Service Tax which they have failed to pay on due date. 14.3 Issue No.2 Secondly, I take up the issue that whether extended period of limitation is applicable to the present case. In this regard, I find that the demand in the subject show cause notice is raised under Section 73(1) of the Finance Act, 1994, the contents of which relevant at the time of issuance of show cause notice are as follows:- SECTION [73. Recovery of service tax not levied or paid or short- levied or short-paid or erroneously refunded. - (1) Where any service tax has not been levied or paid or has been short-levied or sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Mis-Statement :- For element of wilful mis-statement to be involved it has to be proved that the person charged intentionally rather willfully made wrong submissions or submitted false documents to avoid the action under the Finance Act. 1994. iv. Suppression of Facts :- For element of suppression of facts to be involved it has to be proved that the person charged suppressed the facts or did not provide the full and correct information to the authorities as was asked / required to be submitted to the authorities for taking necessary action unc Finance Act, 1994, v. Contravention of any provisions of this Chapter or of the rules ma thereunder with intent to evade payment of service tax :- In order to prove t element it has to be proved that the person charged contravened or did n properly followed the provisions of the Finance Act, 1994 intentionally to avc the payment of tax. In any case if it is proved that any one of the above elements are preser then extended period can be invoked. In the present case, the Party has contested the invocation of the extended period on the ground that for the purpose of invoking the extended period, the Adjudicating Authority has to first substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use / transfer of technology and on the basis of mere heads of trail balance, it could not be ascertained that for which reasons these expenses were bome by the Party. The department got the knowledge when the auditors had gone through essential character / nature of the expenses incurred and found that these expenses were well within the service tax ambit and the liability of payment of service tax on these expenses were on the Party. This could not have been disclosed to the departmental officer had the audit of the Party would not have been conducted by the department. Accordingly. I hold that the extended period of limitation is applicable to the present case. 4.3 From the above paras of the impugned order, it is evident that the fact of actual amounts paid by the appellant have not been considered. It is specific stand of the party before the Commissioner that the entries against which the current demands are being made in the book entries as per the Indian Accounting Standard have not been considered. The impugned order itself records that these amounts would already subject to matter of show cause notice issued by the divisional office earlier to the appellant. This fact co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or requires it to be included in the carrying amount of another asset. 98 A variety of amortisation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. The method used is selected on the basis of the expected pattern of consumption of the expected future economic benefits embodied in the asset and is applied consistently from period to period, unless there is a change in the expected pattern of consumption of those future economic benefits. Disclosure General 118 An entity shall disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets: (a) whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortisation rates used; (b) the amortisation methods used for intangible assets with finite useful lives; (c) the gross carrying amount and any accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period; (d) the line item(s) of the statement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the period. 4.5 From the perusal of the above, we are inclined to accept the submissions made by the appellant that these amounts indicated in the trial balance of the appellant were towards the amortization disclosure required to be made by them as per Indian Accounting Standard (Ind AS) 38A and not consideration for receipt of any service during the period of dispute. In fact appellant have not received any service from foreign vendor during this period for which they were required to pay service tax on reverse charge basis against this expense. Further in case of Firm Foundations Housing Pvt. Ltd [2018 (16) G.S.T.L. 209 (Mad.)] Hon ble Madras High Court has observed as follows 15 . AS 7 thus provides for a detailed methodology for the reporting and determination of the percentage of income from the contract over the term of the project and sets out the mode of computation for arriving at the same. The basis of such recognition and reporting is the apportionment of the income earned and expenditure incurred over the tenure of the project. This is entirely different and distinct from the scope, object and application of the Point of Taxation Rules that seeks to set out a methodo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed automatically upon completion of the stage of construction set out in the agreement itself. 23 . It is the specific case of Mr. Prabhakar that the customers have remitted, in advance, the consideration relating to several of the initial landmarks as a lump sum and that the said amount has been offered to tax. It was then incumbent upon the respondent to have, in the light of the stand adopted by the petitioner in its Service Tax Returns, to have examined whether the receipts offered to tax correspond and cover the stages in respect of which consideration has accrued as per the agreement with the customer. 24 . Rule 3(a) and (b) provides for the point of taxation to be either the point of raising of invoice [Rule 3(a)] or in a case where the service provider has received the payment even prior to the time stipulated in the invoice, upon receipt of such payment [Rule 3(b)]. In the present case, no invoice is said to have been raised. However, the petitioner confirms that it has, in fact, received lump sum advances corresponding to several initial landmarks in the contract, even prior to the achievement of such landmarks. As per the provisions of Rule 3(b), the entire sum received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the issue of such contracts in an elaborate manner and have observed as follows : 4. Learned Chartered Accountant appearing on behalf of the appellant-assessee takes us through the entire case records. It is his submission that addendum issued by the Revenue is incorrect inasmuch as that the said addendum was issued after considering the written submissions made by the appellant-assessee. It is his submission that Revenue is trying to improve upon that case after considering the defence raised by the assessee. On merits, it is his submission that the contract entered by the appellant-assessee is on behalf of the Republic of India for the supply and transfer of licence for production of fighter aircraft, engines, air borne equipments. The said agreement was entered on 28 December, 2000 accordingly, appellant-assessee paid the amounts to the foreign-based firm. He would take us through the agreement which was produced for perusal of the bench and submits that the findings do not indicate as to how the services can be construed as scientific or technical consultancy services. Learned Counsel would submit that there is no basis to hold that it would fall under the definition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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