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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 ..... 70,88,44,126/- i.e. Rs.35,44,22,063/- (Rs. Thirty Five Crores Forty Four Lakhs Twenty Two Thousand and Sixty Three only) on the Party under Section 78 of the Finance Act. 1994 for mis-stating the facts before the department, suppressing the value of taxable services received by them before the department and contravening the provisions of the Finance Act, 1994 with intent to evade payment of Service tax. Provided further that if service tax and interest is paid within a period of thirty days of receipt of this order, I restrict the penalty to 25% of Rs. 70,88,44,126/- and the benefit of reduced penalty shall be available only if the amount of penalty so determined has also been paid within the period of thirty days of receipt of this order. Provided also that the benefit of the reduced penalty shall be available only if the amount of Service Tax, applicable interest and amount of such reduced penalty is also paid within such period i.e. within 30 days of receipt of this order." 2.1 Appellant is a Government of India undertaking interalia engaged in providing taxable services under the category of Management, Maintenance or Repair Services, appellant is also availing the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1193608 147530 5 19060101 Documentation 820754 101445 TOTAL 1394208245 172324139 Financial Year 2014-15 SI.No. ACCOUNT head of Trial Balance Description Amount in Rs. Service Tax payable 1 15010101 License Fees 1069410600 132179150 2 15010201 Documentation fees 269347513 33291353 3 15010301 Computer Software 2146214 265272 4 19060002 License Fee-ALH 0 0 5 19060101 Documentation 387377 47880 TOTAL 1341291704 165783655 GRAND TOTAL (2011-12 TO 2014-15) 6034249129 708844126 2.4 After completion of investigations, show cause notice dated 22.09.2016 was issued to the appellant asking them to show cause as to why- "(i) Service tax amounting to Rs. 70,88,44,126/- (Rs. Seventy Crores Eighty Eight Lakhs Forty Four Thousand One Hundred and Twenty Six only) inclusive of Education Cess & Secondary Education Cess should not be demanded and recovered from them under Section 73(l) of Chapter V of the Finance Act, 1994 by invoking proviso for extended period thereto. (ii) Interest due thereon should not be demanded & recovered from them under the provisions of Section 75 of Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the demand by invoking the extended period. Reliance is placed on the following rulings:- * Nepa Ltd. 2013 (298) ELT 225 (Tri.-Del.); * Hindustan Insecticides Ltd. 2017 (6) GSTL 218 Tri.-Del.); * Indian Oil Corporation Ltd. 2013 (291) ELT 449 (Tri.-Ahmd.). * For the same issue, in the case of appellant, the demand made by qualifying the services under the category of Consulting Engineering Services has been set aside vide Final Order No.70887-70888/2019 dated 24.04.2019. * Appeal be allowed. 3.3 Learned Authorized Representative reiterates the findings recorded in the orders of the lower authorities. 4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument. 4.2 For confirming the demand against the appellant, impugned order records as follows:- "14.1 Issue No.1 First of all, I come to the point that amount paid for License Fee, Documentation Fee etc. to foreign manufacturers / vendors are taxable service or otherwise. In this regard, I find that the Party has already accepted in their submissions that the amount paid under, the respective heads of P/L account was already included in the SCNs issued fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as per Section 65(55b) 'Intellectual property service' means:- (a) transferring. [temporarily); or (b) permitting the use or enjoyment of. any intellectual property right:) The taxability or taxable service is defined by Section 65(105) "taxable service" means any [service provided or to be provided] (zzr) to any person, by the holder of intellectual property right, in relation to intellectual property service In view of the above definitions, I find that the amount paid for the above said items fall under the definition of "Intellectual Property Service". The Party had received these services from overseas under the category of "Intellectual Property Service". Now I have to examine whether Service tax liability on the amount paid for different items / heads covered under 'Intellectual Property Service' will be on the service receiver i.e. on the Party or otherwise. For the sake of understanding, I reproduce Section 66 A of the Finance Act, 1994. SECTION [66A. Charge of service tax on services received from outside India. (1) Where any service specified in clause (105) of section 65 is, - (a) provided or to be provided by a person who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the concept of Negative List w.e.f. 01.07.2012, it was also clarified that all services are taxable except those; mentioned under Negative list prescribed under Section 66D of the Finance Act. 1994 OR those exempted vide Mega Exemption under Notification No.25/2012-ST dated 20.06.2012 Since in the present case, I find that the nature of services received by the Party does not fall under any of these two exempted categories, therefore, these are liable to be taxed under Section 668 of Finance Act, 1994. Therefore, in view of the above, it is very much clear that the activity is a taxable service under the negative list regime. As per Rule 3 of Place of Provisions of Service Rules, 2012 "The place of provision of a service shall he the location of the recipient of service: provided that in case [of services other than online information and database access or retrieval services, where] 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." As per definition of "location of the service receiver" means (provided by Rule 2(i) of Place of Provision of Service Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider]. In view of above discussion, I find that the Party was liable to pay Service Tax for the period prior to 01.07.2012 (before introduction of Negative List) on the amount paid for License Fee, Documentation Fee, and Computer Software etc. under reverse charge mechanism as per provisions discussed above. Therefore, from the discussion, it is obvious that prior to negative list (i.e. upto 30.06.2012) the expense made under different heads is taxable. As for as, in negative list regime, I find that the activity carried out by the overseas is taxable service under reverse charge mechanism. If any activity is service and the service does not falls either in Negative list (as defined in Section 66D of the Act) or Mega Exemption (as provided by Notification 25/2012-ST dated 20.06.2012), then service will be taxable. In present case since the activity carried out by overseas is service and provided to the Party for some consideration. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f - (a) fraud; or (b) collusion, or (c) wilful mis-statement, or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as, for the words thirty months). The words "Tive years had been substituted." On plain and precise reading of the above Section, it is explicit that there are 5 elements which may be individualty or collectively present in cases for invoking the extended period of limitation, I hereby further examine all the above elements Individually:- i. Fraud: The term 'fraud' has not been defined in the Finance Act, 1994. As per oxford dictionary, the word "fraud' means * wrongful or criminal deception intended to result in financial or personal gain. * a person or thing intended to deceive others, typically by unjustifiably claiming or being credited with accomplishments or qualities. Thus, it can be inferred that for element of 'fraud to be involved in a subject matter it has to be proved that person charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the Party to evade the payment of Service tax in terms of Section 73(1) of the Finance Act, 1994. In this regard, the Party has placed reliance on the decision in the matter of Naresh Kumar & Co. Pvt.Ltd. vs. Union of India 2014 (36)STR 271 (Cal.) I do not find merit in the contention of the Party that there was no intention to evade payment of Service Tax. In the present case the Party has submitted that the said amount was included in the earlier SCNs issued to them but they could not justify the same. Further, they told the department that the said amount was amortized but I find that amortization is nothing but expenses made by the Party under various heads and was taxable as discussed in para 14.1 supra. Therefore, I find that the Party had contravened the facts to evade payment of Service Tax willfully. The Party had never approached the department till the departmental officers demanded the records in respect of business conducted by them. Therefore the intention of suppressing the transaction and thereby service itself is proved beyond any doubt. The Party supplied certain information only when auditors demanded and because they knew that all their business wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licences, import quotas, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights. 10. Not all the items described in paragraph 9 meet the definition of an intangible asset, ie identifiability, control over a resource and existence of future economic benefits. If an item within the scope of this Standard does not meet the definition of an intangible asset, expenditure to acquire it or generate it internally is recognized as an expense when it is incurred. However, if the item is acquired in a business combination, it forms part of the goodwill recognized at the acquisition date (see paragraph 68)." "Intangible assets with finite useful lives Amortisation period and amortisation method 97 The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortisation shall begin when the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the gain or loss arising from the derecognition of an intangible asset is determined in accordance with the requirements for determining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115. Prior to substitution in 2018, the paragraph read as under: 116 The consideration receivable on disposal of an intangible asset is recognised initially at its fair value. If payment for the intangible asset is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with Ind AS 18 reflecting the effective yield on the receivable. (i) additions, indicating separately those from internal development, those acquired separately, and those acquired through business combinations; (ii) assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Ind A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas Rule 3 of the Rules addresses the 'when' in relation to the rendition of service for computing taxability under the Finance Act, 1994. 17. The basis of the addition by the respondent is clear from the SCN wherein he states that 'further, on verification of the profit and loss account of the assessee for the financial years 2012-13, 2013-14 and 2014-15 along with Service Tax Payment shown in the ST3 returns, it appears that the assessee have not paid the appropriate Service Tax.' Despite the explanation offered by the petitioner to the effect that it is the Point of Taxation Rules that would govern the determination of time of rendition of service and consequent accrual of receipt and liability to tax thereof, and not the P and L accounts of the petitioner, the respondent persists in adopting the financials for the determination of service tax liability as well. 18. The foundation of the assessment is thus, in my view, flawed. The SCN calls upon the assessee to produce material in support of its stand and, at paragraph No. 11, states that the audited balance sheets for the financial years 2012-13, 2013-14 and 2015-16, statement recorded from the VP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of determination of service tax payable, the basis of the impugned assessment is erroneous. 26. It is a well settled position that when a statutory provision or rule addresses a specific scenario, such rule/provision is liable to be interpreted on its own strength and context and one need look no further to alternate sources to seek clarity in regard to the issue that has been addressed by the aforesaid rule/provision." In view of the above decision of Hon'ble Madras High Court the demand made by just picking certain amount from the trial balance which is book entry as per the Accounting Standard, the demand made in show cause notice itself is flawed and the impugned order upholding the said demand is bad in law. 4.6 We also find that in the case of appellant himself, Bangalore Bench of this Tribunal has held as follows:- "4. Heard both sides and perused the records of the case. On going through the issue involved, the following emerges : Appellants received similar services by virtue of Inter-governmental agreements in the manufacture of Sukoyi aircraft at different locations in the country. The Department has viewed the services received in a different manner at differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a science or technology institution. In support of such a submission he produces a copy of the registration of said supplier with the authorities which indicates that M/s. Rosobornexport is registered as joint-stock company. He would rely upon the ratio of the decision of the Tribunal in the case of Kopran Ltd. - 2011 (23) S.T.R. 627 (Tri. - Mum.), for the proposition that an amount paid for transfer of technical know-how for manufacture will not be covered under scientific or technical consultancy services." 4.7 In view of the above discussions also the demand made by treating these services under the category of Transfer of Intellectual Property Rights Service cannot be sustained. 4.8 We also find that 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 ..... 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