McLeod Russel India Limited Vs Principal Commissioner of Service Tax-I (CESTAT Kolkata)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, Kolkata, disposed of the appeal filed by M/s McLeod Russel India Limited against demands of Service Tax, interest and penalties confirmed by the Principal Commissioner of Service Tax-I, Kolkata.
The dispute arose from an audit of the appellant’s books of accounts for the period 2008-09 to 2012-13, following which an audit memo and show-cause notice were issued. The original notice proposed Service Tax demand of Rs.2,94,14,374/-, of which the adjudicating authority ultimately confirmed Rs.2,16,45,112/- along with interest and penalties.
The Tribunal examined the surviving demands under several categories, including Renting of Immovable Property Service, Management or Business Consultancy Service, Business Auxiliary Service, Intellectual Property Service and expenses grouped under “OTHERS”.
In respect of Renting of Immovable Property Service, the Tribunal held that the demand of Rs.60,786/- falling within the extended period of limitation could not be sustained because suppression of facts with intent to evade tax had not been established. The normal-period demand of Rs.23,157/- was confirmed, but no penalty was imposed since the appellant had already paid the tax and interest.
For the demand of Rs.12,00,557/- under Management or Business Consultancy Service, the Tribunal found that the Department had not produced evidence establishing that the foreign currency expenses represented consideration for taxable services. The Tribunal further held that any Service Tax paid would have been available as CENVAT credit and therefore the matter was revenue neutral. Relying upon Akshita Exports Vs Commissioner of C.E. & S.T. (CESTAT Ahmedabad), the Tribunal set aside the entire demand on limitation and revenue-neutrality grounds.
The Tribunal also considered the demand of Rs.24,21,942/- relating to commission expenses paid for selling tea outside India. It held that the services relating to sale of tea, being agricultural produce, were covered by the exemption under Notification No. 13/2003-Service Tax, as amended by Notification No. 8/2004-Service Tax. The Tribunal rejected the Commissioner’s view that the exemption was confined to services rendered in India and set aside the demand.
On the royalty and licence-fee demand of Rs.1,71,28,240/-, the Tribunal held that the portion pertaining to the extended period up to 2011-12 could not be sustained in the absence of suppression with intent to evade tax. It also noted that the issue concerning non-registration of the royalty and trademark in India had already been decided in the appellant’s favour in its own earlier proceedings, subsequently affirmed by the Tribunal in Service Tax Appeal No. 264 of 2011 by Final Order No. 75113/2023 dated 13.03.2023. For the period from 01.07.2012 onwards, the appellant had already deposited Service Tax of Rs.59,27,953/- and interest of Rs.9,55,744/- before issuance of the show-cause notice. The Tribunal therefore applied Section 73(3) of the Finance Act, 1994 and held that no penalty could be imposed under Section 78 in respect of that normal-period liability.
The Tribunal further examined Rs.8,10,429/- classified under “OTHERS” for FY 2012-13. Since the Commissioner had not established why the various payments represented taxable services and the Revenue had not produced corroborative evidence, the Tribunal set aside the demand.
Finally, all penalties imposed in the impugned order were set aside. The appeal was accordingly disposed of with the normal-period Renting of Immovable Property Service demand confirmed, the extended-period demand under that category set aside, the Management and Business Consultancy demand of Rs.12,00,557/- set aside, the normal-period Service Tax liability of Rs.59,27,953/- under BAS/Intellectual Property Service/Other Income appropriated together with interest already paid, the balance demand under that category set aside, and all penalties deleted.
List of Cases Discussed / Relied Upon
- Akshita Exports Vs Commissioner of C.E. & S.T. (CESTAT Ahmedabad) — Final Order No. 10459 of 2025 dated 09.06.2025.
- M/s. McLeod Russel India Limited Vs. Principal Commissioner of Service Tax-I, Kolkata — Service Tax Appeal No. 264 of 2011, Final Order No. 75113 of 2023 dated 13.03.2023.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The present appeal has been filed against the demands of Service Tax along with interest and penalties as confirmed in the impugned Order-in-Original No. 174/PR.COMMR/ST-I/KOL/2016-17 dated 31.03.2017 passed by the Ld. Principal Commissioner of Service Tax-I, Kolkata.
2. The facts of the case are that on the basis of audit conducted on the books of accounts of M/s. McLeod Russel India Limited (hereinafter referred to as the “appellant”) by the Service Tax Department in January 2014, an audit memo was issued on 05.02.2014 wherein it was stated that there were differences in the figures appearing in the Books of
Accounts and the service tax returns filed by the appellant for the period 2008-09 to 2012-13
2.2. On the basis the said audit objection, a Show Cause Notice bearing no.37/2014 dated 22.04.2014 was issued demanding Service Tax of Rs.2,94,14,374/- (inclusive of cesses) along with interest and penalties.
2.3. The said notice was adjudicated vide the impugned Order-in-Original dated 31.03.2017, confirming the demand of Service Tax to the extent of Rs. 2,16,45,112/- (inclusive of cesses) along with interest, and imposing equal amount of tax as penalty; the ld. adjudicating authority also imposed a penalty of Rs.10,000/- under Section 77 of the Finance Act, 1994. For ease of reference, the details of the demands of Service Tax confirmed and dropped by way of the impugned order in respect of the various issues are provided below: –
| Issue | Amount confirmed | Amount dropped | Amount appropriated |
|---|---|---|---|
| Renting of Immovable Property | 83943 | 7217979 | — |
| Management or Business Consultancy Service | 12,00,557 | — | — |
| BAS, Intellectual property service, Other income | 20360612 | 405445 | 59,27,953 |
| Adjustment of tax | — | 145838 | — |
| Total | 21645112 | 7769262 | 5927953 |
2.4. Aggrieved by the confirmation of the demands of Service Tax along with interest and penalties against them, the appellant has filed this appeal.
3. The appellant has submitted that on the basis of the audit memo raised, initially the Department has issued a Notice dated 14.03.2014, wherein it was stated that the appellant had deposited service tax of Rs.6,75,633/- (for the period January 2013 to March 2013) and Rs.59,27,973/- (for the period July 2012 to March 2013) in the course of audit; however, the appellant was held liable to pay penalty under Section 73(4A) of the Act. The appellant submits that since the Service Tax Department was satisfied with the explanation furnished by them that no Service Tax was payable, the audit was duly concluded and there was no reason to initiate further proceedings except for the penalty, as proposed in the Notice dated 14.03.2014. However, they submit that despite conclusion of audit as aforesaid, the impugned Show Cause Notice dated 22.04.2014 was issued proposing to demand Service Tax on the very same issue for the same period covered under the aforesaid audit. The appellant has contended that since the Authorities were duly satisfied with regard to the explanation furnished by them in the course of audit, the issuance of impugned Show Cause Notice clearly shows that there is a change in opinion of the Authorities inasmuch as the Authorities proceeded to re-open the proceedings which stood concluded in the audit. Hence, they contend that the impugned Show Cause Notice is liable to be quashed on the ground alone.
4. The appellant stated that the demands confirmed in the impugned order can be categorised under four categories. The submissions of the appellant under each of the categories of demand are summarized below: –
4.1. Demand on Renting of Immovable Property Services
(i) The appellant submits that the impugned Show Cause Notice has demanded service tax of Rs.73,01,922/- for the period 2008-09 to 2012-13, under the category of Renting of Immovable property Services; on the basis of reconciliation submitted by appellant in the course of adjudication duly supported by CA Certificate, the Ld. Commissioner has dropped the Service Tax demand of Rs.72,17,979/- and confirmed the balance demand of Rs.89,943/- pertaining to 2008-09 to 2012-13 which has been subsequently paid along with interest. It is their case that demand for the period 2008-09 to 2011-12 falling under the extended period of limitation is barred by limitation in the absence of any evidence of fraud or suppression with an intent to evade payment of tax.
(ii) Thus, out of the demanded service tax of Rs.83,943/-, the appellant submits that the tax demand of Rs.60,786/- covered under extended period of limitation cannot be enforced; the balance demand of Rs. 23,157 for FY 2012-13 is falling under normal period of limitation. Although, they have deposited the aforesaid amount of Rs.83,943/- with interest thereon, the appellant contends that they would be entitled to consequential refund.
4.2. Management & Business Consultancy Services
(i) On this score, the appellant mentions that the impugned SCN proposed service tax demand of Rs.12,00,557/-, under the category of Management & Business Consultancy Services, for the period April-2008 to March-2011 under RCM on the basis of difference in Foreign Currency Expenses as shown in books of accounts vis-à-vis service tax returns. The appellant argues that the said expenses were not liable for service tax under RCM, as they were not incurred in relation to any taxable service. Further, the appellant submits that the Service Tax upon payment would be available as CENVAT Credit and hence the entire issue is revenue neutral in nature.
(ii) The appellant also submits that the Ld. Commissioner did not give any finding on such submissions made by the appellant. It is reiterated that the demand raised on the foreign expenses would not be sustainable on the ground of revenue neutrality. Reliance in this regard is placed on the decision in the case of Akshita Exports vs. Commissioner of C.Ex., Surat [Final Order No. 10459 of 2025 dated 09.06.2025 in Service Tax Appeal No. 11773 of 2017] wherein the Tribunal, Ahmedabad while taking note of several decisions of the co-ordinate Benches held that where the demanded service tax amount on import services is available as credit, demand under extended period of limitation cannot be sustained. Further, the appellant points out that in the impugned SCN as well as the adjudication order, no evidences have been adduced to show that the non-payment of service tax is on account of fraud or suppression so as to justify invocation extended period of limitation; that the entire demand of Rs. 12,00,557/- confirmed under this category in the impugned order falls within the ambit of extended period of limitation and hence the demand confirmed is liable to be set aside on the ground of limitation.
4.3. Demand of Service Tax on Intellectual Property Service / Business Auxiliary Services and Others
(i) It has been submitted that in the impugned SCN, service tax demand of Rs.2,07,66,057/- was proposed for expenses incurred in foreign currency during the period 2008-09 to 2012-13; the Ld. Commissioner dropped the demand of Rs.4,05,445/- and confirmed the balance tax demand of Rs.2,03,60,612/-. The appellant’s stand in this regard is that the demand for the period 2008-09 to 2011-12, covered under extended period of limitation, is liable to be set aside.
4.4. Demand on Business Auxiliary Services
(i) In the tax demand of Rs. 2,03,60,612/-, demand of tax of Rs. 24,21,942/- has been raised on the commission expenses paid for selling tea outside India for FY 2008-09 to 2012-13. The ground taken by the appellant is that services towards selling tea (being agricultural produce) is wholly exempted from payment of service tax under Notification No. 13/2003-Service Tax as amended by Notification No. 8/2004 – Service Tax; that the Ld. Commissioner in the impugned OIO confirmed the demand on the ground that the aforesaid notification exempting services for selling on tea is applicable only in India and not in respect of import of services.
(ii) It is submitted that the Ld. Commissioner did not dispute the nature of services received by the appellant from outside India; that the aforesaid notification exempts services pertaining to sale of tea whether provided within India or outside India inasmuch as no exclusion has been carved out to restrict the exemption benefit for services rendered in India. Thus, it is contended that the demand on this count is liable to be set aside.
4.5. Demand on Royalty and Licence Fee under Intellectual Property Services
(i) In the total tax demand of Rs. 2,03,60,612/- under the said head, demand of tax of Rs. 1,71,28,240/- has been raised on the expenses incurred for Royalty and licence fee paid outside India during 2008-09 to 2012-13. The appellant submits that the demand pertaining to the period up to 2011-12 falling under the extended period of limitation cannot be sustained. It is argued that the Ld. Commissioner completely ignored the submission of the appellant that no tax would be payable up to June 2012 since Royalty and Trademark for which licence fee have been paid were not registered in India. They point out that this issue has been decided in appellant’s own case by the Ld. Commissioner which has been subsequently affirmed by this Tribunal in the Appeal filed by Revenue in Service Tax Appeal no. 264 of 2011 vide Final Order no. 75113/2023 dated 13.03.2023.
(ii) It has also been submitted that for the period from 01.07.2012 onwards, since the appellant has duly deposited the service tax of Rs. 59,27,953/- along with interest of Rs.9,55,744/- before issuance of SCN (as noted in OIO), the proceedings are liable to be concluded in terms of Section 73(3). Thus, since the Service Tax amount with interest has been duly deposited, it is the appellant’s contention that the very issuance of SCN under the aforesaid provisions is bad in law; thus, for the same reasons, the imposition of penalty under Section 78 ibid. also cannot be sustained.
4.6. Service Tax demand on ‘OTHERS’
(i) In the aforesaid tax demand of Rs. 2,03,60,612/-, demand of tax of Rs. 8,10,429/- has been raised on the expenses booked under nomenclature ‘OTHERS’ which have been incurred outside India during 2012-13. In this regard, the appellant has pointed out that the Ld. Commissioner in the impugned OIO has dropped the demand in entirety for the period 2008-09 to 2011-12; however, he has confirmed the demand for FY-2012-13 for expenses incurred towards (i) Quality Claim, Lab Analysis and Differential Freight paid, (ii) Courier Charges, (III) Training charges/Professional Fees paid for Sports and (iv) Price Money for Sports. However, the appellant submits, he has not given any reason as to why tax is payable on the expense incurred on the aforesaid remittance; further, that the Ld. Commissioner has himself dropped the demand on postage charges paid in the prior period, the demand for courier charges during the period 2012-13 is without any basis.
(ii) Moreover, the appellant also draws attention to the fact that the Ld. Commissioner has himself dropped demand on Maintenance charges for Moisture Analyzer in 2008-09, there is no reason to confirm demand in 2012-13 for payments made for Quality claim, lab analysis and differential freight. It is their submission that there cannot be tax on prize money paid for sports as it is not towards any receipt of taxable services and hence, the demand is not sustainable; further, in terms of Place of Provision of Services Rules, 2012, where the services are physically performed outside India for performance-based services or events outside India, no service tax is payable. The Ld. Commissioner completely ignored the said Rules and arbitrarily confirmed the demand which cannot be legally sustained.
4.7. In view of the above submissions, the appellant has prayed for setting aside the demands confirmed in the impugned order, other than those admitted and paid by them along with interest. Further, it has been argued that no penalty is imposable on the admitted liabilities, as they have paid the tax along with interest before issue of the Notice; as per section 73(3) of the Finance act, 1994, there was no need to issue the Notice; hence, they also prayed for setting aside the entire penalty confirmed against them in the impugned order.
5. The Ld. Authorized Representative of the Revenue reiterated the findings in the impugned order.
6. Heard both sides and perused the appeal records.
7. Regarding the demand of service tax of Rs.83,943/- confirmed under the category of ‘Renting of Immovable Property Service’, we observe that the said demand has been confirmed for the period 2008-09 to 2012-13. Out of this, the demand for the period 2008-09 to 2011-12 has been raised by invoking the extended period of limitation. However, we find that there is no suppression of fact with intention to evade the tax established in this case. Thus, the demand confirmed for the extended period of limitation cannot be sustained. We take note of the appellant’s submission that out of the demanded Service Tax of Rs.83,943/-, tax demand of Rs.60,786/- is covered under extended period of limitation. Hence, this demand is barred by limitation and accordingly, the same stands set aside. The balance demand of Rs.23,157 for the Financial Year 2012-13, falling within the normal period of limitation, is confirmed.
7.1. As the appellant have already deposited the aforesaid amount of service tax liable to be paid for the normal period of limitation, along with interest thereon, we hold that no penalty is imposable on the demand confirmed under this category for the normal period of limitation.
8. Regarding the service tax demand of Rs.12,00,557/-, under the category of ‘Management or Business Consultancy Service’, we find that the said demand has been confirmed for the period April 2008 to March 2011 under reverse charge mechanism, on the basis of difference in Foreign Currency Expenses as shown in books of accounts vis-à-vis Service Tax Returns. We observe that the Department has not brought in any evidence to substantiate the allegation that the said foreign currency expenses were incurred in relation to any taxable service. Therefore, we are of the view that said expenses were not liable for Service Tax under RCM. Further, we observe that the Service Tax, upon payment, would be available as CENVAT Credit and hence the entire issue is revenue neutral in nature. In fact, we find that the Ld. Commissioner, in the impugned order, has not given any finding on such submissions made by the appellant. Thus, we hold that the demand confirmed on the foreign expenses would not be sustainable on the ground of revenue neutrality also. In this regard, we find it relevant to refer to decision relied upon by the appellant in the case of Akshita Exports vs. Commissioner of C.Ex., Surat [Final Order No. 10459 of 2025 dated 09.06.2025 in Service Tax Appeal No. 11773 of 2017] wherein the Tribunal, Ahmedabad has held that where the demanded service tax amount on import services is available as credit, demand under extended period of limitation cannot be sustained. In the present case, the entire demand of Rs. 12,00,557/- confirmed under this category in the impugned order falls within the ambit of extended period of limitation and hence, we hold that the demand confirmed on this count is not sustainable. Consequently, the demand on this score is set aside on the ground of limitation and revenue neutrality.
9. Regarding the total service tax demand of Rs. 2,03,60,612/- confirmed under the category of ‘BAS, Intellectual Property Service, Other Income’, we find that demand of tax of Rs.24,21,942/- has been raised and confirmed on the commission expenses paid for selling tea outside India for FY 2008-09 to 2012-13. It is observed that services towards selling tea (being agricultural produce) is wholly exempted from payment of service tax under Notification No. 13/2003-Service Tax as amended by Notification No. 8/2004 – Service Tax, as stated by the appellant. The Ld. Commissioner, however, in the impugned order, has confirmed the demand on the ground that the aforesaid notification exempting services for selling on tea is applicable only in India and not in respect of import of services. We do not agree with the findings given by the Ld. Commissioner. We find that the Ld. Commissioner did not dispute the nature of services received by the appellant from outside India. Thus, we hold that the aforesaid notification exempts services pertaining to sale of tea whether provided within India or outside India inasmuch as no exclusion has been carved out to restrict the exemption benefit for services rendered in India. Therefore, we set aside the demand confirmed in the impugned order on this count.
9.1. Out of the above service tax demand of Rs. 2,03,60,612/-, we find that the demand of service tax of Rs. 1,71,28,240/- has been raised on the expenses incurred for Royalty and licence fee paid outside India during 2008-09 to 2012-13. In this regard, we find force in the appellant’s submission that the demand pertaining to the period up to 2011-12, falling within the scope of extended period of limitation, cannot be sustained as there is no suppression of fact with intention to evade the tax established in this case. We also note that the Ld. Commissioner has not given any finding as to the submission made by the appellant that no tax would be payable up to June 2012 since Royalty and Trademark, for which licence fee have been paid, were not registered in India. We find that this issue has been decided in favour of the appellant in their own case by the Ld. Commissioner which has been subsequently affirmed by this Tribunal in the Appeal filed by Revenue in Service Tax Appeal no. 264 of 2011 decided vide Final Order no. 75113 of 2023 dated 13.03.2023. For the period 01.07.2012 onwards, we find that the appellant has duly deposited the service tax of Rs. 59,27,953/- along with interest of Rs.9,55,744/- before issuance of SCN, which has also been noted by the ld. adjudicating authority in the impugned order. Thus, we are of the view that the proceedings are liable to be concluded in terms of Section 73(3) of the Finance Act, 1994. Furthermore, since the service tax amount with interest has been duly deposited, we hold that no penalty can be imposed on the appellant under Section 78 of the Finance Act, in respect of the demand confirmed in this regard for the normal period of limitation.
9.2. Out of the service tax demand of Rs. 2,03,60,612/-, we find that the demand of service tax of Rs. 8,10,429/- has been raised and confirmed on the expenses booked under nomenclature ‘OTHERS’. We find that the said expenses have been incurred outside India during 2012-13. From a perusal of the impugned order, it can be seen that the Ld. Commissioner in the impugned OIO has dropped the demand in entirety for the period 2008-09 to 2011-12. However, he has confirmed the demand for FY 2012-13 for expenses incurred towards (i) Quality Claim, Lab Analysis and Differential Freight paid, (ii) Courier Charges, (III) Training charges/Professional Fees paid for Sports and (iv) Price Money for Sports. However, we find that the Ld. Commissioner has not given any reason as to why service tax is payable on the expense incurred on the aforesaid remittances. We find that the above said expenses were not incurred with respect to any taxable service. The Revenue has also failed to adduce any corroborative evidence to substantiate their case. Accordingly, we hold that the demand confirmed on this count is not sustainable and hence we set aside the same.
10. As regards the penalties imposed on the appellant in the impugned order, we take note of the fact that the appellant has paid the service tax liabilities admitted by them along with interest. Thus, we hold that no penalty imposable on the admitted liabilities, as the appellant has already paid the tax along with interest before issue of the Notice. In fact, as per Section 73(3) of the Finance Act, 1994, no need to issue show cause Notice, in such cases. Considering the above, we set aside the all the penalties imposed in the impugned order against the appellant.
11. In view of the above findings, we pass the following order:
(i) The demand of Service Tax under the category of ‘Renting of Immovable Property Service’ for the normal period of limitation is confirmed and the demand of Service Tax confirmed in respect of the said service for the extended period of limitation is set aside. As the appellant has already deposited their Service Tax liability for the normal period of limitation, along with interest, we hold that no penalty is imposable on the said demand confirmed.
(ii) The demand of Service Tax of Rs.12,00,557/- confirmed under the category of ‘Management and Business Consultancy service’ is set aside on the ground of limitation and revenue neutrality.
(iii) Out of the service tax demand of Rs. 2,03,60,612/- confirmed under the category of ‘BAS, Intellectual Property Service, Other Income’, we uphold the demand of service tax of Rs. 59,27,953/- pertaining to the normal period of limitation, along with interest of Rs.9,55,744/-. As the said Service Tax, along with interest, has already been paid by the appellant, we appropriate the same. We also hold that no penalty is imposable on the demand confirmed under this category for the normal period of limitation. The balance demand confirmed in the impugned order on this count is set aside.
(iv) All penalties imposed in the impugned order are set aside.
12. The appeal filed by the appellant is disposed of on the above terms.
(Order pronounced in the open court on 09.01.2026)
