Case Law Details
P. Ramesh Kumar Vs Commissioner of Central Tax Secunderabad-GST (CESTAT Hyderabad)
Introduction: In a recent case, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Hyderabad set aside a service tax demand on Mr. P. Ramesh Kumar, the Managing Director of M/s Balaji Pressure Vessels Pvt Ltd (BPVL), concerning foreign exchange payments to Facebook. The Department had issued a Show Cause Notice to Mr. P. Ramesh Kumar, seeking to recover service tax on the foreign exchange outflow on a reverse charge mechanism (RCM) basis. The core issue revolved around the usage of Mr. Ramesh Kumar’s credit card, which had been reimbursed by BPVL.
Detailed Analysis
1. Background: The case involved the use of Mr. Ramesh Kumar’s credit card to make payments to Facebook through foreign exchange. The Department issued a Show Cause Notice to recover service tax, claiming that the foreign exchange outflow was liable for service tax on an RCM basis.
2. Appellant’s Defense: Mr. Ramesh Kumar submitted that he had allowed his friend, Mr. Y. Ravindra Reddy of M/s AB Creatives, to use his credit card for payments. Mr. Ravindra Reddy would subsequently reimburse the entire amount spent. According to the appellant, neither he nor BPVL had used Facebook’s services. The defense included a certificate from Mr. Ravindra Reddy’s Chartered Accountant (CA) stating that he used an amount of Rs. 72,43,704 towards FB online transactions with Mr. Ramesh Kumar’s credit card. Additionally, the CA of Mr. Ramesh Kumar confirmed that the credit card was used, and the payment of Rs. 72,43,704 was incurred for these transactions.
3. Department’s Argument: The Department argued that the appellant failed to provide clear evidence of an agreement between him and Mr. Ravindra Reddy regarding the use of the credit card. They contended that without such an agreement, it was justified to confirm the demands.
4. CESTAT’s Decision: CESTAT examined the case and found that the Department had not presented any concrete evidence to prove that these expenses were incurred for business purposes. The entire premise of the Show Cause Notice was flawed as it was issued to an individual without establishing a connection between the credit card expenses and business purposes. CESTAT noted that there was no allegation that BPVL, a private limited company, used Facebook’s services and indirectly made payments through Mr. Ramesh Kumar’s credit card. As a result, the tribunal held that the Impugned Order was legally unsustainable and set it aside. The appeal was allowed with consequential relief.
Conclusion: The CESTAT Hyderabad’s decision in the case of P. Ramesh Kumar highlights the importance of establishing a clear connection between expenses and business purposes when imposing service tax demands. In this case, the Department failed to provide sufficient evidence to prove that the expenses were incurred for business use. The tribunal found that the issuance of a Show Cause Notice to an individual without properly connecting the expenses to business purposes was incorrect. The case serves as a reminder of the need for a strong and clear evidentiary basis when pursuing tax-related claims.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
The Appellant Shri P. Ramesh Kumar is the Managing Director of M/s Balaji Pressure Vessels Pvt Ltd (BPVL for short). On the ground that his credit card was used to make payments to “Facebook” by way of foreign exchange and the amount used in this credit card has been reimbursed by BPVL, the Department issued Show Cause Notice to Mr. P. Ramesh Kumar seeking to recover Service Tax on such foreign exchange outflow on RCM basis. The Appellant submitted before the Lower Authorities that one of his friends, Mr. Y. Ravindra Reddy of M/s AB Creatives has sought his help and the credit card facility was given to him to make the payments through this credit card. For the usage of credit card, whenever such amounts were debited in foreign exchange, subsequently, Mr. Y. Ravindra Reddy used to reimburse the entire amount. Therefore, it was the submission of the Appellant that the services of “Facebook” was neither used by him nor used by the Company BPVL. Before the Adjudicating Authority, they have produced a copy of the Certificate issued by the CA of Mr. Y. Ravindra Reddy stating that he has used an amount of Rs.72,43,704/- towards FB online transactions for which the credit card of the Appellant has been used. This Certificate has been issued by the Auditor of M/s AB Creatives, wherein Mr. Y. Ravindra Reddy is the proprietor. Similarly, V. Sridhar and Company, Chartered Accountants of the Appellant have certified that his credit card was used and the payment of Rs.72,43,704/- has been totally incurred on such transactions. The Appellant submitted that since both the CA Certificates fully tally, it is clear that the Appellant has no role in making the payments to ‘Facebook’ and no service has been imported by him from ‘Facebook’ making him liable to pay the Service Tax on RCM basis as demanded. After due process, the Lower Authorities confirmed the demand. Being aggrieved, the Appellant is before the Tribunal.
2. The learned CA appearing on behalf of the Appellant takes us through the documentary evidence by way of ledger account maintained by BPVL and copies of the CA Certificates to put forth the fact that the Appellant had no role in importing any service from Facebook and all the expenses shown under his credit card were actually incurred by Mr. Y. Ravindra Reddy of M/s AB He further submits that CA Certificates produced by them before the Lower Authorities were neither considered nor rebutted. In view of the foregoing, the learned CA submits that present Appeal is required to be allowed.
3. Learned AR reiterates the findings of the Lower Authorities. He further submits that the Appellant has failed to prove very clearly that there was any agreement between the Appellant and Mr. Y. Ravindra Reddy to the effect that the credit card will be used by Mr. Y. Ravindra Reddy, the same will be initially debited to the credit card account and subsequently, Mr. Y. Ravindra Reddy will make the payments. Therefore, he justifies the confirmed demands.
4. Heard both sides and perused the documents.
5. I find that the Department has recorded the statement of the Appellant and Mr. Y. Ravindra Reddy. Nowhere in these statements had they stated that the ‘Facebook’ transactions were on account of BPVL. The CA Certificate proves that both the parties have properly accounted for the credit card expenditure. Admittedly, the expenditure was only on account of ‘Facebook’ transactions incurred by Mr. Y. Ravindra Reddy. However, Department has not come out with any proper evidence that this was any kind of business expenses incurred by BPVL. Further, it is surprising that the SCN has been issued to the Appellant in his individual capacity. If any individual imports any service in his personal capacity, there is no liability on him to pay Service Tax so long as it is not for any business purpose. In the present case, the Department has failed to establish that the service was imported by the Appellant and was used for business purpose. The Department has not rebutted the fact that this was used by Mr. Y. Ravindra Reddy. Again, strangely, Mr. Y. Ravindra Reddy has not been made co-noticee in the entire proceedings. There is no allegation that BPVL which is a private limited company has used the services of Facebook and made the payment indirectly through the credit card of the present Appellant. The entire premise under which the SCN has been issued is flawed and the Department could not have issued SCN to an individual without properly connecting the usage of the credit card expenses for business purposes by him.
6. In view of the above findings, I hold that the Impugned Order is legally not sustainable and I set aside the same. The Appeal is allowed with consequential relief, if any, as per law.
(Dictated and pronounced in the open Court)
