Case Law Details
CESTAT, CHENNAI BENCH
Srilankan Airlines
versus
Commissioner of Service Tax, Chennai
FINAL ORDER NO. 818 OF 2012
MISC. ORDER NO. 601 OF 2012
APPLICATION NO. ST/AG/498 OF 2007
APPEAL NO. ST/107 OF 2007
JULY 16, 2012
ORDER
Mathew John, Technical Member
The appellants are engaged in the business of transportation of cargo by air. For the period 15-3-2005 to 23-6-2005 they did not pay any Service Tax on such services rendered by them. Revenue issued show cause notice demanding Service Tax and Education Cess totaling to over Rs. 1.80 crores for the said period and the notice has been adjudicated confirming the demand along with interest and penalties. The appellants also have filed an application for raising additional grounds which they submit are legal grounds. This application is also being considered in this proceeding.
2. The said service was exempted from payment of Service Tax under Notification No. 28/2004-S.T., dated 17-9-2004. However, this exemption was withdrawn by Notification No. 10/2005-S.T., dated 3-3-2005 with effect from 15-3-2005. When Notification No. 10/2005-S.T. was issued, Export of Services Rules, 2005 was also notified by Notification No. 9/2005-S.T., dated 3-3-2005 to be effective from 15-3-2005. As per the said rules the question whether any service was exported was to be decided based on classification of the service under three categories as per the said Rules. In respect of property based services, the services were to be reckoned as exported if the property was situated abroad. In the second category, the services were reckoned as to be exported if the services were performed outside India. For this category if services were partly performed outside India, it was to be considered that the service was performed outside India. In the case of a third category of services, the services were to be considered as exported if the recipient of the services was located outside India.
3. It is agreed that transportation of goods by air was specified in the second category in the said rules, that is to say if the services were partly performed outside India it was to be considered as exported. In the case of transportation of goods by air, the exporter hands over the goods to the airlines. But the exporting activity takes place when the goods are carried across the border. So the appellants were eligible for relief from Service Tax. However, Notification No. 28/2005-S.T., dated 7-6-2005 was issued amending sub-rule (2) of Rule 3 of the Export of Services Rules, 2005 by which a condition that the payment should have been received in foreign exchange was incorporated in the said Rules in respect of such services with effect from 16-6-2005. The appellants say that they were not aware of the change in legal position and hence could not collect tax from the exporters from 24-6-2005 they started collecting such tax and paying to the Government.
4. The Airlines Industry then represented to the authorities that they were receiving payments in Indian currency and the new amendment would cause hardship to the exporters and to them. Consequently the exemption under Notification 29/2005-S.T., dated 15-7-2005 was issued restoring exemption to such services from Service Tax as was available in Notification No. 28/2004-S.T., dated 17-9-2004. The additional ground taken in the application for that purpose is that notification 29/2005-S.T., dated 15-7-2005 is only in nature of a clarification and hence it should apply retrospectively. We have considered this submission. We find that the notification is a fresh notification issued under Section 93(1) of Finance Act, 1994 providing an exemption which was not in force on the date prior to the issue of such notification. The reason that similar exemption was in force some time in the past is no reason to consider it to be a clarification in nature. Exemption notifications cannot be considered to be retrospective unless the Legislature specifically provides so. So we do not see any merit in this new argument.
5. Thus the appellants could not get waiver from Service Tax on such services during the period 16-6-2005 (Date on which Notification No. 28/2005-S.T. took effect) to 23-6-2005 (Appellant started paying Service Tax from 24-6-2005).
6. However, the Revenue has confirmed the demand based on the reasoning that during the period from 15-3-2005 to 15-7-2005, that is for the period during which the exemption as was available in Notification No. 28/2004-S.T., dated 17-9-2004 was rescinded but not restored. Revenue argues that the appellants were liable to pay Service Tax for the reason that they were not eligible for the benefit of the Export of Services Rules, 2005 based on the reasoning that the service was performed in India.
7. The counsel for the appellants submits that it is very elementary to see that the transportation of export cargo is substantially performed outside India and the Revenue’s argument that the services consist in handing over the cargo to the airlines is a very trivial conceptualization. The service that is rendered to the exporters is taking the goods outside India and that activity is performed substantially outside India and there cannot be any doubt that the service was performed outside India.
8. After hearing arguments raised by the learned AR for Revenue, we in agreement with the argument advanced by the counsel for appellants. However, for a short period for 16-6-2005 to 23-6-2005 there is neither any legal provision which waived the tax liability of the appellants nor did the appellant pay such tax.
9. In this matter the learned counsel submits that the demand is issued by SCN dated 31-1-2007 invoking extended period of time and there is no ground for invoking extended period of time because he submits that they were under the bona fide impression that they were eligible for the benefit of export of service and consequent exemption from tax. The counsel requests that if at all duty demand on this count is confirmed penalty on them should be waived by invoking the provisions of Section 80 of the Finance Act, 1994. He submits that the Airline Industry was corresponding with the authorities in the Finance Ministry for getting suitable exemption and they were expecting retrospective exemption and that is the reason why they did not pay the Service Tax.
10. The learned AR for the Revenue submits that an expectation of a retrospective exemption cannot be a reason for not disclosing facts to the department and paying tax as per provisions of law in existence. The appellants did not disclose the value of such service rendered and the fact that they were receiving payments of such value of service in Indian rupees though the Industry was corresponding with the Ministry pleading for retrospective exemption. Therefore he submits that the charge of suppression is rightly invoked against them and penalty under Section 80 is also payable.
11. After considering the arguments on both sides we find that the appellants were aware that there is an issue that the Export of Services Rules was not helping his case from 15-6-2005. That is why he started paying tax from 24-6-2005. Now the only argument is that during the period 15-6-2005 to 23-6-2005, the appellant was not able to collect taxes from the customers. That cannot be a reason to waive the liability or to consider that the appellant had bona fide belief that tax was not payable for the said period. In fact when the appellant came to know of the position say on 23-6-2005 as per their statement, they should have paid Service Tax for the previous 7 days also. Therefore the argument that they were under the bona fide belief is not acceptable. So we consider that the extended period of time can be invoked in this case. At the same time, considering the peculiar nature of the circumstances, we are of the view that invocation of Section 80 of the Finance Act, 1994 is justified. We note that Section 80 provides for waiver of penalty imposed under Section 78 also. That means even under a case where there is suppression there is a scope for invoking Section 80 though such case can be rare. There have been court decisions holding that by and far if there is a reason for extending the benefit of Section 80, extended period should not be invoked for demanding duty. This is only a broad rule. The very fact that Section 80 mentions penalty under Section 78 shows that in exceptional cases waiver can be granted under Section 80 even when suppression is invoked. We are of the view that the circumstances of this case and the legislative history of notifications like notification 28/2004-S.T., dated 17-9-2004, 9/2005-S.T., dated 3-3-2005 and 28/2005-S.T., dated 7-6-2005 and Notification 29/2005-S.T., dated 15-7-2005 would justify invoking Section 80 of the Finance Act, 1994. So we invoke the provisions of Section 80 and waive the penalty imposed on the appellants.
12. With the result, the demand for tax due during the period 16-6-2005 to 23-6-2005 is confirmed along with appropriate interest and all the penalties imposed on the appellant is set aside. The appeal is thus partially allowed.
