Extended period not invocable in absence of suppression of facts with intend to evade payment of tax

Sara Leather Industries Vs Commissioner of CE & Service Tax (CESTAT Chennai)

CESTAT Chennai held that extended period of limitation not invocable as there is no suppression of facts with the intend to evade payment of tax. Accordingly, order dismissed on the grounds of limitation.

Facts- The appellants are engaged in the manufacture of export of leather footwear uppers and export the same to various foreign countries.

During the course of verification of records, it was found that the appellants were availing the services of foreign agents for procurement of orders. The appellant paid commission to the foreign agents in foreign currency for such services.

It appeared that such services provided by the foreign agents would fall under the category of Business Auxiliary Services (BAS) and the commission paid by the appellant to their foreign agents is taxable under Reverse Charge Mechanism (RCM in short) with effect from 09.07.2004.

A Show Cause Notice dated 16.02.2008 was issued demanding service tax on the commission paid to foreign agents during the period 09.07.2004 to 30.09.2007. After due process of law, the adjudicating authority confirmed the demand of Rs. 3,60,732/-along with interest. The proposal in the SCN to impose penalty was dropped. Aggrieved by the confirmation of demand, the appellant is now before the Tribunal.

Conclusion- Held that there is no suppression of facts with intend to evade payment of tax, the demand for the extended period has been confirmed. We find that such confirmation of demand is not legal and proper and requires to be set aside. The appellant succeeds on the ground of limitation. We hold that it is not necessary to delve into the merits of the case as the issue on limitation is answered in favour of assessee.

FULL TEXT OF THE CESTAT CHENNAI ORDER

Brief facts are that the appellants are engaged in the manufacture of export of leather footwear uppers and export the same to various foreign countries. During the course of verification of records it was found that the appellants were availing the services of foreign agents for procurement of orders. The appellant paid commission to the foreign agents in foreign currency for such services. It appeared that the above said services provided by the foreign agents would fall under the category of Business Auxiliary Services (BAS in short) and the commission paid by the appellant to their foreign agents is taxable under Reverse Charge Mechanism (RCM in short) with effect from 09.07.2004. In terms of rule 2(1)(d)(iv) of the Service Tax Rules, 1994 (STR,1994), the appellant was liable to pay service tax on the commission paid to foreign agents. The appellant neither registered themselves under BAS nor paid service tax on the commission paid to foreign agents. A Show Cause Notice dated 16.02.2008 was issued demanding service tax on the commission paid to foreign agents during the period 09.07.2004 to 30.09.2007. After due process of law, the adjudicating authority confirmed the demand of Rs. 3,60,732/-along with interest. The proposal in the SCN to impose penalty was dropped. Aggrieved by the confirmation of demand, the appellant is now before the Tribunal.

2.1 Learned Counsel Shri N. Viswanathan appeared and argued for the appellant and argued that the adjudicating authority has dropped the demand for the period from 09.07.2004 to 17.04.2006 on the ground that Section 66A has been introduced in the Finance Act, 1994 only with effect from 18.04.2006. The liability to pay service tax under RCM arises only from such date. However, the adjudicating authority confirmed the demand for the period after 18.04.2006 to 31.03.2007. It is urged that since service tax is a destination based tax and as the entire service is provided by the commission agents located in foreign countries and being consumed outside India without which the export of goods is not possible, such activity will not come within the purview of BAS as defined under Section 65 (90) of the Finance Act, 1994. To support his contention, learned Counsel relied on the decision in the case of Genom Biotech Pvt. Ltd. Vs. Commissioner of Customs & C.E, Nashik reported in 2016 (42) STR 918 (Tri.-Mum.).

2.2 Learned Counsel also argued on the ground of limitation. It is submitted that in paragraph-10, the Commissioner has observed that there was no suppression of facts and that appellant had not paid the service tax on a bonafide belief that such commission paid to the foreign agents is not subject to levy of service tax. However, the demand for the period after 18.04.2006 has been confirmed which is contrary to the discussions and findings made in paragraph-10 & 11. He prayed that the appeal may be allowed.

3. Learned AR Ms. K. Komathi supported the findings in the impugned order. On merits, the learned AR submitted that in the case of Olam Enterprises India Private Limited Vs. Commissioner reported in 2019 (27) GSTL J35 (S.C), and in the case of Commissioner Vs. Premier Tobacco Packers Pvt. Ltd. reported in 2018 (18) GSTL J38 (S.C), the Hon’ble Apex Court had held that the Commission paid to foreign agents for rendering services for sale of goods outside India is liable to service tax under Section 65(19)(i) of the Finance Act, 1994. The service recipient of such services is liable to pay service tax under RCM in terms of Rule 2(1)(d)(iv) of STR, 1994. She prayed that the appeal may be dismissed.

4. Heard both sides.

5.1 Learned Counsel for the appellant has argued on merits of the case as well as on the ground of limitation. On perusal of records, we find that in paragraph 10 & 11, it has been categorically held by the Commissioner that there is no suppression of facts. The proposal to impose penalty has also been dropped holding that there was no suppression of facts and that non-payment of service tax was due to bonafide belief that the amount paid to the commission agents is not subject to levy of service tax. The said discussion is reproduced as under:-

“10. As regards the invoking of extended time limit, the assessee contended that they were under bonafide belief that they are not coming under service tax net but once it was pointed out by the department, they have paid the entire service tax and interest; that there is no suppression of facts in their case since all the details are reflected in their books of accounts. I have carefully examined the various contentions made by the assessee and the case laws cited by them. It is noticed that the assessee started paying service tax on regular basis from April, 2007 onwards after being pointed out by the SIR section of the department and they also paid the service tax of Rs. 4,51,930/- pertaining to the period 18.04.2006 to 31.07.2007 long with interest o Rs. 82,281/- within three months of issue of notice. The ignorance of law is established from the fact that the assessee while paying the service tax for the above period did not distinguish the services which were received prior to 18.04.2006 and hence paid the above amount, which included an amount of Rs.91,198/- which is not legally payable. In view of the above facts of the case, the allegation of suppression of facts with an intention to evade payment of service tax is not justified. However, it is relevant to see that the assessee has not disputed their liability with effect from 18.04.2006 and also voluntarily paid service tax immediately after pointing out the issue and therefore I hold that the assessee is liable to pay service tax of Rs. 3,60,732/- as detailed in paragraph 9.3 above.

11. As regards the proposal for imposition of penalty, the assessee contended that the non-payment of service tax was due to bonafide belief; that they paid the service tax liability for the period from 18.04.2006 to 31.03.2007 along with interest after being pointed out by the department and requested for waiver of penalty under Section 80 of the Act. As discussed in previous paragraphs, the non-payment of service tax is not on account of suppression of facts but due to bonafide belief and hence the provisions of Section 80 of the Act are squarely applicable to the present case. Therefore, I am inclined to accept the assessee’s plea for waiver of penalty under Section 80 of the Finance Act. Accordingly, I hold that no penalty is imposable on the assessee either under Section 76,77 or 78 of the act.”

5.2 Although the Commissioner had rendered a finding that there is no suppression of facts with intend to evade payment of tax, the demand for the extended period has been confirmed. We find that such confirmation of demand is not legal and proper and requires to be set aside. The appellant succeeds on the ground of limitation. We hold that it is not necessary to delve into the merits of the case as the issue on limitation is answered in favour of assessee.

6. The impugned order is set aside on the ground of limitation. The appeal is allowed with consequential relief, if any.

(Order pronounced in the Open Court on 02.03.2023)