The Allahabad Bench of Customs, Excise & Service Tax Appellate Tribunal(CESTAT) has held that service tax leviable on service received by Samsung India Electronics from associate enterprises on taxable value under section 67 of the Finance Act, 1994. It was directed to furnish the complete details of the expenses incurred by it towards the receipt of these services to the adjudicating authority.
Shri Atul Gupta appeared for the Appellant and Shri Manish Raj, Authorised Representative appeared for the Respondent.
M/s Samsung India Electronics (P) Ltd., the Appellant is engaged in the manufacture of goods including Colour TV, Refrigerator, etc. The Appellant was also registered with the Service Tax authorities for rendering services such as Management Consultant Services, Consulting Engineering Services, Market Research Agency Services, Maintenance Repair Services, Business Auxiliary Services, IPR Services, etc. as well as for payment of service tax on reverse charge basis in respect of certain services received which were chargeable to service tax on reverse charge basis.
The Appellant was receiving technical know-how and IT software services from its associated enterprise in South Korea. The technical persons visit the Appellant’s workplace and by the end of their stay period, they submit their expenses incurred during their stay in India. So, the Appellant, before receipt of such actual expenses, at the end of the Financial Year creates a provision in respect of such estimated expenses in its book of accounts.
After the audit and conducting enquiries and investigations Appellant furnished the details on the same issue of receiving technical services from its associated enterprise for the periods of 2010-11. A Show cause notice dated 05.102015 was issued to the appellant asking them to show cause as to why an amount of Service Tax amounting to Rs.82,60,318.00 being Service Tax short paid during the period 2011-12 to 2013-14, should not be demanded and recovered from them under proviso to Section 73(1) of the Finance Act, 1994.
The show cause notice was adjudicated by the original authority by confirming Service Tax under Section 73(2) of the Finance Act, 1994 and order to be recovered from them, along with applicable Interest under Section 75 of the Act.
The Order-In-Original itself observed that the service tax was paid on the provisional entry in the books of accounts. Therefore the demand for that period is not sustainable after adjusting the benefit of reduction of R & D cess from the service tax payable as such benefit has already been extended Service tax is not payable when the provisional entries are made by the Appellant.
Mere entries made to create provision by the Indian service recipient cannot be an expense until the amount has actually become payable to the foreign associated service provider. The position taken by the revenue to demand service tax on provisional entry would be contradictory to the very nature of the service tax levy.
As per CBEC Circular M.F. (DR) Letter DOF No. 334/1/2008-TRU dated 19.02.2008, the intention behind the introduction of the levy of service tax based on the book entries in the case of transaction with associated enterprise was to put an end to the practice of delayed payment of service tax and. The intention was not to tax something which notional or provisional in nature, but to tax actual confirmed amount payable as debited in books of account.
Service tax can be demanded only on the actual amount charged for the services by the foreign associated enterprise. Section 67(2) of the Act which provides that where gross amount charged by the service provider is inclusive of service tax payable, then the value of such taxable service shall be such amount as, with addition to tax payable, is equal to the gross amount charged i.e., value shall be considered as inclusive of service tax.
The Proviso under the said sub-section stipulates that in case of such non levy, etc. of duty which is by reason of fraud, collusion, or any mis-statement or suppression of facts, or contravention of any provisions of the Act or the rules made thereunder, the provisions of sub-section (1) of Section 11A of the Act shall have effect as if the words “one year” have been substituted by the words “five years”.
A two-member bench of Mr P K Choudhary, Member (Judicial) And Mr Sanjiv Srivastava, Member (Technical) held that the appellant is required to pay Service Tax on the service received by them from their associate enterprises on the taxable value as determined in terms of section 67 of the Finance Act, 1994. The appellant should furnish the complete details of the expenses incurred by it towards the receipt of these services to the adjudicating authority.
The service tax liability is to be discharged by the appellant in the manner and at the time as determined in terms of Rule 6 of the Service Tax Rules, 1994 read with Rule 7 of Point of Taxation Rules, 2011. For any delay in payment of Service Tax from the due date interest at the appropriate rate should be paid by the appellant in terms of Section 75 of the Finance Act, 1994 for period of delay in payment of tax.
Further held that the demand of service tax needs to be recomputed after determining the value of taxable service as per section 67 and after adjusting the tax actually paid by the appellant.
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