The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, upheld the assessee’s service tax liability in an appeal against the order made by the Commissioner (Appeals) CGST & Cx.
The assessee, M/s Kriti Nutrients Ltd, appealed against the tax demands made by the commissioner, which included liabilities related to the director’s sitting fees, foreign testing services, legal consultancy and sponsorships. The tax department had issued a show cause notice (SCN) for non-compliance observed during the records assessment of the 2014-15 assessment year(AY), which included the addition of interest and penalties under the Reverse Charge Mechanism (RCM).
The assessee paid ₹20,000 as sitting fees to its directors, out of which service tax for ₹10,000 was discharged while the other ₹10,000 was forfeited. This further led to a tax demand of ₹1,236 under the RCM. Similarly, the assessee had engaged laboratories abroad for testing and certification services and had made a payment of ₹13,73.350. The tax department claimed this was taxable under RCM and demanded a ₹1.6 Lakh tax. There were also certain discrepancies noted in the assessee’s ST-3 returns and its ledger showing the payments made to advocate for legal consultancy services. This led to an addition of ₹5020 as service tax.
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The commissioner (Appeals) upheld these additions made by the revenue, stating that it was adequate per the provisions of RCM. Aggrieved by this commissioner’s order, the assessee filed for an appeal before the CESTAT. The appellant admitted its oversight on the director’s sitting fee and accepted the liability of ₹1236. Regarding the other demands, the assessee contended that testing and certification services were rendered by foreign labs outside the tax territory or jurisdiction, making such services tax-free under RCM. The assessee relied on the Central Board of Excise and Customs CBEC circulars, which clarified that such services are taxable only if goods physically come into possession of the service provider.
Regarding the legal consultancy services, the assessee claimed that the confusion arose because the disputed amount included notary charges and stamp purchases. As these do not qualify as legal consultancy, they must also be exempt from tax. Regarding the sponsorship services, the assessee asserted that the event through such sponsorship did not promote their brand correctly. This was also substantiated by CBEC circulars, which exclude brand promotion activities from taxable sponsorship services. The assessee further challenged the extended limitation period invoked in the SCN, stating that there was no intent to evade tax and the noncompliance was due to a belief in good faith of non-taxability.
The tax department argued that the assessee’s partial payment of service tax on the director’s sitting fees indicated an intention to evade liability. It claimed the assessee failed to prove exemptions for testing services, which were taxable under RCM based on the Place of Provision Rules, 2012. For legal consultancy, the department asserted that all payments, including notary charges, were taxable, and no evidence was provided to exclude stamp charges. Regarding sponsorship, it stated the event promoted the assessee’s brand, making it taxable. The extended limitation period was justified for partial payments and misrepresentation.
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On hearing both sides, the CESTAT upheld the assessee’s liability of ₹1236 on the director’s sitting fee and the testing and certification services; the tribunal held that no evidence had been found supporting the assessee’s claim that such services were non-taxable. It upheld the tax demand of ₹1,69,771, citing Rule 4(a) of the Place of Provision Rules, 2012. Regarding legal consultancy services, the tribunal rejected the appellant’s argument that notary charges and stamp purchases were non-taxable as the amounts were not adequately broken down. Therefore, the service tax demand of ₹5,020 was valid. As for the sponsorship services, the tribunal held that the cookery event provided direct commercial benefits to the assessee.
The two-member bench consisting of Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) asserted that on the issue of limitation, the assessee’s partial payment of taxes and reliance on irrelevant circulars proved suppression of facts and invoked extended restriction under Section 73. As a result, the appeal was dismissed, and service tax demands were upheld along with interest and penalties.
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