Service Tax not Payable for Services for Periods which they were not Taxable: CESTAT rules in favour of Godrej Consumer Product [Read Order]

In the case of Godrej Consumer Product, the Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable for services for periods for which they were not taxable.

M/s. Godrej Consumer Products Limited, the appellant is engaged in the manufacture of shoe care, body care and personal care products such as hair cream, shoe polishes and floor cleaners, etc. By a scheme of amalgamation, as approved by the Bombay High Court, with effect from 01.04.2008, M/s. Sara Lee Household and Body Care Limited (SLH&BC) merged with M/s. Godrej Sara Lee Limited (GSLL) and the noticee had thereafter obtained Central Excise registration.

The appellant had agreed with M/s. Buttress B.V., Netherlands, for obtaining the licence to use the know-how, formula and trademarks for the manufacture, packing, sale and distribution of personal care products in India, for which the appellant had obtained firm permission from the Reserve Bank of India for payment of Royalty for the licence of know-how, formulae and trademarks, as above, under the Foreign Exchange Regulations Act, 1973.

A Show Cause Notice was issued demanding Service Tax on the Royalty fees paid by the appellant for the period from 1997–98 to December 2001 at 5% of the payment made to the foreign company under the heading “consulting engineers” services in terms of Section 73 of the Finance Act, 1994. The Show Cause Notice also contained various other proposals like demanding appropriate interest and penalties under various sections of the Finance Act, 1994.

The appellant filed a very detailed reply to the above Show Cause Notice denying any liability to the Service Tax as proposed to be demanded. After considering the reply filed by the appellant, the adjudicating authority passed the Order-in-Original which thereafter came to be set aside by the Commissioner of Central Excise (Appeals),

It was evident that the demand for Service Tax before 18.04.2006 is not sustainable as the charging Section 66A of the Finance Act, 1994 for levy of Service Tax on the services provided to the foreign service provider on reverse charge basis was enacted only with effect from 18.04.2006. In view of the ratio laid down in the case of M/s. Indian National Shipowners Association v. Union of India [2009 (13) S.T.R. 235 (Bom.)], which has been upheld by the Hon’ble Supreme Court as reported in 2010 (17) S.T.R. J57 (S.C.), the appellant cannot be fastened with Service Tax liability for the Royalty payments made under consulting engineer service before 18.04.2006.

The second proviso to sub-rule (1) to the above Rule 6 provides that notwithstanding the time of receipt of payment towards the value of service, no Service Tax shall be payable for the part or whole of the value of services which is attributable to services provided during the period when such services were not taxable.

As such, the impugned order holding that the taxable event is not the provision of the service but the date on which the value of taxable service is paid is not legally maintainable. Hence, the tax demand confirmed in this regard is not sustainable.

It was settled law laid down in the following amongst other judgments a series of judgments including that of the Apex Court that in a case where credit is available to an assessee itself, it cannot be said that there is any intention to evade payment of duty, which is a pre-requisite for invoking the extending period of limitation. In the instant case also if any tax was payable it could have been available immediately to the Appellant, thereby rendering the entire dispute revenue neutral.

A two-member bench comprising of Mr P Dinesha, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical) held that “the demand of Service Tax on the appellant for the normal period. Consequently, the penalties imposed are also set aside. We order to modify the impugned order to this extent.” 

To Read the full text of the Order CLICK HERE

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