Liability to Pay Service Tax under Reverse Charge for Foreign Services: CESTAT Rules No Liability Post 1st July 2012 [Read Order]
The tribunal observed that the charging sections, Section 66A read with Section 65(105)(zzb) of the Finance Act, 1994, ceased to exist from that date, making the demands, interest, and penalties unsustainable.
Service Tax - Foriegn Services - Taxscan
Service Tax - Foriegn Services - Taxscan
The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal (CESTAT ) held that there was no liability to pay service tax under the Reverse Charge Mechanism for foreign services after 1st July 2012.
Frisco Foods Pvt. Ltd.,appellant-assessee, was engaged in manufacturing biscuits and had availed manpower recruitment, GTA, works contract, and other related services. The company also exported biscuits and had appointed commission agents abroad, making commission payments in foreign exchange.
The department held that the assessee was liable to pay service tax under the Reverse Charge Mechanism as per Section 66A of the Finance Act, 1994, since the services were provided by persons located outside India and received in India.
The Adjudicating Authority confirmed the demands raised through show cause notices dated 1.4.2016 and 6.10.2017, which were further upheld by the impugned order.
The assessee counsel, referred to the Final Order dated 11.11.2021 passed in their own case for the periods 2010-11 to 2013-14. He stated that the present appeals related to the subsequent periods from April 2014 to March 2015 and April 2015 to 2017 and should be decided accordingly.
The two member bench comprising Binu Tamta (Judicial Member) and P.V Subba Rao (Technical Member) reviewed its earlier decision dated 11.11.2021 and observed that the issue had been decided in favour of the appellant for the post-negative era from 1st July 2012.
It noted that the charging sections invoked for service tax under the Reverse Charge Mechanism, namely Section 66A read with Section 65(105)(zzb), did not exist after that date. Any reference to other legal provisions was therefore irrelevant.
The appellate tribunal reiterated that taxing provisions must be strictly interpreted, and any ambiguity is resolved in favour of the assessee, as supported by Supreme Court rulings including Commissioner of Customs (Import) Vs. Dilip Kumar & Company.
The tribunal distinguished the cases cited by the department, noting that in those instances, the relevant rules clearly existed, and penalties were imposed under them, unlike the present case where the charging sections did not exist at all.
As a result, the bench held that the demand, interest, and penalties for the period after 1st July 2012 were not sustainable and needed to be set aside. It also ruled that the extended period of limitation could not be invoked, since the facts were already known to the department and repeated show cause notices did not amount to suppression of facts, in line with the Supreme Court’s decision in Nizam Sugar Factory Vs. CCE, Andhra Pradesh.
Consequently, the tribunal found no merit in the impugned orders and set them aside, allowing the appeals.
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