Reverse Charge Demand Sets Aside: CESTAT Says Tax Beyond Scope of SCN Unsustainable [Read Order]
The Tribunal set aside the service tax demand, interest, and penalties after holding that extended limitation was wrongly invoked.
The Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad (CESTAT), set aside the reverse charge service tax demand after holding that the authorities had travelled beyond the scope of the Show Cause Notice (SCN), rendering the confirmation of tax under an unalleged service category unsustainable.
Orbit Bearing India Pvt. Ltd. filed the appeal arising from an order of the Commissioner (Appeals), Ahmedabad, which had upheld a part of the service tax demand confirmed by the Adjudicating Authority. The case originated from an audit conducted by CERA, Ahmedabad, where it was noticed that the appellant had paid commission to overseas agents amounting to ₹43,07,115 for the period 2011-12 to 2014-15 relating to export sales promotion.
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The audit noted that the appellant, as the service recipient, had not paid service tax under the Reverse Charge Mechanism (RCM) on the commission paid, leading to a proposed demand of ₹5,32,359 under the Finance Act, 1994 along with interest and penalties. The Adjudicating Authority confirmed the demand of ₹4,89,850 under Section 73(2) read with Section 68 of the Finance Act, 1994, appropriated the tax already paid, levied interest under Section 75 and imposed penalties under Section 78 as well as Section 77(1)(a) and Section 77(2) of the Finance Act, 1994.
The Commissioner (Appeals) upheld the order but reclassified the service under “Management or Business Consultant Service” for certain invoices, though such reclassification was not part of the SCN.
Counsel Vikas Mehta, appearing for the appellant, argued that the Commissioner (Appeals) had exceeded the scope of the SCN by reclassifying consultancy services under “Management or Business Consultant Service,” despite the fact that no such allegation was ever made in the notice. He further submitted that the situation was “revenue neutral” since any tax paid would be available as Cenvat credit coupled with that the authorities failed to appreciate that all transactions were duly recorded in the appellant’s books, thus negating any intent to evade payment.
Additionally, submitted that neither the SCN nor the Adjudicating Authority recorded any allegation or finding of suppression, fraud, wilful misstatement, or intention to evade tax. Therefore, invoking the extended period under the proviso to Section 73(1) of the Finance Act, 1994 was impermissible.
Counsel P. Ganesan, appearing for the Revenue, submitted that under Rule 9 of the Place of Provision of Services Rules, 2012 read with Section 66A and Notification No. 30/2012-ST dated 20.06.2012, the appellant was liable to pay service tax under the RCM on the services received from overseas commission agents. Further, that the appellant had failed to disclose the taxable value of services received from abroad in their ST-3 returns and the non-payment of service tax came to light only during audit.
The bench of Dr. Ajaya Krishna Vishvesha, Judicial Member, held that the service tax demand confirmed under a service category not proposed in the SCN was unsustainable. The Tribunal observed that the Adjudicating Authority had already admitted that the consultancy services covered by two invoices were not classifiable under “Business Auxiliary Service,” yet the Commissioner (Appeals) reclassified them under “Management or Business Consultant Service,” which had never been alleged in the SCN.
Further, the Tribunal found that the extended period of limitation was wrongly invoked. It OBSERVED that the authorities had not provided any finding showing fraud, or intent to evade tax as required under the proviso to Section 73(1) of the Finance Act, 1994. All transactions were duly recorded in the appellant’s books and were only noticed during audit, ruling out suppression.
The Tribunal held that the demand beyond the normal limitation period, and the consequential interest and penalties, were liable to be quashed. As a result, the order of the Commissioner (Appeals) and the Order-in-Original were set aside to the extent of the unsustainable demand, interest, and penalties.
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