Service Tax Exemption under Notification cannot be denied due to delay in filing EXP-2 Return: CESTAT [Read Order]

The Merchants (appellant) engaged in the export of goods, paid commissions in foreign currency to various foreign-based persons for services related to their export activities in India. The department alleged that these services fell under the taxable categories of 'Business Auxiliary Services' and 'Banking and Other Financial Services'.

The department alleged that the appellants were liable to pay Service Tax under Section 66A of the Finance Act on a reverse charge basis for the commission paid to overseas agents and payments made through an American Express Card.

The Adjudicating Authority confirmed a service tax demand of ₹1,55,125 by denying the benefit of Notification No. 18/2009-ST dated 07.07.2009. The Commissioner (Appeals) upheld this order.

The Counsel for the Appellant argued that the demand was unsustainable and the benefit of Notification No. 18/2009-ST was arbitrarily denied for a procedural violation, specifically a delay in filing the EXP-2 returns.

The Counsel contended there was no delay, as the last dates for filing the returns fell on holidays (Saturday and Sunday), and in one instance, a 'Punjab Bandh,' which extended the limitation to the next working day.

The Counsel cited various decisions, including the Tribunal's decision in HEG Limited, which established that a substantive benefit cannot be denied due to a procedural lapse. The Counsel submitted that the Appellant had not suppressed any material facts, had been regularly paying service tax and filing returns, and the issue was raised only during an audit. The counsel argued that the department failed to provide evidence for invoking the extended period.

The bench, comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), allowed the appeal and set aside the demand. The Tribunal held that the Appellant was entitled to the benefit of Notification No. 18/2009-ST.

Following the decision in HEG Limited Vs. Commissioner of Customs, Central Excise and Service Tax, the bench ruled that the substantive benefit of the notification cannot be denied merely on the basis of a delay in filing the EXP-2 returns, which constitutes a procedural lapse.

The Tribunal observed that the extended period of limitation was invoked based on an audit objection. Relying on settled law, including the cases of Maruti Suzuki India Ltd and Sunshine Steel Industries, the tribunal reiterated that the extended period cannot be invoked on the basis of an audit.

The Tribunal found that the department failed to establish any ingredients for invoking the extended period since the appellant was regularly filing returns and paying service tax. The Tribunal concluded that the impugned order was legally unsustainable and set aside the demand. The appeal filed by appellants was allowed

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