Supreme Court Stays Coercive Action Against Linehaul Express in Reverse Charge Service Tax Appeal [Read Order]

The Supreme Court has condoned the delay and issued notice in a civil appeal challenging the final order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi. Pending adjudication, the Court has directed that no coercive steps shall be taken against the appellant.

The appeal arises from CESTAT Order, which partly upheld service tax demands while granting relief on limitation and penalties. The Tribunal’s order itself arose from an Order-in-Original passed by the Principal Commissioner of Service Tax, Delhi-III.

M/s Linehaul Express India Pvt. Ltd., a registered courier service provider, was subjected to audit for the period April 2007 to March 2014, following which three show cause notices were issued alleging non-payment of service tax. The demands related to commission received from M/s Cathay Pacific Airways, payments made to foreign courier counterparts treated as import of services under reverse charge, and income received in foreign currency for services rendered to overseas entities.

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The Commissioner confirmed a service tax demand of ₹1.85 crore, along with interest under Section 75 of the Finance Act, 1994, and imposed penalties under Sections 76, 77 and 78. Aggrieved, the assessee approached the CESTAT.

Before the Tribunal, the appellant contended that services were rendered outside India, there was no principal-agent relationship, and that reverse charge liability was not attracted, particularly for the period prior to the Place of Provision of Services Rules, 2012. Further, invocation of the extended period of limitation was challenged, asserting absence of fraud, suppression, or intent to evade tax.

The Department argued that services rendered by foreign courier counterparts were in the nature of “Business Auxiliary Services”, taxable under the reverse charge mechanism, and that non-payment came to light only during audit, justifying invocation of extended limitation and imposition of penalties.

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The Appellant Tribunal held that the extended period of limitation under the proviso to Section 73 of the Finance Act, 1994, was wrongly invoked, as mere non-payment of tax or detection during audit does not establish intent to evade tax. Consequently, demands were held sustainable only within the normal period of limitation.

However, on merits, the Tribunal upheld taxability of services received from foreign counterparts under the reverse charge mechanism, holding that such services were rendered on behalf of the appellant. The Tribunal further upheld service tax liability on foreign income received within the normal period and directed that all amounts already paid by the appellant be properly appropriated.

Interest liability under Section 75 of the Finance Act, 1994, was sustained to the extent of confirmed demands. However, invoking Section 80 of the Finance Act, 1994, the Tribunal set aside all penalties, holding that the appellant had acted under a bona fide belief and reasonable cause was established.

Challenging the CESTAT order, the appellant approached the Supreme Court, who condoned the delay in filing the appeal and issued notice to the respondent. Subsequently, granted interim protection by directing that no coercive steps shall be taken against the appellant during pendency of the proceedings.

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