2014 (11) TMI 394 - AT - Service Tax

Tribunal upholds service tax demand validity and classification, extends limitation period

The Tribunal upheld the validity of the show cause notice for service tax demand, ruling that despite lacking specificity in citing the exact clause, the ... Business Auxiliary service - availment of services of procuring orders and promotion of their business from foreign company - Bar of limitation - Held that:- Prima facie, the services being received by the appellant are covered by Clause (ii) of the definition of Business Auxiliary Service as given in Section 65 (19). It is seen that the show cause notice exactly mentioned the nature of the service received by the appellant from M/s Software Service, LC, USA. Therefore, in our prima facie view, just because the show cause notice did not mention the exact clause of Section 65 (19) under which the services being received by the appellant are covered, this would not vitiate the show cause notice and, in our prima facie view, the judgment of the Tribunal in the case of ITC Ltd. vs. CST, Delhi (2013 (8) TMI 148 - CESTAT NEW DELHI) cited by the learned Counsel of the appellant is not applicable to the facts of this case. Therefore, at least for the period prior to October 2009, it cannot be said that the Department was aware of the receipt of taxable services by the appellant from M/s Software Services, LC, USA. Only in respect of receipt of service during the period w.e.f. October 2009 it can be said that the Department was aware of the transactions. Therefore, we are of prima facie view that the appellant’s plea that the bulk of the service tax demand is hit by limitation and the longer limitation period under proviso to Section 173 (1) would not be applicable, is not entirely acceptable. Therefore, this does not appear to be a case for total waiver. - Partial stay granted. Issues:1. Validity of show cause notice for service tax demand.2. Applicability of Business Auxiliary Service under Section 65 (105) (zzb) read with Section 65 (19).3. Time limitation for service tax demand and imposition of penalty.Issue 1: Validity of show cause notice for service tax demandThe appellant contested the service tax demand based on the show cause notice issued by the Department. The appellant argued that the notice did not specify the exact clause of Section 65 (19) of the Finance Act, 1994 under which the services received from M/s Software Services, LC, USA fell. The appellant relied on a Tribunal judgment to support their claim that the notice was invalid due to lack of specificity. However, the Tribunal found that the nature of the service received by the appellant was clearly mentioned in the notice, even though the specific clause was not cited. The Tribunal concluded that the notice was not vitiated by this omission, and the cited judgment was deemed inapplicable to the case.Issue 2: Applicability of Business Auxiliary Service under Section 65 (105) (zzb) read with Section 65 (19)The appellant, a Software Technology Park unit, provided online information database services to off-shore clients. The Department alleged that the services procured from M/s Software Services, LC, USA, for promoting the appellant's business were taxable under Business Auxiliary Service. The appellant argued against this classification, stating that the service received did not fall under the definition of Business Auxiliary Service. The Tribunal, after reviewing the services provided by M/s Software Services, LC, USA, found that the services of procuring orders and promoting the appellant's services were covered under Clause (ii) of the Business Auxiliary Service definition in Section 65 (19). The Tribunal upheld the Department's classification of the services as taxable under the mentioned provisions.Issue 3: Time limitation for service tax demand and imposition of penaltyRegarding the time limitation for the service tax demand, the appellant claimed that the demand for the period from November 2007 to September 2011 was time-barred. The Department argued that the extended limitation period under Section 73 (1) was correctly invoked due to the appellant's non-disclosure of the received taxable services in their returns. The Tribunal noted that while the Department became aware of the transactions in October 2009, the appellant had not disclosed them earlier. The Tribunal found that the longer limitation period under the proviso to Section 73 (1) was applicable for part of the period in question. As a result, the Tribunal directed the appellant to deposit a specified amount within a set timeframe, with the waiver of the remaining pre-deposit contingent on compliance. The recovery of the balance amount was stayed pending the appeal's disposal.This comprehensive analysis of the judgment addresses the issues of the validity of the show cause notice, the classification of services under Business Auxiliary Service, and the time limitation for the service tax demand and penalty imposition.