2019 (8) TMI 210 - AT - Service Tax

Court Upholds Service Tax Demand & Penalty; Exemption Disqualified; Penalty Imposed under Section 78

The court upheld the impugned order, confirming the demand for service tax, interest, and penalty. The appellant's failure to comply with the conditions ... Availment of exemption Notification against payment of R&D Cess - Applicability of N/N.18/2002-ST as amended vide N/N. 46/2011 - Receipt of transfer of technology services from abroad - reverse charge mechanism - whether the availment of exemption by the appellant in terms of the Notification No.46/2011-ST dated 19/09/2011 is appropriate or not? - time limitation - HELD THAT:- It is a well settled position of the law that a person who claims the exemption has to prove that he satisfies all the conditions of the Notification so as to be eligible to the benefit of the same. References can be made to the Hon’ble Supreme Court Constitutional Bench decision in the case of CCE VERSUS M/S HARI CHAND SHRI GOPAL [2010 (11) TMI 13 - SUPREME COURT], MYSORE METAL INDUSTRIES VERSUS COLLECTOR OF CUSTOMS, BOMBAY [1988 (5) TMI 42 - SC ORDER], MOTIRAM TOLARAM VERSUS UNION OF INDIA [1999 (8) TMI 68 - SUPREME COURT], COLLECTOR OF CUSTOMS VERSUS PRESTO INDUSTRIES [2001 (2) TMI 133 - SUPREME COURT] and M/S HOTEL LEELA VENTURE LTD. VERSUS COMMR. OF CUSTOMS (GEN) MUMBAI [2009 (1) TMI 9 - SUPREME COURT] - It stands held in all the above decisions that onus to prove and show the satisfaction of the conditions of the Notification is on the person who claims the benefit of the same and every exemption Notification has to be read in strict sense. In the present case, the appellants have admittedly not fulfilled both the conditions of the Notification as regards payment of R & D Cess before payment of service tax and have not maintained the records so as to establish the linkage between the invoices of the R & D challans, as per the requirement of the Notifications - As such, we agree with the Adjudicating Authority that the appellant was not entitled to the benefit of the Notification. Time Limitation - HELD THAT:- This is not a case of any bona fide interpretation inasmuch as the wordings of the Notifications are very clear and required the recipient to pay R & D Cess before payment of service tax so as to avail exemption. The appellants have not given any justifiable reasons for not paying R & D Cess in time and for availing exemption without such payment of R & D Cess - extended period rightly invoked. Penalty - HELD THAT:- The appellants have availed exemption without fulfilling condition of the Notification and without discharging R & D Cess liability have admittedly contravened the provisions of the Notification, thus making them liable to penalty - penalty upheld. Appeal dismissed - decided against appellant. Issues Involved:1. Applicability of Notification No.18/2002-ST as amended by Notification No.46/2011-ST.2. Conditions for availing exemption under the amended notification.3. Compliance with conditions regarding payment of Research & Development (R&D) Cess.4. Invocation of extended period of limitation.5. Imposition of penalty under Section 78 of the Finance Act, 1994.Detailed Analysis:1. Applicability of Notification No.18/2002-ST as amended by Notification No.46/2011-ST:The appellant received transfer of technology services from abroad and claimed exemption from service tax under Notification No.18/2002-ST, as amended by Notification No.46/2011-ST. The amended notification introduced specific conditions for availing the exemption, primarily focusing on the payment of R&D Cess.2. Conditions for availing exemption under the amended notification:The amended Notification No.46/2011-ST stipulated that the R&D Cess must be paid within six months from the date of invoice or the date of credit in the books of account for associated enterprises. Additionally, the exemption was available only if the R&D Cess was paid at or before the payment of service tax. The appellant did not meet these conditions, as the R&D Cess was paid subsequent to the payment of service tax.3. Compliance with conditions regarding payment of R&D Cess:The appellant's failure to pay the R&D Cess before the payment of service tax disqualified them from availing the exemption. The notification's language was clear and unambiguous, requiring the R&D Cess to be paid first. The court emphasized that the legislative intent was to ensure that the exemption was available only if the R&D Cess was paid before the service tax.4. Invocation of extended period of limitation:The Adjudicating Authority invoked the extended period of limitation, noting that the appellant did not disclose the adjustment of the R&D Cess before paying the service tax. The appellant's actions were not considered a bona fide interpretation of the notification, as the wording was clear. The appellant did not provide justifiable reasons for not paying the R&D Cess in time, leading to the invocation of the extended period.5. Imposition of penalty under Section 78 of the Finance Act, 1994:The Adjudicating Authority imposed a penalty equal to 100% of the service tax under Section 78 of the Finance Act, 1994. The court upheld the penalty, stating that the appellant had availed the exemption without fulfilling the notification's conditions and without discharging the R&D Cess liability. The court referenced several Supreme Court decisions, emphasizing that the burden of proving entitlement to the exemption was on the appellant and that exemption notifications must be read strictly.Conclusion:The court upheld the impugned order, confirming the demand for service tax, interest, and penalty. The appellant's failure to comply with the conditions of the amended notification disqualified them from availing the exemption, and the invocation of the extended period of limitation and imposition of penalty were justified. The appeal was rejected.