2019 (11) TMI 1033 - AT - Service Tax

CESTAT ruling: Service Tax Rule 6 interpretation favors appellant; importance of factual verification highlighted

The Appellate Tribunal CESTAT ALLAHABAD ruled in favor of the appellant in a case concerning the interpretation of Rule 6 of the Service Tax Rules, 1994. ... Liability of service tax - reverse charge mechanism - appellant procured services from their foreign sister concern - case of appellant is that they have not paid for the said services to the foreign service provider and only a provision to that effect stands made in their balance sheet. As they have not actually made any payment to the foreign sister concern, from whom services stand availed, no tax liability would fall upon them - interpretation of statute - with effect from 10/05/2008, an explanation was introduced in Rule 6 of Service Tax Rule 1994. HELD THAT:- The Tribunal has held that such rule would operate only prospectively and not retrospectively, we are of the view that the confirmation of demand by the authorities below on the sole ground that the appellant made has made provision for payment in the books of account, have rendered themselves liable to service tax, is unsustainable. Extended period of limitation - HELD THAT:- The demand relates to the period October, 2005 to March, 2008. Admittedly during the said period, the tax liability would arise against the assessee only of the payment have been made for the services so received by him - The show cause notice stands issued on 20/04/2011 by invoking longer period of limitation. In the absence of any mala fide on the part of the assessee for non-payment of duty during the relevant period, the invocation of longer period cannot be upheld. Appeal allowed - decided in favor of appellant. Issues:Interpretation of Rule 6 of Service Tax Rules, 1994 - Retrospective application of explanation - Tax liability based on actual payment - Factual verification of payment to foreign service provider - Production of relevant documents - Invocation of longer period of limitation for demand.Analysis:The judgment by the Appellate Tribunal CESTAT ALLAHABAD dealt with the interpretation of Rule 6 of the Service Tax Rules, 1994 regarding the retrospective application of an explanation. The appellant procured services from a foreign sister concern and contended that since they had not made any actual payment to the service provider, no tax liability should arise. The period in question was from October 2005 to March 2008, where service tax liability was required only upon actual payment for services received. The Revenue argued that the explanation added in May 2008 was retrospective, making provision for payment in the books of account equivalent to actual payment. The Tribunal held that the explanation was prospective, not retrospective, citing a previous decision. The matter was remanded for factual verification of actual payment to the foreign service provider.In the subsequent proceedings, the Original Adjudicating Authority and the Commissioner (Appeals) did not examine the factual position due to the lack of relevant documents produced by the appellant. The appellant argued that they had provided a Chartered Accountant's certificate supporting their claim of no actual payment made to the foreign service provider. The Tribunal found that the confirmation of demand solely based on provision for payment in the books of account was unsustainable. Additionally, the demand for the period in question was deemed barred by limitation, as the tax liability arose only upon actual payment, and the invocation of a longer period was not justified without evidence of mala fide intent on the part of the assessee.Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant on the grounds of the retrospective application of the explanation, lack of factual verification, and the demand being time-barred. The judgment provided consequential relief to the appellant, highlighting the importance of factual verification and adherence to statutory limitations in tax assessments.