2024 (6) TMI 448 - AT - Service Tax

Service tax demand of Rs. 88 crores on foreign currency payments set aside due to improper classification and offshore services exemption

M/s. India Steamship Versus Commissioner of Service Tax Audit, Kolkata And Shri K. Satishchandra Executive President M/s. India Steamship Versus Commissioner of Service Tax Audit, Kolkata

CESTAT Kolkata allowed the appeal against service tax demand of Rs. 88,75,35,408/- on foreign currency payments. The tribunal held that the demand was ... Classification and Taxability of Services - Demand of service tax confirmed on the foreign currency payments - Performance-Based Services and Import of Service Rules - Penalties imposed of Shri K. Satishchandra - Classification and Taxability of Services - HELD THAT:- It is observed that the appellant has furnished details of year-wise and vendor-wise foreign currency payments along with the brief nature of expenses. The Department has considered the entire foreign expenses as charges paid towards provision of taxable service and confirmed service tax aggregating to Rs. 88,75,35,408/- on a reverse charge basis. However, it is found that the impugned order has not classified the specific category under which the appellant was liable to pay service tax. In the positive list regime, the onus was on the revenue to determine taxability and appropriate classification. In the present case, it is observed that notice fails to classify the specific category under which the appellant is liable to pay service tax. In the absence of such specific classification, the demand is not sustainable. In the present case, the Notice failed to classify the specific category under which service tax is to be paid by the appellant. Accordingly, the demands of service tax confirmed in the impugned order is not sustainable on this count alone. Demand of service tax confirmed on the foreign currency payments - HELD THAT:- The foreign currency payment amounting to Rs.74,18,87,361/- has been incurred towards ship repairs and maintenance. Such payments could only be tested against the taxable category “Maintenance or Repair Service” - Section 65(105)(zzg) which is a performance-based service and therefore could not be taxed in India as the services were availed outside India. Accordingly, the demand of service tax confirmed on these foreign currency payments id not sustainable. Performance-Based Services and Import of Service Rules - HELD THAT:- Most of the services where demand of service tax has been confirmed are 'performance based services' which are liable to pay service tax only if the recipient of service is located in India or wholly performed in India. In this case, it is observed that most of the services are performed outside India and hence they are not liable to service tax as per Rule 3(ii) of the said Rules. It is also observed that the appellant have already paid service tax in respect of all those services which fall under category 3 (as listed in Sl. Nos. 22 to 32 of the Table mentioned in paragraph 4 above). However, the ld. adjudicating authority has categorized all the services under Rule 3(iii) and confirmed service tax, which is legally not sustainable. In view of the above discussions, the demands confirmed in the impugned order are not sustainable on merits also. Penalties imposed of Shri K. Satishchandra - HELD THAT:- The Impugned Order has imposed Penalty under Section 9AA of the Central Excise Act read with Section 83 of the Finance Act. Section 9AA deals with Offences by Companies. A perusal of the above provision indicates that in terms of Section 9AA, a person in charge of the company can be penalized only if the person was in charge and responsible when the offence was committed. It must be established that the offence was committed with his consent or negligence of such person. The department has not brought in any such evidence to substantial the allegation against the Director. It is also observed that the Show Cause Notice has not invoked the provisions of Section 9AA to impose penalty on the Appellant. Hence, the penalty imposed under Section 9AA has gone beyond the scope of the Show Cause Notice. There is no evidence brought on record to establish that the appellant was responsible for day-to-day affairs of the company during the relevant period - the penalty imposed on him is not sustainable and hence set aside. The demands confirmed in the impugned order are not sustainable - Since the demand itself is not sustainable, the question of demanding interest and imposing penalty on the appellant does not arise - Appeal allowed. Issues Involved:1. Classification and taxability of foreign currency expenses under service tax.2. Penalty imposed on Shri K. Satishchandra.Summary:Issue 1: Classification and Taxability of Foreign Currency ExpensesThe present appeal challenges the Order-in-Original No. 17/COMMR/STA/KOL/16 dated 01.03.2017, which confirmed service tax demands on foreign currency expenses incurred by the Appellant, India Steamship, under Section 66A read with Rule 3(iii) of the Import of Service Rules.The Appellant argued that the demand notice failed to classify the specific category under which service tax was to be paid, thus making the demand unsustainable. This view is supported by precedents such as Commissioner of Cus (Import), Mumbai Vs. Dilip Kumar & Co. [2018 (361) ELT 577] and Ms. Jetlite (India) Ltd. Vs. CCE, New Delhi [2011 (21) STR 119], which emphasize the necessity for clear classification in the notice.The Appellant provided a detailed breakdown of foreign currency expenses, categorizing them as either non-taxable/exempt or already taxed under various service categories. The Tribunal agreed that most services were 'performance-based' and performed outside India, thus not liable for service tax under Rule 3(ii) of the Import of Service Rules.Specific categories such as Bunker/Lubricant/Stores and Spares Supply, Freight and Demurrage Charges, Charter Hire Expenses, Port Disbursement, Dry Docking/Special Survey, and Ship Repairs and Maintenance were scrutinized. The Tribunal found these services either non-taxable or already taxed appropriately, thus invalidating the demands.Issue 2: Penalty on Shri K. SatishchandraThe Impugned Order imposed a penalty on Shri K. Satishchandra under Section 9AA of the Central Excise Act, read with Section 83 of the Finance Act. The Appellant contended that Section 9AA pertains to offenses by companies and requires proof that the person was in charge and responsible during the offense. The Tribunal found no evidence supporting this and noted that the Show Cause Notice did not invoke Section 9AA, making the penalty unsustainable.Conclusion:The Tribunal set aside the demands and penalties confirmed in the impugned order, allowing the appeal filed by the Appellant. The judgment emphasized the necessity for clear classification in demand notices and the importance of evidence when imposing penalties on individuals.