2025 (8) TMI 1224 - AT - Service Tax

Notification No.14/2004 exemption denied for foreign-agent commissions; show-cause notice time-barred due to no willful suppression

M/s. Bhaskar Industries Private Limited Versus Commissioner of Service Tax - Bhopal

M/s. Bhaskar Industries Private Limited Versus Commissioner of Service Tax - Bhopal - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether service tax is leviable under Reverse Charge Mechanism (RCM) on Business Auxiliary Services received by an Indian recipient from commission agents located outside India. 2. Whether exemptions under Notifications No. 14/2004-ST, No. 18/2009-ST and No. 42/2012-ST apply to the service recipient (Indian exporter) when the service provider is located outside India, and whether conditions attached to those notifications were complied with. 3. Whether services provided by foreign commission agents for sale of goods constitute 'intermediary' services under the Place of Provision of Services Rules, 2012 (as amended), and if so, whether the place of provision being outside taxable territory exempts the Indian recipient from tax liability for the period 01.10.2014 to 31.03.2015. 4. Whether extended period of limitation and penalties under the Finance Act, 1994 could be invoked against the recipient in absence of positive conduct amounting to willful suppression of facts. ISSUE-WISE DETAILED ANALYSIS Issue 1: Levy under RCM on Business Auxiliary Services received from foreign commission agents Legal framework: Notification No. 30/2012-ST (RCM) makes recipient liable for specified services received from outside taxable territory. Business Auxiliary Services are taxable under the Finance Act, 1994. Interpretation and reasoning: The Tribunal accepts the admitted position that Business Auxiliary Services were received from foreign commission agents and that such services are prima facie taxable. However, determination of liability under RCM requires consideration of applicable exemptions and place-of-provision rules for the relevant periods. Precedent treatment: No novel precedent overruling; analysis proceeds by applying the text of notifications and POPS Rules. Ratio vs. Obiter: Ratio - mere receipt of taxable service from abroad does not automatically sustain a demand if (a) exemptions apply or (b) place of provision rules render the service outside taxable territory for the relevant period. Conclusion: Liability under RCM was not sustained in the aggregate because other legal provisions (notifications and place-of-provision rules as amended) extinguish the tax obligation for portions of the period in dispute; thus, demand could not be upheld on that sole ground. Issue 2: Applicability of Notifications No. 14/2004-ST, No. 18/2009-ST and No. 42/2012-ST to the recipient and compliance with conditions Legal framework: Notification No. 14/2004-ST exempts taxable service 'provided to a client by any other person ... in relation to ... textile processing' (text framed in favour of service provider); Notification No. 18/2009-ST and No. 42/2012-ST exempt taxable services received by an exporter from commission agents located outside India subject to prescribed conditions (declaration in shipping bill, limit of exemption - 1% FOB under No.18/2009; 10% FOB threshold under No.42/2012 - with filing of EXP returns and documentary requirements). Interpretation and reasoning: Notification No. 14/2004 is framed as exemption available to the person providing Business Auxiliary Service; where the service provider is outside taxable territory, the exemption cannot be imported to the Indian recipient facing RCM. Thus the Court holds Notification No.14/2004 is inapplicable to the recipient under RCM. For Notifications No.18/2009 and No.42/2012, the Tribunal examines the text and conditions: both notifications limit exemption by reference to a percentage of FOB value (1% under No.18/2009; service tax calculated on value up to 10% FOB under No.42/2012) and require procedural compliance (declaration in shipping bill, filing of EXP2/EXP4 returns, submission of original documents/certified copies, certification identifying shipping bills, etc.). Admitted facts established that commission paid ranged from 1% to 4% (for period applicable to No.18/2009) and that EXP-4 returns and documentary conditions for No.42/2012 were not complied with. Precedent treatment: Authorities cited by appellant on entitlement where procedural deficiencies were treated as non-substantial were considered, but Tribunal applied the notifications' explicit conditions to the admitted facts and found non-compliance decisive. Ratio vs. Obiter: Ratio - conditional exemptions will not apply where statutory conditions (monetary limits and procedural filing/documentation) are not met; failure to file prescribed EXP returns and to operate within the percentage threshold disentitles applicant from the exemption. Conclusion: Notification No.14/2004 does not extend to the recipient under RCM; Notifications No.18/2009 and No.42/2012 contain explicit monetary and procedural conditions which were not fulfilled by the appellant - therefore the appellant was not entitled to these exemptions on the facts. Issue 3: Characterisation as 'intermediary' and place of provision post amendment (01.10.2014) - effect on tax liability for 01.10.2014-31.03.2015 Legal framework: Place of Provision of Services Rules, 2012, Rule 2(f) (definition of 'intermediary') was amended post 01.10.2014 to include agents who arrange or facilitate a supply of goods; Rule 9 specifies place of provision of intermediary services is location of service provider. Interpretation and reasoning: The Tribunal notes the adjudicating authority itself classified the services as intermediary in original order. After the 01.10.2014 amendment, intermediary services provided by foreign commission agents are to be treated as provided in the country of the agent (location of service provider). Consequent to that, such services are outside Indian taxable territory for the period post-amendment (01.10.2014-31.03.2015) and hence cannot be taxed in the hands of the Indian recipient. Precedent treatment: Reliance on the statutory amendment and Rule 9 sufficed; cited case law on intermediary treatment was noted by parties but the decision rests on statutory text. Ratio vs. Obiter: Ratio - where intermediary services are provided by foreign agents and the statutory place-of-provision rules designate the location of the service provider as the place of provision, such services are outside the taxable territory and not taxable in India for the relevant period post-amendment. Conclusion: For the period 01.10.2014-31.03.2015, services from foreign commission agents fall within intermediary services whose place of provision is outside India; no service tax is leviable on the Indian recipient for that period. Issue 4: Invocation of extended limitation and imposition of penalties in absence of willful suppression Legal framework: Extended period of limitation and penalties under Sections 76, 77 and 78 of the Finance Act, 1994 require satisfaction of suppression or fraud; case law establishes that mere omission or failure to declare does not ipso facto constitute willful suppression - suppression requires positive act or deliberate nondisclosure with intent to evade duty. Interpretation and reasoning: The Tribunal observes appellant acted under bona fide belief of exemption entitlement, relied on professional (Chartered Accountant) certificate, and paid service tax on domestic commission agents; there is no evidence of positive act to suppress facts or intent to evade. The department produced no evidence of deliberate concealment. In absence of positive suppression, extended limitation cannot be invoked and penalties are unsustainable. Precedent treatment: The Tribunal draws support from Supreme Court authorities holding mere omission is insufficient to constitute suppression and that demand cannot be sustained without proof of deliberate concealment. Ratio vs. Obiter: Ratio - extended limitation and penalties cannot be invoked where there is no evidence of willful suppression or positive act to evade tax; bona fide belief and absence of concealment negate invocation of extended period. Conclusion: Invocation of extended period of limitation and penalties was not justified on the facts; show cause notice was time-barred and penalties unsustainable. Overall Conclusion and Disposition The Tribunal concludes that although exemptions under several notifications were not available to the recipient for lack of compliance with their specific conditions (and Notification No.14/2004 is not available to the recipient under RCM), the appellant was not liable to pay service tax for the later period owing to the amended place-of-provision rule (intermediary services provided outside taxable territory). Further, absence of any positive act of suppression precluded invocation of extended limitation and penalties. Consequently, the demand and penalties were set aside and the appeal allowed.