2025 (12) TMI 221 - AT - Service Tax

No reverse charge liability under s.66A; procedural delay can't deny Notification 18/2009-ST exemption, demand time-barred

The Merchants Versus Commissioner of Central Excise, Goods & Service Tax, Jalandhar/Ludhiana

CESTAT allowed the appeal and set aside the impugned demand and penalties. It held that the appellant, already discharging service tax, could not be ... Liability of Appellant is liable to pay service tax under Section 66A of the Finance Act - commission paid to overseas agents and to pay service tax in respect of payments made through American Express Card under reverse charge basis - invocation of extended period of limitation - HELD THAT:- The Appellant have been paying the service tax but the department has questioned the quantification of the same and has also raised the issue that the Appellant are liable to pay the service tax in respect of the payment made through American Express Cards. The submission of the learned Counsel for the Appellant is that the American Express International has office in Gurugram in India and since service provider has office in India, therefore, it is incorrect to demand the service tax from the Appellant on reverse charge basis. Further, it is found that the benefit of exemption Notification No. 18/2009-ST has been denied to the Appellant merely on the basis of delay in filing the EXP-2 returns - the Tribunal in the case of HEG Limited [2019 (7) TMI 773 - CESTAT NEW DELHI] has held that substantial benefit of notification cannot be denied on account of procedural lapse. By following the ratio of the said decision, the Appellant are entitled to the benefit of exemption Notification No. 18/2009-ST. Invocation of extended period of limitation - HELD THAT:- The department has not established any ingredients for invoking the extended period as the Appellant have been regularly filing the returns and paying the service tax. In these circumstance, when the demand for extended period fails, the demand for normal period will also go as held by the Hon’ble Calcutta High Court in the case of Infinity Infotech Parks Ltd vs. UOI [2014 (12) TMI 36 - CALCUTTA HIGH COURT] wherein the Hon’ble High Court has held that 'When a notice is issued in support of transactions spread over a period of time and it is found that the extended period of invocation has been invoked, the notice cannot be treated as within limitation for some of the same transaction, once it is found that the extended period of limitation is not invocable.' The impugned order is not sustainable in law - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether service tax was payable under reverse charge on commission paid to overseas agents for export of goods and on payments made through American Express Card, particularly in view of exemption Notification No. 18/2009-ST. 1.2 Whether the benefit of exemption under Notification No. 18/2009-ST could be denied solely on the ground of alleged delay in filing EXP-2 returns, being a procedural lapse. 1.3 Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 was validly invoked on the basis of audit objections, and the effect of failure of the extended period on the demand for the normal period. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Liability under reverse charge for commission to overseas agents / American Express Card payments, and availability of exemption under Notification No. 18/2009-ST despite procedural lapses Interpretation and reasoning 2.1 The Tribunal identified the core dispute as relating to service tax liability on reverse charge basis for commission paid to overseas agents for export of goods, and additionally on payments made through American Express Card, with the quantification and exemption under Notification No. 18/2009-ST being in issue. 2.2 It was noted that the demand was raised after denying the benefit of Notification No. 18/2009-ST on the ground of delay in filing EXP-2 returns for specified half-yearly periods. The Tribunal recorded that the assessee had, in fact, filed EXP-2 returns close to the due dates, and pointed to intervening holidays including Saturday, Sunday and one 'Punjab Bandh', resulting at best in a marginal delay of one day. 2.3 The Tribunal observed that the lower authorities had denied the exemption merely on this alleged delay, treating the requirement of timely filing of EXP-2 as determinative. Relying on its earlier decision in HEG Limited, it held that a 'substantial benefit of notification cannot be denied on account of procedural lapse'. 2.4 Applying this ratio, the Tribunal treated the EXP-2 filing requirement as procedural and not going to the root of eligibility to the exemption, particularly when export of goods and receipt of foreign exchange were not in dispute. 2.5 As to payments made through American Express Card, the Tribunal noted the assessee's contention that American Express International had an office in India and, therefore, reverse charge could not be invoked. However, in view of its conclusions on exemption and limitation, the Tribunal did not find it necessary to sustain any part of the demand on this count. Conclusions 2.6 The Tribunal held that the assessee was entitled to the benefit of exemption Notification No. 18/2009-ST, and that such substantive exemption could not be denied on the basis of mere procedural lapses relating to EXP-2 filings. 2.7 Consequently, the demand of service tax on reverse charge basis, including the portion attributed to commission paid to overseas agents and payments made through American Express Card, could not be sustained on this ground alone. Issue 3: Validity of invocation of the extended period of limitation and effect on demand for normal period Legal framework (as discussed) 3.1 The demand was confirmed under the proviso to Section 73(1) of the Finance Act, 1994, invoking the extended period of limitation. The Tribunal considered whether such invocation was justified when the case arose from audit and when the assessee had been filing returns and paying service tax. 3.2 The Tribunal referred to precedents holding that the extended period cannot be invoked merely on the basis of audit objections and in the absence of ingredients such as suppression, fraud, or wilful misstatement. It also relied on the principle that where a notice is issued invoking only the extended period and such invocation fails, the demand for the normal period embedded in that notice also fails. Interpretation and reasoning 3.3 The Tribunal recorded that the period involved was 2007-08 to 2011-12, while the show cause notice was issued on 22.10.2012, explicitly invoking the extended period. It was also noted that the assessee had been regularly filing returns and paying service tax, and that the dispute arose only pursuant to audit. 3.4 Relying on decisions including Maruti Suzuki India Ltd, Hoshiarpur Automobiles, and Sunshine Steel Industries (affirmed by the Supreme Court), the Tribunal held that extended period cannot be invoked solely on the basis of audit, in the absence of evidence of suppression or similar conduct on the part of the assessee. 3.5 The Tribunal further relied on the judgment of the Calcutta High Court in Infinity Infotech Parks Ltd, which, following the Supreme Court in Alcobex Metals, held that where a notice covers a period only by invoking the extended period, and such invocation is found invalid, the notice cannot be salvaged for a part of the period by treating it as within normal limitation. 3.6 The Tribunal also referred to a recent decision of the Principal Bench in Shyam Spectra Private Limited, where this ratio was followed, reinforcing that failure of the extended period vitiates the entire demand under that notice. Conclusions 3.7 The Tribunal held that the extended period of limitation under the proviso to Section 73(1) was not invocable, as the demand was raised pursuant to audit and the department failed to establish any of the requisite ingredients like suppression, fraud or wilful misstatement. 3.8 It concluded that, once invocation of the extended period fails, the entire demand raised under that notice, including for the so-called normal period embedded therein, is unsustainable. 3.9 On this basis, independently of the exemption issue, the entire demand of service tax, interest and penalties was set aside, and the appeal was allowed.