2026 (1) TMI 521 - AT - Service Tax

Service tax on property renting, forex consultancy expenses, export tea commission and royalty remittances-most demands time-barred, penalties dropped

Extended limitation for service tax on renting of immovable property was rejected as no suppression with intent to evade was established; the demand ... Invocation of extended period fo limitation - Renting of Immovable Property Services - Management & Business Consultancy Services - Intellectual Property Service / Business Auxiliary Services and Others - Business Auxiliary Services - Royalty and Licence Fee under Intellectual Property Services - others - levy of penalties. Renting of Immovable Property Service - HELD THAT:- The said demand has been confirmed for the period 200809 to 2012-13. Out of this, the demand for the period 2008-09 to 2011-12 has been raised by invoking the extended period of limitation. However, we find that there is no suppression of fact with intention to evade the tax established in this case. Thus, the demand confirmed for the extended period of limitation cannot be sustained. We take note of the appellant’s submission that out of the demanded Service Tax of Rs.83,943/-, tax demand of Rs.60,786/- is covered under extended period of limitation. Hence, this demand is barred by limitation and accordingly, the same stands set aside. The balance demand of Rs.23,157 for the Financial Year 2012-13, falling within the normal period of limitation, is confirmed - As the appellant have already deposited the aforesaid amount of service tax liable to be paid for the normal period of limitation, along with interest thereon, no penalty is imposable on the demand confirmed under this category for the normal period of limitation. Management or Business Consultancy Service - HELD THAT:- The Department has not brought in any evidence to substantiate the allegation that the said foreign currency expenses were incurred in relation to any taxable service. Therefore, the said expenses were not liable for Service Tax under RCM. Further, the Service Tax, upon payment, would be available as CENVAT Credit and hence the entire issue is revenue neutral in nature - In the present case, the entire demand of Rs. 12,00,557/- confirmed under this category in the impugned order falls within the ambit of extended period of limitation and hence, the demand confirmed on this count is not sustainable. Consequently, the demand on this score is set aside on the ground of limitation and revenue neutrality. BAS - Intellectual Property Service - Other Income - HELD THAT:- The demand of tax of Rs.24,21,942/- has been raised and confirmed on the commission expenses paid for selling tea outside India for FY 2008-09 to 2012-13. It is observed that services towards selling tea (being agricultural produce) is wholly exempted from payment of service tax under Notification No. 13/2003-Service Tax as amended by Notification No. 8/2004 – Service Tax, as stated by the appellant - Ld. Commissioner did not dispute the nature of services received by the appellant from outside India. Thus, the aforesaid notification exempts services pertaining to sale of tea whether provided within India or outside India inasmuch as no exclusion has been carved out to restrict the exemption benefit for services rendered in India. Therefore, the demand confirmed in the impugned order set aside on this count. Expenses incurred for Royalty and licence fee paid outside India during 2008-09 to 2012-13 - HELD THAT:- There are force in the appellant’s submission that the demand pertaining to the period up to 2011-12, falling within the scope of extended period of limitation, cannot be sustained as there is no suppression of fact with intention to evade the tax established in this case - it is also noted that the Ld. Commissioner has not given any finding as to the submission made by the appellant that no tax would be payable up to June 2012 since Royalty and Trademark, for which licence fee have been paid, were not registered in India. Quality Claim, Lab Analysis and Differential Freight paid - Courier Charges - Training charges/Professional Fees paid for Sports - Price Money for Sports - HELD THAT:- The Ld. Commissioner has not given any reason as to why service tax is payable on the expense incurred on the aforesaid remittances. It is found that the above said expenses were not incurred with respect to any taxable service. The Revenue has also failed to adduce any corroborative evidence to substantiate their case. Accordingly, the demand confirmed on this count is not sustainable and hence we set aside the same. Lev of penalties - HELD THAT:- The fact that the appellant has paid the service tax liabilities admitted by them along with interest. Thus, no penalty imposable on the admitted liabilities, as the appellant has already paid the tax along with interest before issue of the Notice. In fact, as per Section 73(3) of the Finance act, 1994, no need to issue show cause Notice, in such cases. Considering the above, all the penalties imposed in the impugned order against the appellant set aside. Appeal disposed off. Issues: (i) Whether demands confirmed for periods covered by the extended period of limitation are sustainable in the absence of suppression or fraud; (ii) Whether the demand of service tax on foreign currency expenses under reverse charge / management & business consultancy is sustainable given revenue neutrality and availability of CENVAT credit; (iii) Whether commission expenses for selling tea outside India and related receipts are taxable or exempt under Notification No.13/2003-Service Tax as amended by Notification No.8/2004; (iv) Whether penalties imposed can be sustained where admitted service tax and interest were paid before issuance of show cause notice; (v) Whether demands confirmed in respect of expenses booked as 'OTHERS' and for royalty/licence fees paid abroad are sustainable.Issue (i): Whether demands confirmed for periods covered by the extended period of limitation are sustainable in the absence of suppression or fraud.Analysis: The Tribunal examined the periods for which demands were confirmed and the material on record concerning suppression or intent to evade tax. The Court found no evidence establishing suppression with intent to evade tax for the years falling in the extended period. The statutory scheme permits invocation of extended limitation only where requisite conditions (such as suppression/fraud) are shown; absent such proof, extended-period demands cannot be sustained.Conclusion: Demands confirmed for periods covered by the extended period of limitation are set aside for lack of suppression or fraud; only demands within the normal period of limitation are sustainable.Issue (ii): Whether the demand of service tax on foreign currency expenses under reverse charge / management & business consultancy is sustainable given revenue neutrality and availability of CENVAT credit.Analysis: The Tribunal evaluated whether the foreign currency expenses were shown to relate to taxable services and whether payment of tax would result in availability of credit (rendering the matter revenue neutral). The Revenue did not produce evidence that the expenses related to taxable services, and the Tribunal noted that where tax paid on import services is available as credit, demands falling in the extended period are not sustainable. The Tribunal also observed absence of adjudicatory findings addressing the appellant's submissions on revenue neutrality.Conclusion: The demand of Rs.12,00,557 under Management & Business Consultancy (reverse charge) is set aside on grounds of limitation and revenue neutrality.Issue (iii): Whether commission expenses for selling tea outside India and related receipts are taxable or exempt under Notification No.13/2003-Service Tax as amended by Notification No.8/2004.Analysis: The Tribunal considered the scope of the exemption notification and whether it excludes services rendered outside India. The adjudicating authority did not dispute the nature of services; the Tribunal held that the notification exempts services pertaining to sale of tea generally and no exclusion limiting the exemption to services rendered within India was identified in the authority's reasoning.Conclusion: The demand on commission expenses for selling tea outside India is set aside as covered by the exemption under the stated notifications.Issue (iv): Whether penalties imposed can be sustained where admitted service tax and interest were paid before issuance of show cause notice.Analysis: The Tribunal applied Section 73(3) of the Finance Act, 1994 and related provisions to assess the effect of pre-deposit of tax and interest before issuance of SCN. It found that the appellant had deposited the tax and interest for the normal period prior to SCN, and therefore proceedings under the cited provision do not justify imposition of penalty; the adjudicating authority had not demonstrated grounds for penalty in respect of admitted liabilities.Conclusion: All penalties imposed in the impugned order are set aside.Issue (v): Whether demands confirmed in respect of expenses booked as 'OTHERS' and for royalty/licence fees paid abroad are sustainable.Analysis: For royalty/licence fees, the Tribunal separated periods: amounts up to 2011-12 fell within the extended period and lacked evidence of suppression; for the post-June-2012 period the appellant had deposited tax and interest before SCN and the Tribunal found proceedings required conclusion under Section 73(3). For amounts under 'OTHERS' (quality claims, lab analysis, courier charges, training/professional fees, prize money), the adjudicating authority gave no reasons and Revenue produced no corroborative evidence that these remittances related to taxable services; the Tribunal also noted Place of Provision of Services Rules considerations for services performed outside India.Conclusion: Demands on royalty/licence fees are set aside to the extent they relate to extended periods; the claim for amounts properly deposited for the normal period is appropriated and no penalty is imposed; demands on expenses booked as 'OTHERS' for 2012-13 are set aside for lack of justification and evidence.Final Conclusion: The Tribunal allowed the appeal in part by setting aside demands falling in the extended period, striking down demands lacking evidentiary or legal basis (including those covered by exemption or revenue neutrality), setting aside all penalties, and upholding only those tax liabilities that relate to the normal period of limitation and were either admitted and appropriated or otherwise supported by law and evidence.Ratio Decidendi: Demands under the extended period of limitation cannot be sustained in the absence of proof of suppression or intent to evade tax; where tax on import services is available as CENVAT credit the revenue neutrality principle negates extended-period demands; and pre-deposit of admitted tax with interest before issuance of show cause notice precludes imposition of penalty under the Finance Act, 1994.