TaxTMI 
TaxTMI 
2019 (5) TMI 1139
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....m M/s Croda Chemicals (India) Private Limited under the provisions of Section 75 of the Finance Act, 1994. 4.3 I impose a penalty of Rs. 1,32,57,559/- (Rupees One Crore Thirty Two Lakhs Fifty Seven Thousand Five Hundred and Fifty Nine only) on M/s Croda Chemicals (India) Private Limited under the provisions of Section 78 of the Finance Act, 1994. 4.4 I impose a penalty of Rs. 10,000/- (Rupees Ten Thousand only) under Section 77 of the Finance Act, 1994 on M/s Croda Chemicals (India) Private Limited." 2.1 Appellant are registered with the department for providing various taxable services viz Technical Inspection and Certification Agency Services, Maintenance and Repair Services, Business Auxiliary Services, Transport of Goods by Road Transport Agency Service, Business Support Service and Information Technology Software Services. 2.2 During the course of CERA audit it was noticed that Appellants had during the period 2008-09 to 2012-13 received from their associated enterprises (M/s Croda International) located abroad a sum of Rs. 12,02,62,275/- for sale of their goods (falling under chapter 29, 34 & 38) in India as detailed in the table below: S No Part....
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.... Star Ltd [2008 (11) STR 23 (T-Bang)] SGS India (P) Ltd [2014 (34) STR 354 (Bom)] Simpra Agencies [2014 (36) STR 430 (T-Del)] b. Period 28.02.2010 to 30.06.2012: The clause (a) of Rule 3(2) of Export of Services Rule, 2005 which prescribed condition for use of outside India was deleted. Thus the only condition that was required to be satisfied was that the services specified should have been provided to person located outside India and the payment for the same should have been received in convertible foreign exchange. Since in the present case the service recipient was located outside India and the payments were received in convertible foreign exchange, the services provided were squarely covered by the said provisions as export of service. c. Period 01.07.2012 to 31.03.2013: During this period the service tax has been demanded from them treating them as providing intermediary services and thus according to rule 9 of Place of Provision of Services Rules, the place of provision of services is the location of service provider. This approach cannot be sustained because prior to amendments made in the definition of intermediary by N....
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....ation Joint Venture [2007 (216) ELT 177 (SC)] b. Kingfisher Airlines Ltd. [2015 (40) STR 1159 (T-Mum)] c. Reliance Industries Ltd. [2016 (57) GST 84 (T-Mum)] v. Since they are not liable to pay service tax no penalty could have been imposed on them in view of following decisions: a. Sarup Tanneries Limited [2005 (184) ELT 217 (T)] b. Explicit Trading [2004 (169) ELT 205 (T)] c. Gamma Consultancy (P) Ltd [2006 (4) STR 591 (T)] vi. Interest is also not payable as there is no service tax payable beyond the due date. 3.3 Arguing for the revenue learned Authorized Representative while reiterating the findings in impugned order submitted that- i. In respect of the demand which appellants claim to have been made in respect of the services exported by them i.e. commission towards sale of good in India from associated overseas companies the fact which is most relevant is whether these services have been utilized outside India. In case it is held that these services were utilized provided and utilized outside India then they can be treated as export of services. However adjudicating authority has relying on the Circul....
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....es recovered by the Appellants as Commission for sale of goods of associated group of companies abroad are leviable to service Tax under category of Business Auxiliary Service provided in India or the same are in respect of Export of Services as defined from time to time and thus exempt from payment of Service Tax. II. Whether Service Tax is leviable in respect of reimbursements made by the associated group companies to the appellants towards expenses actually incurred by them. III. Whether in respect of Foreign Exchange remittances made by the appellants to their associated group companies abroad for reimbursement of various expenses incurred by them could be levied to service tax on reverse charge basis treating the services provided as import of services. IV. Whether the demand is hit by limitation as extended period of limitation as per Section 73 of The Finance Act, 1994 is not invokable in the present case. V. Whether demand for interest under Section 75 and penalties imposed under Section 77 and Section of Finance Act, 1994 can be sustained. 4.4 Whether the charges recovered by the Appellants as Commission for sale of goods of associate....
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.... only when order for provision of such service is made from any of his commercial establishment or office located outside India. Provided further that where the taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act ..... (2) The provision of any taxable service specified in subrule (1) shall be treated as export of service when the following conditions are satisfied, namely:- a. such service is provided from India and used outside India; and b. payment for such service provided outside India is received by the service provider in convertible foreign exchange. Explanation.- ........ (In sub-rule (2), clause (a) - omitted & Explanation at clause (b) - substituted vide NTF. NO. 06/2010-ST, DT. 27/02/2010) Place of Provision of Services Rules, 2012. 2. Definitions (f) "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the 'main' service) between two or more persons, but does not include a person who provides the main service on his account.; 3. Place of pr....
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.... situated outside India. (ii) Category (II) [Rule 3(1)(ii)] : For services (such as Rent-a-Cab operator, Market Research Agency service, Survey and Exploration of Minerals service, Convention service, Security Agency service, Storage and Warehousing service) where the place of performance of service can be established, it is provided that provision of such services would be 'export' if they are performed (or even partly performed) outside India. (iii) Category (III) [Rule 3(1)(iii)] : For the remaining services (that would not fall under category I or II), which would generally include knowledge or technique based services, which are not linked to an identifiable immovable property or whose location of performance cannot be readily identifiable (such as, Banking and Other Financial services, Business Auxiliary services and Telecom services), it has been specified that they would be 'export',- (a) If they are provided in relation to business or commerce to a recipient located outside India; and (b) If they are provided in relation to activities other than business or commerce to a recipient located outside India at the time when su....
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.... the period prior to 28.2.2010 the requirement that the service should be "used outside India" invariably means the location of the recipient? 2. In the stated Circular it was inter-alia, clarified that the words, "used outside India" should be interpreted to mean that "the benefit of the service should accrue outside India". It is well known that services, being largely intangibles, are capable of being paid from one place and actually used at another place. Such arrangements commonly exist where the services are procured centrally eg audit, advertisement, consultancy, Business Auxiliary Services. For example, it is possible to obtain a consultancy report from a service provider in India, which may be used either at the location of the customer or in any other place outside India or even in India. In a situation where the consultancy, though paid by a client located outside India, is actually used in respect of a project or an activity in India the service cannot be said to be used outside India. 3. It may be noted that the words "accrual of benefit" are not restricted to mere impact on the bottom-line of the person who pays for the service. If that were the inte....
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....red in relation to marketing and sales promotion of goods in India have been used by the associated group companies in India. It is only as result of such usage of services in India that the sales of the these associated group company goes up in India. 4.4.6 In terms of Export of Service Rules, 2005 as they existed prior to their amendment by Notification NO. 06/2010-ST, dated 27/02/2010, Rule 3(2)(a), specifically prescribed the condition of "use outside India" as determining factor to treat the services as export of services. The phrase used in the said rule is "used outside India" and not "beneficiary of service outside India". In the present case though the beneficiary of service is located outside India, but the use of service is in India for sales promotion of the goods of the beneficiary. The sales promotion of the goods needs to be looked qua the market in which the goods are sold or intended to be sold and not qua the location of manufacturer/ beneficiary of service. The same is the crux of the two circulars issued by CBEC. 4.4.7 Appellants have relied on series of decisions in support of their contention that these services have been issued by the recipient of servi....
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....nother agreement between Subsidiary and MSFT or any MSFT affiliate. Taxes, insurance, duties, freight and other charges not attributable to the Microsoft Product itself paid by the customer shall not be considered in calculating the amount of commission. The commission payments shall be exclusive of any applicable consumption tax such as a Goods and Services Tax or a Value Added Tax which consumption tax shall be the responsibility of MO. 6.3 RGE Services. For RGE Services rendered pursuant to Article 4, MO shall pay subsidiary an amount equal to one hundred and ten percent (110%) of Subsidiary's actual expenses, less revenues, incurred in connection with its duties, provided such expenses comply with Subsidiary's budget, as adjusted from time to time, and provided, further, such expenses are not already covered by another Section of this Agreement or covered in another agreement between Subsidiary and MO or any other MSFT affiliate. The reimbursement and additional compensation shall be exclusive of any applicable consumption tax such as a Value Added Tax or a Goods and Services Tax, which consumption tax shall be the responsibility of MO. 6.4 Other Inter-company Services. F....
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....atter needed to be considered and decided as per the law existing at the material time we do not find that this decision would be applicable in the present case. ABS India Ltd [2009 (13) STR 65 (T-Bang)] Since the judgment is in respect of the un-amended Export of Service Rules, 2005 it has not considered the scope of phrase "used in India" and hence is distinguishable. Blue Star Ltd [2008 (11) STR 23 (T-Bang)] Since the judgment is in respect of the un-amended Export of Service Rules, 2005 it has not considered the scope of phrase "used in India" and hence is distinguishable. SGS India (P) Ltd [2014 (34) STR 554 (Bom)] In para 24, Hon'ble Bombay High Court summarizes the fact stating "24. In the present case, the Tribunal has found that the assessee like the respondent rendered services, but they were consumed abroad. The clients of the respondents used the services of the respondent in inspection/test analysis of the goods which the clients located abroad intended to import from India. In other words, the clients abroad were desirous of confirming the fact as to whether the goods imported complied with requisite specifications and standards. Thus, client of t....
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....ed therein are those which are performed outside India. The first proviso below this was stating that if such taxable service is partly performed outside India it shall be considered to be performed outside India. Then, there is a further proviso of this sub-rule wherein it was stated that any taxable service provided shall be treated as export of service only if such service is delivered outside India and used in the business or any other purposes outside India and payment for such service provided is received by the service provider in convertible foreign exchange. [see Rule 3(2)]. 60. Rule 3(1)(iii) refers to all such taxable services specified in clause (105) of Section 65 of the Finance Act, 1994, but excluding those in sub-clauses (zzzo) and (zzzv) and those specified in clause (i) of this Rule except when the provision of taxable services specified in sub-clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property. Thus, the classification appears to be of taxable service in relation to immovable property which is situated outside India and if it satisfies the conditions in the proviso below sub-rule (1) of Rule 3, then, there is stipulation in rel....
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.... No. 6/2010ST, dated 27-2-2010. Thereafter, the only condition remained to be satisfied and for the purpose of being qualified or termed as export of taxable service is that any taxable service specified in sub-rule (1) of Rule 3 shall be treated as such when the payment for such service is received by the service provider in convertible foreign exchange. We are concerned with the situation prior to this omission. We are of the view that if Mr. Sridharan's submissions have to be accepted, then, we must ignore this omission." 4.4.9 In light of discussions and the Bombay High Court decision in case of Tech Mahindra as above we are of the view that services provided by the appellants were provided for the sale of goods of the associated group companies in India and were thus used in India. According for the period prior to 27.02.2010 the benefit of export of services as claimed by the appellant in respect of commission received by them for sale of goods in India from associated group companies cannot be extended to them. 4.4.10 From 27.02.2010, the condition of "use outside India" has been removed by way of omission of clause "a" of sub-rule (2) of Rule 3 of Export Of Service Ru....
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....the Noticee and consequently the place of consumption is the location of the Noticee i.e. India. Hence the question of treating said service as export of service w.e.f 20.06.2012 does not arise." 4.4.12 We cannot agree with the conclusion of the Commissioner, holding the services provided by the Noticee as "intermediary service". From the Rule 2(f) of Place of Provision of Service Rules, 2012, it is quite evident that service provided in relation to sale of goods by a commission agent cannot be classified as intermediary service. We are further supported in our view because para 5.9.6 of The Education Guide issued by the CBEC clearly states:- "5.9.6 What are "Intermediary Services"? Generally, an "intermediary" is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further processing. Thus, an intermediary is involved with two supplies at any one time: i) The supply between the principal and the third party; and ii) The supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. For the purpose....
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....ad are in relation to export of services. 4.4.14 Summarizing our findings as per discussions above we hold that benefit of export of services in respect of commission received towards sale of goods of the associated group companies in India post 27.02.2010 shall be admissible to the appellants. 4.5 Whether Service Tax is leviable in respect of reimbursements made by the associated group companies to the appellants towards expenses actually incurred by them. 4.6.1 Admittedly appellants have received certain amounts as reimbursements from their associated group abroad on actual basis for various activities undertaken by them and as detailed in table below: Nature of reimbursement Amount 'Rs Travel Expenses of the employees of overseas associate companies 9,61,505 Trade exhibition, ICMBA Conference, 9,95,690 Training expenses of the employee of overseas company 3,00,067 AMC Charges paid to M/s Ramco Systems Ltd on behalf of M/s PT Croda Indonesia 7,89,374 Salary cost of their seconded employees from respective overseas group companies to which they were seconded on quarterly basis 38,17,754 Detention and Demurrage Cost 1,48,173 Man....
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....t is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasized that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25.This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Subsection (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is....
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....ive in nature. ......." 4.5.4 In view of the decision of Apex Court holding that Rule 5 is ultra vires the Section 67 of The Finance Act, 1994 during the material period and noting that Commissioner has not given any other reason for including these charges in value of taxable service, we hold that these charges cannot be added to the value of taxable services provided by the appellants. However we make it clear that since these charges cannot be added to value of taxable services provided, appellants could not have claimed any CENVAT Credit in respect of the input services received for providing these reimbursable services to their associate group companies. Subject to verification of the fact of non availment of CENVAT Credit in respect of these input services we agree with the contentions of the appellants in this respect. 4.6 Whether in respect of Foreign Exchange remittances made by the appellants to their associated group companies abroad for reimbursement of various expenses incurred by them could be levied to service tax on reverse charge basis treating the services provided as import of services. 4.6.1 Appellants had made certain payments towards various services ....
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....tory returns filed by the Noticee do not contain the details of commission earned by them. Therefore, the fact of misdeclaration and contravention of the provisions of law with intent to evade service tax is clearly established. The recovery mechanism provided in proviso clause to Section 73(1) of the Finance Act, 1994, as it existed at the material time, provides for demanding Service Tax short paid or not paid during the period up to five years, by reason of - (a) fraud, or (b) collusion, or (c) wilful mis-statement, or (d) suppression of facts, or (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of Service Tax. Thus, each of the sub-clauses getting covered by (a) to (e) of Section 73(1) are independent of each other and existence of any / each one of the individual situation is good enough to attract demand of Service Tax for extended period under the proviso clause to Section 73(1). In the present case, the Noticee has suppressed the material facts as discussed above. In the ST-3 returns filed by the Noticee, they did not declare about the impugned commis....
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....riod of limitation under the proviso to Section 11A(1) would not get attracted. In the present case, there was no scope for the Mills to doubt whether grey fabrics processed by them were handloom fabrics or powerloom fabrics. In TNHB's case, it was held that the assessee must be aware that duty was leviable and must be found to have deliberately avoided paying duty so that the extended period of limitation could be invoked for demanding the duty from them. This condition, in our view, stands satisfied in the present case. In the case of Chemphar Drugs & Liniments (supra), it was held that conscious or deliberate withholding of information by manufacturer was necessary to invoke the larger period of limitation. The facts and circumstances of the present case, which have already spelt out, indicate that the Mills deliberately suppressed material facts before the Department. In the relevant invoices, they declared the goods as handloom fabrics, even though they were aware of the fact that the goods were dutiable powerloom fabrics. In the case of G.T.C. Industries (supra), the Tribunal did not find any evidence of the job worker having suppressed any fact with intent to evade payment o....
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....for leased circuit service, and therefore was not unaware thereof. Bona fide belief is not some sort of hallucinatory belief. It is a genuine belief of a reasonable person operating in an appropriate environment. Thus for such as assessee as the appellant, it could not have been a bona fide belief on its part that the service rendered did not fall under leased circuit service because there was no scope of any confusion or ambiguity in that regard. Further, the appellant did not timely provide the information sought and had to be issued repeated reminders. Therefore we are of the view that the appellant is guilty of suppression of fact and therefore the extended period has rightly been invoked and mandatory penalty is clearly imposable." iii. In case of Pasupati Spinning and Weaving Mills [2015 (318) ELT 623 (SC)] Hon'ble Apex Court held "4. .......Equally, we do not think that there is any ground for interference on the extended period of limitation being applicable inasmuch as CESTAT is again correct in saying that as the declaration and RT-12 returns being vital documents submitted by the respondent (appellant herein) did not mention the vital word "hanks", they suppress....
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....ants was never disclosed to revenue, with the intention to evade payment of tax. This decision of Apex Court is clearly distinguishable. b. In case of Kingfisher Airlines Ltd. [2015 (40) STR 1159 (T-Mum)] Tribunal stated "26.1 So far the question of invocation of extended period is concerned, I find that there is no case of any suppression on the part of the appellant Airlines. The appellant Airlines have duly disclosed the receipts from passengers towards excess baggage in their books of account, maintained in the ordinary course of business. I find that the issue is one of interpretation of the taxing statute and as such being debatable, there is no element of any fraud or suppression. Accordingly, the extended period of limitation is held not invocable." This decision is also distinguishable. It is not the case that the book of accounts maintained by the appellant were completely declared to the revenue and were made available to the authorities from time to time. As per Rule 6(3) of The Service Tax Rules, 1994, it is not that every book of account maintained by the Appellant is known to the revenue, but the appellant is required to make a declaration to the jurisdictio....
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.... It is as follows : 11AC. Penalty for short-levy or non-levy of duty in certain cases.- ............ 17. The main body of Section 11AC lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced. 18. One cannot fail to notice that both the proviso to subsection 1 of Section 11A and Section 11AC use the same expressions : "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in th....
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....posing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 (in short the IT Act') taking the stand that Section 11AC of the Act is identically worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 (in short the "Rules') and a decision of this Court in Chairman, SEBI v. Shriram Mutual Fund & Anr. [2006 (5) SCC 361] and was of the view that the basic scheme for imposition of penalty under section 271(1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI's case (supra) and not in Dilip Shroff's case (supra). Therefore, the matter was referred to a larger Bench." After referring to a number of decisions on interpretation and construction of statutory provisions, in paragraphs 26 and 27 of the decision, the court observ....
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....efore, no discretion. It is pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated "which he knows or has reason to believe". The said clause referred to wilful action. According to learned counsel what was inferentially provided in some respects in Rule 173Q, now stands explicitly provided in Section 11AC. Where the outer limit of penalty is fixed and the statute provides that it should not exceed a particular limit, that itself indicates scope for discretion but that is not the case here." 23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides." 4.8.3 Hence we uphold imposition of penalty under Section 78, however the same needs to be re-quantified as indicated earlier in the order. ....
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....n of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of Revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in Section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision. We are supported by the statement in Corpus Juris Secundum Volume 85, page 580, Paragraph 1023 : "A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws."" Hence we uphold the penalties imposed under the provisions of Section 77 of the Finance Act, 1994. 4.8.4 Since the deman....