TaxTMI 
TaxTMI 
2024 (4) TMI 725
X X X X Extracts X X X X
X X X X Extracts X X X X
....ulting Engineering Services, Market Research Agency Services, Maintenance Repair Services, Business Auxiliary Services, IPR Services, etc. as well as for payment of service tax on reverse charge basis in respect of certain services received which were chargeable to service tax on reverse charge basis. 2.2. The Appellant was receiving technical know-how and IT software services from its associated enterprise in South Korea. The technical persons visit the Appellant's workplace and by the end of their stay period, they submit their expenses incurred while their stay in India. So, the Appellant, before receipt of such actual expenses, at the end of the Financial Year creates a provision in respect of such estimated expenses in its book of accounts. This provision is not created in respect of any particular service provider. This provision is reversed on the 1st April of the subsequent financial year. Thereafter, the Appellant remit the actual expenses, makes entry in the books of accounts and at that point of time, service tax is paid on such remittance on reverse charge basis. 2.3 The Audit was conducted by the Department on 24/26.02.2012, 10/11/10.2012, 14.01.2013 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Fifty Lacs, Forty Three Thousand Eight hundred and fourteen only] upon the party under Section 78 of the Finance Act, 1994 for contravention af the provisions as discussed supra;and 3) I confirm demand of inadmissible CENVAT credit of Rs. 44,10,298/- (Rupees Forty Four Lacs Ten thousand Two Hundred and Ninety eight only) under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 73(2) of the Finance Act, 1994 and order to be recovered from them, along with applicable Interest under Section 75 of the Finance Act, 1994 as amended, as discussed supra. 4) I impose penalty of Rs. 44,10,298/- (Rupees Forty Four Lacs Ten thousand Two Hundred and Ninety eight only) under Rule 15(3) of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 for contravention of provisions of Service Tax law & order to be recovered from them. The adjudged dues shall be paid henceforth" 2.7 Aggrieved appellant filed appeal before the Commissioner (Appeal) who by the impugned order while setting aside the order of original authority to the extent it was in relation to disallowing the CENVAT credit, upheld the order in respect of the prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the service recipient are debited or on the date of payment, whichever is earlier. The phrase debit in the books of accounts means the date on which the amount becomes payable or the amount is recognized as an outstanding in the books of the service recipient. • Mere entries made to create provision by the Indian service recipient cannot be an expense until the amount has actually become payable to the foreign associated service provider. The position taken by the revenue to demand service tax on provisional entry would be contradictory to the very nature of the service tax levy. • As per CBEC Circular M.F. (DR) Letter DOF No. 334/1/2008-TRU dated 19.02.2008, the intention behind the introduction of the levy of service tax based on the book entries in the case of transaction with associated enterprise was to put an end to the practice of delayed payment of service tax and. The intention was not to tax something which notional or provisional in nature, but to tax actual confirmed amount payable as debited in books of account. • service tax can be demanded only on the actual amount charged for the services by the foreign asso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d as soon as the transactions were entered in the books of account instead of waiting for the actual remittances. Further, I find in that relevant proviso of Rule 7 of Point of Taxation Rules, 2011 during the disputed period, reads as under Upto March, 2012 Provided also that in case of "associated enterprises", where the person providing the service is located outside India, the point of taxation shall be the date of credit in the books of account of the person receiving the service or date of making the payment whichever is earlier. W.e.f. April, 2012 Provided further that in case of "associated enterprises", where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier. 8.3 From the above, it is observed that prior to the period 01.04.2012, wherever accounting entries relating to service transaction finds a place in books of account of the person liable to pay tax, would be relevant for payment of Service Tax. Further, the broad reference of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x at the time of making the actual payments to the associate enterprises, on the basis of actual amount paid. 4.4 By Section 90 (C) of the Finance Act, 2008, Section 67, of the Finance Act, 1994 was amended to substitute, the phrase "book adjustment" by the phrase "book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.'; The impact of the amendment was to amend the definition of the taxable value which has been defined in terms of the gross amount charged in following manner. "(c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited , as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise." Thus the deter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....redited or debited in the books of account of the service provider. In other words, service tax is required to be paid after receipt of payment or crediting/debiting of the amount in the books of accounts, whichever is earlier. However, this provision is restricted to transaction between associated enterprises. This provision shall also apply to service tax payable under reverse charge method (Section 66A) as taxable services received from associated enterprises. For this purpose section 67 and rule 6(1) are being amended." 4.7 Rule 7 of Point of Taxation Rules, 2011 as introduced by Notification No 18/2011-ST dated 01.03.2011 read as follows: "7. Determination of point of taxation in case of associated enterprises.- The point of taxation in respect of associated enterprises shall be the date on which the payment has been made, or invoice under rule 4A of the Service Tax Rules, 1994 has been issued, or the date of debit or credit in books of accounts of the person liable to pay service tax, whichever is earlier." This rule was amended by the notification No 21/2011-ST dated 31.03.2011 to read as under: "7. Determination of point of taxation in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d towards the services received from their associate enterprises. The entry so made was to be finally adjusted against the actual amount of service tax to be paid subsequently at the time of either making a credit or debit entry subsequently. In the clarification issued by the JS TRU, it is specifically stated that these provisions have been made as: • Tax avoidance measure; and • To ensure timely payment of tax. These amendments do not create any additional tax liability on the service provider/ service recipient, but only provide for advance payment of tax at the time of making provisional entries in the book of account. 4.9 In view of the above we are in agreement with the submissions made by the appellant that these provisions only provided, for determination of the Point of Taxation, and fixed the time when the tax liability was to be discharged by the appellants. These amendments in any cases did not provided that the value of the taxable service shall be the determined in any manner other than provided by the Section 67 of the Finance Act, 1994. Thus the value of taxable service was to be determined in terms of Section 67 of the Fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax liability devolves on the recipient of service. In this attempt it has been overlooked that the Explanation is unambiguous about the circumstances intended to be covered, viz., the passing of entries in less obvious heads with no apparent connection to the account of the provider of the service. The broad reference to the nomenclature of the account as well as the inclusion of debit and credit is a clear pointer to the intent of not allowing books of account to be used for attributing the liability while deferring tax payment in relation to transactions with associated enterprises. A plain reading of the Explanation does not lend credence to the claim canvassed on behalf the appellant - any debit or credit entry that can be linked to the service is sufficient. 13. Taking this argument forward, learned counsel would have us agree with him that receipts-based valuation has always been the intent in taxation on "reverse charge" basis because of the special treatment accorded in Rule 7 of Point of Taxation Rules, 2011 even after taxation in all other situations was, by these Rules, transformed to "accrual basis". Accordingly, it is contended that the word "credit" which err....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cation 17/2004-S.T., dated 10th September, 2004, has confirmed it to be so. There being no alternative finding in the impugned order, we find no reason not to conclude so. Revenue neutrality arising from availment of Cenvat credit and the contention that the demand is barred by limitation are rendered irrelevant in the circumstances. 15. As the taxes have been discharged during the period under dispute, the appellant's liability is limited to interest for the first two months of each quarter to the extent of amount not paid or short-paid. This should have been effected in the impugned order but, not having been done, needs to be remedied. 16. The references made by the learned Counsel to the provisions of the Income-tax Act, 1961 and the decisions of the Hon'ble Supreme Court in re Commissioner of Income Tax v. Ashokbhai Chimanbhai [(1965) 56 ITR 42 (SC)], Commissioner of Income Tax v. Birla Gwalior (P) Ltd. [(1973) 89 ITR 266 (SC)], International Auto Ltd. v. Commissioner of Central Excise [2005 (183) E.L.T. 239 (S.C.)] and Commissioner of Central Excise & Customs (Appeals) v. Narayan Polyplast [2005 (179) E.L.T. 20 (S.C.)] and that of the Tribunal in re Jay Yuhs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....21% 137,827 Total 66,524,168 67,460,827 4,863,925 IT Expenses 30-Apr-12 5,955,881 7.21% 429,419 31-Mar-12 7,570,700 01-Apr-12 26-Apr-12 353,376 7.21% 25,478 31-Mar-12 1, 865,319 30-Apr-12 19-Dec-12 2,861,390 12.36 % 356,558 15,296,647 30-Apr-12 19-Dec-12 16,372,354 12.36 % 1,991,598 31-Mar-12 1,440,260 30-Apr-12 04-Jul-12 966,287 12.36 % 119,482 16-Apr-12 912,940 12.36 % 112,844 31-Mar-12 5,035,351 01-Apr-12 25-Apr-12 5,228,412 12.36 % 646,232 31-Mar-12 1, 960,161 30-Apr-12 25-Apr-12 1979,729 12.36 % 244,695 31-Mar-12 11,660,000 01-Apr-12 25-Apr-12 5,249,808 10.30 % 540,730 12-Apr-12 4,890,963 10.30 % 503,769 31-Mar-12 1,881,981 01-Apr-12 23-May-12 860,805 12.36 % 106,395 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r reduced by Rs 32,75,680/- (Rs 1,33,48,260/- - Rs 1,00,72,780/-). Thus the total demand would have been reduced to Rs 17,68,134/-. The calculation of the demand after correctly determining the tax actually paid by the appellant during the year 2011-12 needs to be worked out by the adjudicating authority. 4.14 In fact the by not paying the service tax at the time of making the expense entries in their book of accounts, appellant has failed to pay the service tax at the relevant time, as per Rule 6 (1) of the Service Tax Rules, 1994. Even if it is concluded that appellant have correctly discharged the service tax liability subsequently they are required to pay interest on the delayed payment of the tax as per Section 75 of the Finance Act, 1994. 4.15 We are not in position to agree with the submissions made by the appellant to effect that the demand is barred by limitation for the reason that the audit was conducted on various dates between 24.09.2012 to 06.05.2013, so the fact was in the knowledge of the department within the normal limitation period and the show cause has been issued only on 05.10.2015 . Proviso to Section 73 (1) of the Finance Act,1994 pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....excise which has not been levied, etc. The show cause notice for recovery has to be served within one year from the relevant date. However, where fraud, collusion, etc., stands established the period within which the show cause notice has to be served stands enlarged by substitution of the words "one year" by the words "five years". In other words the show cause notice for recovery of such duty of excise not levied etc., can be served within five years from the relevant date. 15. To put it differently, the proviso merely provides for a situation whereunder the provisions of sub-section (1) are recast by the legislature itself extending the period within which the show cause notice for recovery of duty of excise not levied etc. gets enlarged. This position becomes clear when one reads the Explanation in the said sub-section which only says that the period stated as to service of notice shall be excluded in computing the aforesaid period of "one year" or "five years" as the case may be. 16. The termini from which the period of "one year" or "five years" has to be computed is the relevant date which has been defined in sub-section (3)(ii) of Section 11A of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. This very issue has been answered in the decision in Neminath Fabrics Pvt. Ltd. (supra) by the High Court of Gujarat. The question which was framed for consideration was „whether the Tribunal was justified in importing the concept of knowledge in the provisions of Section 11A of the Central Excise Act, 1944 read with sub-section (1) and the proviso thereto'. 18. Learned Counsel for the assessee before us contended that the department had knowledge of the entire matter as early as in December, 2003, when they had made an inspection of the factory. However, show cause notice was issued only in the year 2007 and the extended period could not have been invoked in the instant case. The argument advanced by the Learned Counsel for the assessee before us is identical to that of the argument which was advanced before the Gujarat High Court in Neminath Fabrics Pvt. Ltd., supra. The Court repelled the contentions on the following lines : "....." 19. As pointed out in the above referred decision, the proviso comes into play only when suppression is established or stands admitted and it would differ from a case where fraud, etc., are merely alleged or is dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of limitation cannot be invoked, inasmuch as from what has been recorded by us herein above, it is crystal clear that there has been suppression of material fact as well as contravention of the provisions of the Act, 1944 and the rules framed thereunder at the hands of the assessee with an intent to evade the demand of excise duty. Therefore, extended period of limitation had rightly been invoked in the facts of the present case." 4.18 As we uphold the invocation of the extended period of limitation as per Section 73 of the Finance Act, 1994, the penalty as per Section 78 becomes mandatory as has been held by Hon'ble Apex Court in case of Rajasthan Spinning and Weaving Mills Ltd. [2009 (238) ELT 3 (SC)] observing as follows: "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 ....