TaxTMI 
TaxTMI 
2026 (9) TMI 193
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.... c) I impose a penalty of Rs. 10,000/- Section 77 of the Finance Act, 1994 on the party Le. M/s. FIL for not filing the true and correct ST-3 Returns required to be filed by them under Section 70 of the Finance Act, 1994, d) I impose a penalty of Rs. 38,58,611/-on the party i.e. M/s. FIL under Section 78 of the Finance Act, 1994 with reference to Service Tax along with Ed. Cess and Secondary and Higher Ed. Cess not paid by M/s FIL for the period 01.04.2009 to 31.03.2011. e) I impose a penalty of Rs. 8,32,821/- (i.e.50% of Rs. 16,65,641/-) on the party i.e. M/s. FIL under first proviso to Section 78 of the Finance Act, 1994 with reference to Service Tax along with Ed. Cess and Secondary and Higher Ed. Cess not paid by M/s FIL for the period 01.04.2011 to 31.03.2015, payable on transactions duly recorded by M/s FIL in specified records. f) In terms of clause (ii) of second proviso to sub-section (1) of Section 78 ibid of Finance Act, 1994, if the amount of Service Tax and interest is paid within a period of thirty days of the date of receipt of this order, the above penalties payable shall be reduced to twenty-five per cent. of the service tax subject ....
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....ired the right to apply, jointly with Tellabs. Denmark, with the Indian Intellectual Property authorities (such as Patent, copyrights offices etc.) for registration of Improvement developed by the assessee based on an agreement products and through joint development projects between the assessee and Tellabs Denmark. In case of termination or non-renewal of Technology and licence agreement (TALA), the assessee will have right to the Agreement Products & to improvements developed by the assessee for a further period of 15 years. 2.3 The Appellant opened an office in Denmark in relation to R & D activities and training of India R&D staff and other design support for product development. The services of these were being used for new implementation like ASON, GMPLS for 6300 products together with India R&D. 2.4 During the course of audit of the records of the Appellant it was observed that the Appellant had paid amounts on account of Technical Know how charges, Royalty etc as detailed in annexure A, B, C & D. During the period 2009-10 to 2013-14 appellant had paid an amount of Rs 4,59,57,168/- on account of technical Know How on accrual basis and Rs. 17,47,71,259/- on cash basis. ....
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....able (C) 561030 1104611 3805629 52982 5524252 Total Service tax Payable 2192255 3980245 5658412 3054050 14884962 ST Paid on Royalty 0 0 588207 254965 843172 ST payable (Excluding R&D Cess) 2192255 3980245 5070205 2799085 14041790 R & D Cess on Technical Know-how (Accrual basis) 0 0 1014983 1282875 2297858 R & D Cess on Technical Know-how (Cash basis) 1108170 2712863 732925 1548321 6102279 Total R & D Cess 1108170 2712863 1747908 2831196 8400137 Service Tax payable (including R & D Cess) 3300425 6693108 6818113 5630281 22441927 2.6.1. A show cause notice dated 22.10.2014 was issued to the appellant asking by them to show cause as to why,- (i) Service Tax amounting to Rs 2,24,41,927/- (Two Crore Twenty-Four Lakh Forty One Thousand Nine Hundred and Twenty-Seven only) (inclusive of Ed.Cess & SHEC) should not be demanded and recovered under proviso to Section 73 (1) of the Finance Act, 1994. (ii) Interest under Section 75 of the Finance Act, 1994 should not be demanded and recovered from them on the amount of service tax not pa....
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....675; Sharma Fabricators & Erectors Pvt. Ltd. [2017 (5) GSTL 96 (T- All)] affirmed in 2019 (22) GSTL J166 (All.) ➢ The impugned order travels beyond the show cause notice as well as the same is vague & perverse. Reliance is placed on following decisions:- ○ Toyo Engineering India Limited [2006 (201) ELT 513 (SC)] ○ Inox Leisure Ltd. [2022 (60) G.S.T.L. 326 (T - Hyd.)} affirmed by the Supreme Court at [2022 (61) G.S.T.L. 342 (SC)] ○ Mitsui Chemicals India Pvt. Ltd. [2019 (369) E.L.T. 1291 (T-All)] ○ Reckitt & Colman of India Ltd. [1996 (88) E.L.T. 641 (SC) ○ Dalmia Cements (Bharat) Limited [2017 (3) GSTL 81 (T-Del)] ○ Jitendra Kumar [2023 SCC OnLine All 2837] ○ Naresh Kumar & Co. Private Limited [2014 (36) STR 271 (Cal)] ○ United Telecoms Ltd. [2011 TIOL 56 CESTAT BANG] ➢ The demand raised in the Show Cause Notice for post-amendment period is unsustainable as the same has been raised upon obsolete provisions. Reliance is placed on following decisions:- ○ FICCI [2014 TIOL 701 (T-Del)] ○ The People's Choice....
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.... Repairs, Maintenance, Tooling (MMR) The Noticee has already discharged service tax liability along with interest, vide Challan No. 00002 dated 18.02.2013. (Para C 14) The Noticee has already discharged service tax liability along with interest, vide Challan No. 00002 dated 18.02.2013 (Para C 15) The Noticee has already discharged service tax liability along with interest, vide Challan No. 00002 dated 18.02.2013 (Para C 16) The Noticee has already discharged service tax liability along with interest, vide Challan No. 00002 dated 18.02.2013 (Para C 17) Rs. 2,54,220/- paid under Head 440245 + Rs. 2,67,161/- paid under Head 440246 Professional Fees (MCS) The Noticee has paid service tax of Rs. 11,532/- along with interest of Rs: 12,119/- vide Challan No. 00002 dated 18.02.2013 (Para C 31) Rs. 11,532/- paid under Head 440480; Rs. 12,119/- paid under Head 440483 Insurance + Bank Charges & Commission The Noticee again paid service tax for the period upto 2011, along with interest through Challan No. 00002 dated 18.02.2013 (Para C 45) Rs. 75,435/- paid under Head 440169 Rs. 37,717/- paid under He....
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....e show cause notice dtd.22.10.2014, and I find that there is not even single assertion whatsoever as to which particular or specific taxable service had been received by M/s FIL from Foreign Service Provider except mention of taxable services in a cryptically manner against the head of expenditure shown in the Annexure D to the SCN. In the absence of an allegation of having provided a specific taxable service in the show cause notice, the show cause notice nor the consequent adjudication order may stand before judicial scrutiny. Nothing has been placed on record that the department was handicapped and crippled, by the total non-cooperative attitude of M/s FIL, if any, who failed to furnish the relevant transactional documents to enable identification of the specific taxable service received by them, in order to justify the failure of department to properly investigate the matter and issuance of a vague and incoherent show cause notice. There is no classification in the body of SCN only quantification has been mentioned in the Annexure of the SCN that too happens to be flawed. No corroboratory evidence has been referred to in the body of the SCN. Certain heading such as 'Busines....
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....d an office in Denmark to carry out R&D activities and training of Indian R&D staff for the development of other designs support for the products manufactured by them in India. The office in Denmark has also been used for new implementation like ASON, GMPLS for 6300 products together with Indian R&D. The R&D Facility has been interalia engaged to advance the 6300 technology; to complete the SAP6 development; to develop new products as per up-coming technology changes. Thus the R&D office in Denmark is liable to be treated as a fixed establishment of M/s FIL. I find that Section 66A of the Finance Act-1994, the enabling provision up to 30.06.2012, (Section 66 A not applicable w.e.f. 1-72012 vide Notification No 23/2012-ST dated 5-6-2012) to charge Service Tax on services received from outside India, reads as follows: SECTION [66A. Charge of service tax on services received from outside India. (1) Where any service specified in clause (105) of section 65 is, - (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place ....
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....ges & Commission' under 'Banking & Other Financial Service'. However, the SCN is silent as to under which category service tax is payable on Misc. charges. C.2. The Noticee submits that the SCN has not gone into the nature of these foreign currency expenditure and proposed service tax demand under respective categories. These foreign currency expenditures are discussed hereinbelow in detail: Annexure-C Expenditure in Foreign Currency (Cash Basis): Other than CWIP-R&D Particulars 2012-13 2011-12 2010-11 2009-10 Total Service Charges (BAS) 2426058 6969680 32627951 0 42023689 Repairs, Maintenance, Tooling (MMR) 86082 75706 535556 349045 1046389 Professional Fees (MCS) 421152 1710367 1044960 0 3176479 Insurance (IAS) 193367 358144 462288 0 1013799 Bank Charges & Commission (BFS) 0 275462 508272 165339 949073 Misc. Charges 1412421 1335021 1768831 0 4516273 Total 4539080 10724380 36947858 514384 52725702 ST payable (C) 561030 1104611 3805629 52982 5524252 C.3. Copies of excel sheet providing for the bifur....
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.... 1.1 For continuing the development Fibcom have identified specific resources ("Named Resources"). Fibcom will compensate Tellabs for the fully loaded costs of the Named Resources. For these Named Resources and for any other additional manpower resources made available from Tellabs Denmark Fibcom can issue the appointment letters/ contract as and when they are released by Tellabs and these resources shall work as per Fibcom requirements and the negotiated terms & conditions between Fibcom and those resources. ... 3. Monthly settlement of R&D cost 3.1 Fibcom will pay all direct and fully allocated costs for the cost center associated with the Named Resources. Tellabs will raise an invoice to Fibcom every month. The invoice has to be paid within thirty (30) calendar days from the date of invoice. Details on calculation of direct allocations are given in Chapter V- Details of cost calculations. C.7. From the bare perusal of the above and 'Chapter V - Details of cost calculations' of Amendment No. 3 to TALA, it is evident that Tellabs was raising invoices on the Noticee for payroll, bonus, incentive, compensation expense, travel & Entertainment, Ed....
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....s on the Noticee for recovery of rent under Article 3 of the Facility Services Agreement are enclosed herein as Annexure-19. C.11. In the light of the above, it is submitted that these charges in no way are covered under any of the clauses of 'Business Auxiliary Service'. Therefore, the SCN deserves to be dropped to this extent. (II) Repairs, Maintenance, Tooling Expenses - 'Management, Maintenance or Repair Service' (Rs. 10,46,389/-) C.12. The SCN has proposed service tax on repair, maintenance tooling expenses under 'Management, Maintenance or Repair Service'. In this regard it is submitted that the SCN has failed to justify as to how these charges are taxable. Therefore, service tax liability to this extent is liable to be dropped on this ground alone. C.13. Year-wise detail of Repair, Maintenance, Tooling Expenses, is given herein-below: Year Amount 2009-10 3,49,045 2010-11 5,35,556 2011-12 75,706 2012-13 86,082 Total 10,46,389 C.14. In the year 2009-10, the Noticee has shown Rs. 3,49,045/- as 'Repairs, Maintenance, Tooling expenses etc.' under 'Expenditure in Foreign Currency (Cash Basis)' in its ....
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.... In lieu of the maintenance service received from outside India, the Noticee has paid an amount of Rs. 75,706/- (i.e. 1,227/- Euros, the same is included in Invoice No. 1060581-1021148 dated 16.07.2010) to the foreign service providers. It is submitted that the maintenance service has been received by the Noticee for its Indian operations. Copy of the invoices raised by the foreign service providers for the year 2011-2012 is enclosed herein as Annexure-22. The Noticee submits that these maintenance and repair services are received by the Noticee in India. On this amount, the Noticee has discharged service tax liability along with interest, vide Challan No. 00002 dated 18.02.2013 Copy of Challan No. 00002 dated 18.02.2013 along with calculation of service tax and interest, is enclosed herein as Annexure-21. C.17. In the year 2012-13, the Noticee has shown Rs. 86,082/- as 'Repairs, Maintenance, Tooling expenses etc.' under 'Expenditure in Foreign Currency (Cash Basis)' in its balance sheet. It is submitted that the Noticee has received maintenance service from service providers situated outside India. In lieu of the maintenance service received from outside India, the Notice....
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....-below: Training Fee in India Particulars Bill No. Date Value in DKK Less TDS Net Payment Value in INR Remote site Training, Location, start fee 91462724 15.10.2009 3,000 600 2,400 1,11,960 Training Fee in Denmark Prof. SVCS, General, Daily Rate, Denmark 91462724 15.10.2009 22,000 4,400 17,600 8,21,040 Prof. SVCS, General, Customized Training, Denmark 91462724 15.10.2009 3,000 600 2,400 1,11,960 Total 28,000 5,600 22,400 10,44,96 0 C.22. Copy of the Invoice No. 91462724 dated 15.10.2009 is enclosed herein as Annexure-24. From the bare perusal of the above table and the invoice, it is evident that the Noticee has received training from Tellabs and paid Rs. 10,44,960/- out of which Rs. 1,11,960/- pertain to training received by the Noticee in India and Rs. 9,33,000/- pertain to training received in Denmark. C.23. It is submitted that the SCN has wrongly classified training provided by Tellabs under 'Management or Business Consultant Service' as Tellabs is not providing any consultancy to the Noticee. The training service pr....
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....ifiable under 'Management or Business Consultant Service' and hence not taxable. C.27. Presuming without admitting, it is submitted that if at all classifiable, training provided by Tellabs, will be classifiable under 'Commercial Training or Coaching Service'. Relevant provisions relating to 'Commercial Training or Coaching Service' are reproduced hereinbelow: Section 65(26) "commercial training or coaching" means any training or coaching provided by a commercial training or coaching centre; Section 65(27) "commercial training or coaching centre" means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes; Section 65(105)(zzc) to any person, by a commercial training or coaching centre in relation to commercial training or coaching; Explanation. - For the removal of doubts, it is hereby declared that the expression "commercial training or coaching centre" occurring in this subclause and in clauses (26), (27) and (90a) shall include any centre or in....
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.... paid service tax of Rs. 11,532/- along with interest of Rs. 12,119/- vide Challan No. 00002 dated 18.02.2013 on Rs. 1,11,960/- pertaining to training received by the Noticee in India. Copy of Challan No. 00002 dated 18.02.2013 is enclosed as Annexure-21. C.32. For the year 2011-12, the Noticee has incurred Rs. 17,10,367/- as 'Professional Fees' in foreign exchange. Detail of Professional Fees of Rs. 17,10,367/- is given herein-below: Invoice No. & date Value in FC Value in INR Remarks 2200001171 dated 05.09.2011 NA 2,50,000/- The Noticee has received services from Deloitte Haskins & Sells for preparing and filing Income Tax Returns for five inbound assignees. On this invoice, service provider has charged service tax and the Noticee has paid the same. The same is evident from the invoice enclosed as annexure. Therefore, service tax on the same is not payable again. 2200000423 dated 05.07.2011 NA 3,75,000/- The Noticee has received services from Deloitte Haskins & Sells for preparing Withholding Tax Computations of five inbound assignees. On this invoice, service provider has charged service tax and the Noticee has paid the same. The same....
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....for the year 2012-13 are enclosed herein as Annexure-26. C.36. In the light of the above, it is submitted that the SCN to this extent is liable to be dropped. (IV) Insurance - 'Insurance Auxiliary Service' (Rs. 10,13,799/-) C.37. The SCN has proposed service tax on insurance expenses under 'Insurance Auxiliary Service'. In this regard it is submitted that the SCN has failed to justify as to how these charges are taxable. Therefore, service tax liability to this extent is liable to be dropped on this ground alone. C.38. Year-wise detail of insurance expense is given herein-below: Year Amount 2009-10 0 2010-11 4,62,288 2011-12 3,58,144 2012-13 1,93,367 Total 10,13,799 C.39. It is submitted that the Noticee has taken insurance policies from Willis Insurance Pool, for its R&D Facility at Denmark and the employees working at its R&D Facility at Denmark. The Noticee was paying the premium to Willis Insurance in foreign currency. Copy of the insurance policy taken by the Noticee from Willis Insurance is enclosed herein as Annexure-27. Copies of Payment made to Willis Insurance through bank are enclosed herein....
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.... claims which have been investigated and authorisation of payments and damage assessment services, administration of insurance including salvage administration and insurance consultancy services. It may be emphasized that only such services are taxable which are in relation to general insurance business such as motor vehicle insurance, insurance of buildings and other properties, marine insurance, fire insurance and other miscellaneous insurance. Services provided in relation to life insurance are not taxable. C.42. Form the perusal of the above, it is submitted that the services provided by agents or middlemen in relation to general insurance only are covered under 'Insurance Auxiliary Service'. Therefore, service tax demand to this extent is liable to be dropped. (V) Bank Charges & Commission - 'Banking or Other Financial Service' (Rs. 9,49,073/-) C.43. The SCN has proposed service tax on bank charges & commission under 'Banking or Other Financial Service'. In this regard it is submitted that the SCN has failed to justify as to how these charges are taxable under 'Banking or Other Financial Service'. Therefore, service tax liability to this extent is li....
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....king of the facility and making contributions to the government funds like ATP, maternity, etc. The Noticee released payment of such charges from its account at Danske Bank, Denmark. Reliance in this regard is placed on the bank statement of Danske Bank, Denmark, which is enclosed herein as Annexure-30. The Noticee submits that these expenses are not taxable as the same were incurred in relation to the Noticee's R&D Facility situated at Denmark. Presuming without admitting that the expenses incurred at R&D Facility, Denmark are for receipt of service, it is submitted that the same are not taxable as the service provider and service recipient are situated outside India and the services are provided and consumed outside India. in this regard reliance is placed on Section 64 of the Finance Act, 1994, relevant portion is reproduced herein-below: Section 64. Extent, commencement and application. - (1) This Chapter extends to the whole of India except the State of Jammu and Kashmir. C.50. The provisions contained in Section 64 of the Finance Act, 1994 extend to the whole of India and not beyond India. From the perusal of Section 64 of the Finance Act, 1994, it is clear ....
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....n (4) of Section 67 which enables the determination of the value of the taxable service "in such manner as may be prescribed" is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to service tax. We are, therefore, undoubtedly of the opinion that Rule 5 (1) of the Rules runs counter and is repugnant to Sections 66 and 67 of the Act and to that extent it is ultra vires. It purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider "in the course of providing taxable service". What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. It ....
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....ents made also. They have also contended in the reply that in certain case they have paid the Service Tax due in respect of the Services received from outside India through their Branch Office in Denmark. In case of Keshavlal Lallubhai Patel v. Lalbhai Trikumlal Mills Ltd. [AIR 1958 SC 512] and held as follows: "10. There is one more point which must be considered. It was strongly urged before us by the appellants that, in the trial court, no plea had been taken by the respondent that the agreement for the extension of time was vague and uncertain. No such plea appears to have been taken even in the grounds of appeal preferred by the respondent in the High Court at Bombay; but apparently the plea was allowed to be raised in the High Court and the appellants took no objection to it at that stage. It cannot be said that it was not open to the High Court to allow such a plea to be raised even for the first time in appeal. After all, the plea raised is a plea of law based solely upon the construction of the letter which is the basis of the case for the extension of time for the performance of the contract and so it was competent to the appeal court to allow such a plea to be r....
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.... benefit of the said decision of the Hon'ble Supreme Court. (Reference be made to the decision of larger bench in the case of Bhagwathy Traders [2011 (24) STR 290 (T-LB)]. Impugned order in para 36 records as follows: "36 Thus I note that in terms of Section 66A(2)up to 30.06.2012 permanent establishment of a company in India and permanent establishment of that company out side India are to be treated as separate persons for the purpose of Section 66A. I have noted from the offer of employment of Danish nationals by M/s FIL that all of them are technocrat i.e. Engineers whose designations read as Engineer, Manager Engineer, Staff Engineer, Principal Engineer, Senior Engineer etc. Since the Denmark establishment of M/s FIL is centered around these assigned personnel of M/s Tellabs who are undoubtedly are technical persons capable of providing Scientific and Technical Consultancy relevant for providing Research and Development Facility for Indian operations of M/s FIL, hence they had been acting as service provider to their Indian Head office. Due to this deeming fiction created by Section 66A (2), all the reimbursement of expenses for functioning of that branch would liable....
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....voices issued by him cannot directly mean that the same was to be subjected to service tax. The demand for the period prior to 01.07.2012 fails on this account as being made without establishing the taxability of the transactions. For period post 01.07.2012 the scheme of taxation of services have changed, and any consideration received/ paid for any activity undertaken by a person for another becomes taxable (Section 65 B (44) read with Section 66 of the Finance Act, 1994 as amended with effect from 01.07.2012). We do not find any fault in the approach adopted by the impugned order for the period post 01.07.2012. 4.7 Appellant have claimed that the demand should be worked out by treating the payment made by them to the foreign entities as cum tax as per Section 67 (2) of the Finance Act, 1994. They have relied upon the decisions in the case of ➢ Sri Chakra Tyres [1999 (108) ELT 361 (T)] affirmed by Hon'ble Supreme Court has reported at [2002 (142) ELT A 279]; ➢ Maruti Udyog Ltd. [2002 (49) RLT 1 (SC)] In the present case undisputedly the demand has been worked out treating the entire amount paid to the foreign entity as towards consideration fo....
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....009 (238) ELT 3 (SC)] wherein following has been held: "17. The main body of sub-section 1 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 sub section 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 the absence of such an allegation in the notice the period for....