Penalty on the ground that the appellant was liable to discharge tax under reverse charge mechanism on the payment made by them.

PJ/CASE LAW/2016-17/3173

Case:-ROHA DYECHEM PVT LTD VIDHI DYESTUFF MFG LTD Vs COMMISSIONER OF CENTRAL EXCISE, RAIGAD

Citation: - 2016-TIOL-727-CESTAT-MUM

Issue: -Penalty on the ground that the appellant was liable to discharge tax under reverse charge mechanism on the payment made by them.

Brief facts:- These two appeals are against Order in Appeal Nos: US/527/RGD/2011 & US/523 & 524/RGD/2011 both dated 30/12/2011 passed by the Commissioner of Central Excise (Appeals), Mumbai-II. The period involved in both these appeals is 18/04/2006 to 31/03/2008. The lower authorities have confirmed the demand of service tax along with interest and imposed equivalent amount of penalty on the ground that the appellant is liable to discharge service tax on the reverse charge mechanism as per Section 66A of the Finance Act, 1994 for the payment made by them to Food and Drug Administration of USA for the services under the category of ‘technical inspection of certification services' and under the category of ‘business exhibition services'. The facts in the case are that the appellant had sought certification of their products by Food and Drug Administration, USA for the products manufactured by them. The Food and Drug Administration of USA certifies the quality of the products which enables the appellant to sell the products in USA, where it is statutorily required that the such products needs to be certified by US FDA.

Appellant contention: -It is the case of the appellant that the certification is nothing but a statutory requirement and the amount paid by them to US FDA are nothing but fees. In order to market the goods in USA the products needs to be certified by US FDA for which they have to pay a fee which have been charged under reverse charge mechanism, we find that in similar set of facts the Tribunal in the case of K.G. Denim Ltd. vs. Commissioner of Central Excise, Salem 2015 (37) STR 140 2014-TIOL-1734-CESTAT-MAD had held that payment of charges for textile processing to M/s Testex, Swiss will not fall under the category of reverse charge mechanism. The ratio of the said judgment squarely covers the issue in the case in hand. Regarding the business exhibition service, appellant submitted that in the case of Positive Packaging Industries Ltd. vs. Commissioner of Central Excise, Raigad 2015 (39) STR 219, it was held that service tax gets attracted only if service is performed in India. It is also held that that business exhibition service, if entirely performed outside India would not get covered under taxable service even under reversed charge mechanism. In the case in hand, the facts are not in dispute as the appellant had engaged the services of an entity for business exhibition service outside India.

Respondent contention: -Lower authorities have confirmed the demand of Service Tax along with interest and imposed equivalent penalty on the ground that the appellant was liable to discharge tax under reverse charge mechanism on the payment made by them to Food & Drug Administration of USA for the services rendered under the category of ‘Technical Inspection & certification service' & also BAS. It was contention of Revenue that when the service provider is located abroad and service recipient is located in India, the payment so made against taxable service falls within purview of reverse charge and accordingly service tax is payable by the appellant.

Reasoning of judgment: -The appeal was allowed by relying on decision of Tribunal in the case of K.G. Denim Ltd. vs. Commissioner of Central Excise, Salem 2015 (37) STR 140 = 2014-TIOL-1734-CESTAT-MAD. In this case, it was held that payment of charges for textile processing to M/s Testex, Swiss will not fall under the category of reverse charge mechanism as it is a statutory requirement and payment so made is in nature of fees. In the instant case also, the payment made by the appellant is a sort of fees paid to US FDA, thus, no service tax is attracted. As regards the business exhibition service, matter was also decided in favour of appellant by relying on the case of Positive Packaging Industries Ltd. vs. Commissioner of Central Excise, Raigad 2015 (39) STR 219 = 2013-TIOL-2150-CESTAT-MUM in which it was held that service tax gets attracted only if service is performed in India. It is also held that that business exhibition service, if entirely performed outside India would not get covered under taxable service even under reversed charge mechanism. In the case in hand, the facts are not in dispute as the appellant had engaged the services of an entity for business exhibition service outside India. Thus, service tax was held as not payable.

Decision: -Appeal allowed.

Comment: -The service tax liability is not attracted if the payment made by Indian service recipient to foreign service provider is a statutory requirement. In such a case, the payment is being made in form of “fees” which does not get covered under purview of taxable service and accordingly no service tax is payable under reverse charge. In case of foreign exhibition service, it was held that where the service is entirely performed outside India, it will not be taxable in India.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3173

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