Whether rejecting plea of financial hardship correct on existence of liquid assets ?

Case:- M/s GOODEARTH MARITIME PVT LTD Vs COMMISSIONER OF SERVICE TAX

Citation:- 2014-TIOL-1183-HC-MAD-ST

Brief facts:- C.M.A.Nos.1342 to 1345 to 303 of 2014 had been filed under Section 35-G of the Central Excise Act, 1944 challenging the order dated 24.03.2014 made in Misc.Order No.40192 to 40193 of 2014 on the file of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai.
The substantial question of law raised in C.M.A.Nos.300 to 303 of 2014 was "Whether the Tribunal was justified in not granting waiver of pre-deposit when there was no service received in India so as to attract the provisions of Section 66A of Finance Act, 1994 and Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006"
The appellant was engaged in the transport of cargo through ships owned or chartered by them. According to the Revenue, the assessee was not paying service tax in respect of certain remittances made to their agents in abroad. The Revenue was of the view that the remittances, which were made by the assessee to the agents abroad, in respect of the Ship Management Services, Maintenance and Repair Services, Technical and Analysis Service, Business Auxiliary Service and Business Support Service , were taxable under the Finance Act, 1994 on the terms that the services were received from a person located abroad and therefore they were liable to pay service tax as a recipient of service in terms of the provisions of Section 66A of the Finance Act, 1994. Hence, four show cause notices were issued and adjudicated, resulting in confirming of the demand of service tax along with interest and penalty. Challenging the same, appeals were filed before the Customs, Excise and Service Tax Appellate Tribunal along with an application for waiver of pre-deposit of duty.

Appellant’s contentions:- The contention of the appellant was that the Section 66 A of the Finance Act, 1994 provides for payment of service tax on services received from outside India, which read as follows:
"Charge of service tax on services received from outside India.
66A. (1) Where any service specified in clause (105) of section 65 is- (a) provided or to be provided by a person who had established a business or had a fixed establishment from which the service was provided or to be provided or had his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who had his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be the taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this
Chapter shall apply: Provided that where the recipient of the service was an individual and such service received by him was otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:
Provided further that where the provider of the service had his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service was located, shall be treated as the country from which the service was provided or to be provided."
Correspondingly, Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 provides for various taxable services that were subject to levy of service tax in relation to the service provided from outside India and received in India.
It was the specific case of the appellant that even as per the statement of Revenue, the services in this case was rendered outside India and there was no element of service received in India and therefore Section 66A of Finance Act, 1994 and Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006, do not apply to the facts of the present case.
The Tribunal proceeded on the basis that there was no material evidence to demonstrate and prove that the payment made for the services rendered abroad; but we found from paragraph 2 of the order-in-original, wherein the Revenue's charge itself was that the demand of service tax was made on the amount paid to the foreign service providers for services rendered outside India, which was supported by the investigation conducted by the department.
Mr.Arvind P.Datar, learned Senior Counsel appearing for the appellant submitted that the Tribunal while considering the plea for waiver of pre-deposit had taken the liquid asset worth of Rs.39 crores erroneously and there was no material for that. He pointed out that the profit and loss statement for the year ending 31st March, 2013, showed loss of Rs.15,34,968/- and there were other liabilities also. The company was suffering liquidity crunch in view of the margin money deposits made with various banks for the running of the business, which was referred to in page Nos.69 to 72 of the typed set of papers. Therefore, the appellant had no financial liquidity to pay the demand and, therefore, the plea of undue hardship had not been properly considered. In any event, the primary issue that had to be considered should be interpreted in favour of the appellant by granting waiver of pre-deposit.

Respondent’s contentions:- The learned Counsel appearing for the Revenue reiterated the findings of lower authorities. However, the Department also relied upon Section 65(96a) of the Finance Act, 1994, which defines the term "Ship Management service" and those services were taxable once the recipient was located in India and the provider was located outside India and therefore the question of taxable event does not arise in the case of services rendered outside India by an agent outside India.

Reasoning of judgment:- The primary issue in this case was as to whether the provisions of Section 66A of Finance Act, 1994 and Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006, would be applicable in respect of payments made by the assessee to foreign agents, who had rendered such service abroad and there was no element of receipt of service into India. The primary issue had to be gone into by the Tribunal in the appeal. The issue was purely legal in the face of the admitted facts as above. They found much force in the argument of the learned Senior Counsel appearing for the appellant that if the admitted plea of payment made to the service provider abroad for services rendered outside India, it would not fall within the mischief of the service tax, which was applicable only if it was received by a person in India. The prima facie finding of the Tribunal, that there was a service received in India, does not appear to be supported by material.
The Tribunal had however misconstrued the plea of undue hardship of the appellant on the premise that there were liquid assets to the tune of Rs.39 crores and ordered pre-deposit of Rs.1,30,00,000/- within a period of eight weeks. It may true be that there were some liquid assets in the course of business, but the overall financial position of the company was reflected in the profit and loss account, which shows a loss. Therefore, the appellant had established the plea both on prima facie case and undue hardship.
At this juncture, it was apposite to refer to a decision of the Supreme Court in Benara Valves Ltd. v. CCE, (2006) 13 SCC 347 = 2006- TIOL-156-SC-CX, wherein it had been held as under:
"8. It was true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised had no legs to stand on, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine manner unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order had to be passed keeping in view the factual scenario involved. Merely because this Court had indicated the principles that does not give a licence to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen's faith in the impartiality of public administration, interim relief can be given.
9. It had become an unfortunate trend to casually dispose of stay applications by referring to decisions in Siliguri Municipality v. Amalendu Das, (1984) 2 SCC 436 = 2002-TIOL-516-SC-MISC and CCE v. Dunlop India Ltd., (1985) 1 SCC 260 = 2002-TIOL-156-SCCX- LB cases without analysing factual scenario involved in a particular case.
Section 35-F of the Act reads as follows:
"35-F. Deposit, pending appeal, of duty demanded or penalty levied. Where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which were not under the control of Central Excise Authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied:
Provided that where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal was of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Commissioner(Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of the Revenue:
Provided further that where an application was filed before the Commissioner (Appeals) for dispensing with the deposit of duty demanded or penalty levied under the first proviso, the Commissioner (Appeals) shall, where it was possible to do so, decide such application within thirty days from the date of its filing."
Two significant expressions used in the provisions were "undue hardship to such person" and "safeguard the interests of the Revenue". Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the interests of the Revenue had to be kept in view.
As noted above there were two important expressions in Section 35-F. One was undue hardship. This was a matter within the special knowledge of the applicant for waiver and had to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva v. State of Karnataka, (1993) 3 SCC 467 that under Indian conditions expression "undue hardship" was normally related to economic hardship. "Undue" which means something which was not merited by the conduct of the claimant, or was very much disproportionate to it. Undue hardship was caused when the hardship was not warranted by the circumstances. 13. For a hardship to be "undue" it must be shown that the particular burden to observe or perform the requirement was out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it.
The word "undue" adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.
The other aspect relates to imposition of condition to safeguard the interests of the Revenue. This was an aspect which the Tribunal had to bring into focus. It was for the Tribunal to impose such conditions as were deemed proper to safeguard the interests of the Revenue. Therefore, the Tribunal while dealing with the application had to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the interests of the Revenue."
The larger issue as to whether in respect of the services rendered by an agent in a foreign country, for which payment was also made abroad, the payment of service tax will apply if no service was received in India had to be decided by the Tribunal in the appeals on merits. The appellant will be entitled to such relief on this plea in the light of Section 66A(1) of the Finance Act, 1994.
The High Court found much force in the plea of the appellant regarding undue hardship and financial difficulty in pursuing the appeal on payment of the pre-deposit as ordered by the Tribunal. The same, therefore, requires to be modified considering the prima facie case of the appellant.
For the foregoing reasons, the following order was passed:
(i) On the question of law raised, it was viewed that the Tribunal was not justified in ordering the pre-deposit in the manner stated in its order dated 10.6.2013;
(ii) Consequently, the order of the Tribunal dated 10.6.2013 was modified to the effect that the appellant shall make a pre-deposit of Rs.50,00,000/- (Rupees Fifty Lakhs only) towards pre-deposit on or before 8.8.2014 and subject to such compliance, as stated in the order of the Tribunal dated 10.6.2013, the pre-deposit of balance amount demanded shall remain waived and its collection shall stand stayed during the pendency of the appeal before the Tribunal; and
(iii) The order of the Tribunal dated 24.3.2014 dismissing the appeal for non-compliance of the stay order was set aside and the appeal was restored to the file of the Tribunal. In the result, these appeals were ordered in the above terms. No costs. Consequently, connected Miscellaneous Petitions were closed.

Decision:- Appeal disposed off.

Comment:- The essence of the case is that for deciding the stay application and ordering pre-deposit, two essential factors that are to be taken care of is the financial hardship and safeguarding the interest of revenue. In the present case, it was concluded by the High Court that mere presence of liquid assets cannot lead to denial of plea of financial hardship and what is required to be emphasized is that the financial statements reflect losses or not. As there were losses, the High Court granted relief by modifying the pre-deposit order of the Tribunal.

{Prepared by:- Ranu Dhoot}

Comments

PJ/Case law/2014-15/2289

Post a Comment

Query