Whether reverse charge mechanism on import of service is applicable prior to 18.4.2006?

PJ/Case Laws/2012-13/1259

Case:- M/s KIOCL LTD versus CCE, Bangalore

Citation:- 2012-TIOL-1276-CESTAT-BANG

Brief Facts:-The issue here relates to the imposition of service tax on reverse charge basis under Business Auxiliary Service for the amounts paid by the appellant to foreign companies on account of commission. This commission was in fact in the nature of a discount offered to the buyer and was offered by a separate letter referring to the contract. In respect of sales of' buyers in Taiwan, they have entered into an agreement with foreign customer, appointing them as their agent in promoting sale of their product to China Steel Corporation according to the terms and conditions spelt out therein. In respect of pellets sold to buyers outside India, commission was paid to MMTC in India. They further stated that a service in relation to promotion or marketing or sale of goods produced by or belonging to the client is required to be rendered to bring an activity within the scope of business auxiliary service. In so far as the commission paid under the contract is concerned, these are in the nature of discount given to the buyers.

Appellant Contention:-The Appellant has pointed out that, based on the Hon'ble High Court's decision in the case of “Indian National Ship Owners Association', no service tax was leviable on any taxable service received from abroad prior to 18/04/2006 and this was not considered by the adjudicating authority and that authority proceeded to deal with the issue on the basis of certain circulars of the Board. It was clearly submitted by the appellant that the amounts described as commission in the relevant agreements were actually in the nature of discounts given to the foreign buyers of the goods and the same were not liable to be treated as commission for the purpose of levy of service tax under ‘BAS'. The above contentions of the assessee that commission was in the nature of discount were not considered by the authorities.

Respondent Contention:- The Respondent submits that no findings were recorded on the plea of the assessee regarding certain transactions for the period after April, 2006 in which the amounts described as commission in the agreements were actually in the nature of discounts given to the foreign buyers through separate letters referring to the contracts.

Reasoning of Judgement:-We have considered the arguments from both sides. We find that that the Board's Circular dt. 26/09/2011 was not considered by Appellant while passing the impugned order dt. 07/10/2011, We have also not found any findings on the aforesaid plea of the assessee regarding certain transactions with foreign companies for the period after April, 2006. In these circumstances, the question whether the appellant is liable to pay service tax with education cesses on the amounts paid by them to the foreign companies from 18/04/2006, and other issues associated therewith, need to be remanded to the adjudicating authority for de novo decision. As regards the demand raised for the period prior to 18/04/2006, the issue stands settled in favour of the appellant by numerous decisions including the Hon'ble Bombay High Court's judgment in India National Ship Owners Association case (supra) which has been accepted by the CBEC. Accordingly, the demand confirmed by the adjudicating authority against the assessee for the period prior to 18/04/2006 is set aside and the corresponding penalties are vacated. The Appellant is requested to readjudicate the issues in accordance with law and the principles of natural justice. It is made clear that all the contentions raised by the assessee shall be duly considered and appropriate findings recorded thereon. The appeal is allowed in so for as the demand of service tax and education cesses, order for recovery of interest and imposition of penalties for the period prior to 18/04/2006 are concerned. The appeal is allowed by remand to the adjudicating authority for de novo adjudication and decision on similar issues for the period from 18/04/2006. The stay petition also stands disposed of.

Decision:-Appeal disposed off.

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PJ/Case Laws/2012-13/1259

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