Whether service tax payable on each and every foreign remittance?

PJ/Case Study/2013-14/105

Prepared by: CA Neetu Sukhwani &
Sharad Bang

Case study

Introduction:- M/s Curio Crafts, hereinafter referred to as the assessee are engaged in the manufacture and export of handicraft items. The SBBJ, Bhagat Ki Kothi Branch vide their letter provided information to the service tax department regarding the details of foreign remittances made by M/s Curio Crafts for the financial year 2009-10 to 2012-13. Thereafter, it was alleged that the foreign remittances made by the assessee were actually commission paid to agents situated abroad and consequently, the assessee was liable to pay service tax under reverse charge mechanism for import of services. Hence, the assessee was called upon to pay Rs. 2,33,629/- as service tax along with interest and penalties under section 76, 77 and 78 of the Finance Act, 1994. The outcome of the show cause notice is the subject matter of the present case study.

M/s Curio Crafts[OIO 45/2015-ST (DEMAND) Dated 05.05.2015

Relevant legal provisions
Section 66A of the Finance Act, 1944 (Effective till 30.06.2012)
Section 66C of the Finance Act, 1944 (w.e.f 01.07.2012)
Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 (Effective till 30.06.2012)
Rule 3 of the Place of Provision of Service Rules, 2012 (w.e.f 01.07.2012)
Section 76, Section 77 & Section 78 of the Finance Act, 1994.

Issue Involved:
Whether service tax payable on each and every foreign remittance?

Brief facts:-
The assessee M/s. Curio Crafts were registered with the Central Excise and Service Tax Department under the category of “Transport of goods by Road”.
State Bank of Bikaner & Jaipur (SBBJ), Bhagat ki Kothi, Jodhpur vide his letter dated 05.05.2014 provided the department, a list of Outward Remittances of Import of Services for the Financial Years 2007-08 to 2012-13. On scrutiny of the details provided by SBBJ, Bhagat ki Kothi, Jodhpur, it came to the knowledge of the department that the assessee had made outward remittance for import of services and paid Rs. 21,14,239/- to MESSE FRANKFURT, DIETER SEHMITZ GERMANY, FRANKFURTER SPARKASSE & PIER 1 IMPORT USA but did not discharge their service tax liability of Rs. 2,33,629/- payable under reverse charge mechanism.
The Revenue was of the view that Finance Act, 1994 is applicable to whole of India except the state of Jammu & Kashmir and therefore, the service providers located in India except Jammu & Kashmir are liable to pay Service Tax. The aforesaid foreign based companies do not appear to be located in India and nor do they have any permanent establishment in India and therefore they are not covered under Chapter V of the Finance Act, 1994, though they have provided the taxable services viz. “Business Auxiliary Services”. However, Section 66C of the Finance Act, 1994 specifies that in such cases, the recipient of the service shall be treated as if he himself had provided the service in India and accordingly all the provisions of Chapter V of the Finance Act, 1994 shall be applicable on him. In Revenue’s opinion, therefore, M/s. Curio Crafts, the recipient of the said services, whose place of business, fixed establishment, permanent address or usual place of residence is in India would be treated as if they themselves had provided the service in India and accordingly liable to pay service tax.
The department, therefore, in its show cause notice called upon M/s. Curio Crafts, asked them the reason as to why:-
1.    Service tax amounting to Rs. 2,33,629/- should not be demanded and recovered from them in terms of proviso to section 73(1) of the Finance Act, 1994.
2.    Interest should not be recovered from them as per applicable rate on the amount of service tax mentioned above under Section 75 of the Finance Act, 1994.
3.    Penalty should not be imposed upon them in terms of Section 76 of the Finance Act, 1994 for non-payment of tax dues.
4.    Penalty should not be imposed upon them under the provisions of section 77 of the Finance Act, 1994 for failure to file service tax returns by due dates.
5.    Penalty should not be imposed upon them under section 78 of the Act for willful suppression of the facts with intent to evade payment of tax dues and for contravention of various provisions of the Finance Act, 1994 and rules made there under.

Assessee’s contention:-The assessee in its reply to the show cause notice put forward the following contentions. It was submitted that the impugned show cause notice issued to them was wholly and totally erroneous and was liable to be set aside.

1.    It was submitted that it had been alleged that they did not pay service tax on the various services imported by them for which they were liable to pay service tax under the reverse charge mechanism. In this respect, it was submitted that they did not deny the remittances made by them to the foreign parties as listed in the impugned show cause notice but It was submitted that there was no service tax liability on the transactions mentioned in the impugned show cause notice. It was submitted that for a transaction to be leviable to service tax, it was necessary that it was in the nature of service and was not specifically exempted. They submitted that there was no service tax payable on the transactions mentioned and the impugned show cause notice was devoid of merits. They held- it was worth observing that the impugned show cause notice had been issued without appreciating the factual position and ignoring the reply filed by them in this regard. They had already given the details of the transactions pertaining to outward remittances and explained the non-taxability of the said transactions but instead of considering the submissions made by them in this regard, they had been issued with a show cause notice alleging willful suppression of facts with intend to evade payment of duty which was totally unsustainable. They submitted that the impugned show cause notice, on the contrary alleged that they have not replied as regards the service tax liability with respect to outward remittances made by them whereas they had replied vide their letter dated 01.09.2014. A copy of the letter submitted by them dated 01.09.2014 was also enclosed with the reply in Annexure-1. It was submitted that the show cause notice issued on erroneous facts was not at all tenable and was liable to be quashed.

2.    The explanations for each of the transactions were given in the succeeding paragraphs. It was submitted that as far as the transaction pertaining to PIER 1 IMPORT USA of 14,168.10 USD was concerned, no service tax was payable as the transaction was not of import of any service and rather it represented adjustment of excess amount paid by the foreign party. It was submitted that the amount of Rs. 14,168.10 USD was wrongly paid by the buyer due to their documentation system error because mistakenly the invoice amount was doubled and so the above cited transaction was nothing but refund of excess amount received by them from their foreign buyer. As the transaction was mere refund of excess amount mistakenly received from the buyer, no service tax was payable on this transaction.
Furthermore, to substantiate the fact that the transaction of Rs. 14,168.10 USD pertained to the refund of excess payment made by the foreign buyer, they enclosed the letter written to the manager of their bank wherein it was intimated that the remittance only pertained to amount wrongly paid by buyer due to documentation system error. It was explained in the letter that they had raised an invoice of CCJ 018/11-12 for US$ 14,168.10 for shipment that was exported by packing an item in two parts, i.e. iron and glass separately. The quantity exported was 249 pcs only packed in 498 cartons. However, the documents generated at the buyer’s system had fault and the invoice value was doubled as their system calculated the packages as the quantity shipped instead of actual quantity of 249 pcs. Moreover, the copy of their invoice, invoice generated by the buyer’s system and the correspondences made via mail were also enclosed. Hence, it had been sufficiently established that the above cited transaction was not that of import of service and no service tax was payable by them on the same under reverse charge mechanism. Therefore, the impugned show cause notice deserved to be set aside. A copy of the letter written to bank manager along with relevant documents was also enclosed.
3.    They further submitted that as far as remaining transactions were concerned, all were concerned with Business Exhibition Expenses that were not leviable to service tax. They also enclosed the copies of invoices of the parties to whom they made outward remittances and on perusal of the said invoices it had to be clear that the said invoices were related to business exhibition conducted outside India. The copies of invoices were enclosed. It was submitted that as the transactions for Business Exhibition Expenses pertained to both pre-negative list era and post negative list tax regime, the provisions prevalent during both the periods were discussed:-
Before, 01.07.2012, i.e., during positive service tax list scenario, Business Exhibition Services were taxable services under section 65(105)(zzo) of the Finance Act, 1994. However, service tax was payable for import of services under reverse charge mechanism for the taxable services provided from outside India and received in India as per the provisions of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 was produced for the sake of convenient reference as follows:-
Rule (3)Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services‚–

(i)	specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), [(zzzy), (zzzz), (zzzza), (zzzzm), (zzzzu), (zzzzv) and (zzzzw) of clause (105) of section 65 of the Act, be such services as were provided or to be provided in relation to an immovable property situated in India;
ii)	*specified in sub-clauses(a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), [(zzzf), (zzzp), (zzzzg), (zzzzh) and (zzzzi)]3 of clause (105) of section 65 of the Act,be such services as were performed in India* : Provided that where such taxable service was partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under section 67 of the Act and the rules made thereunder; [ Provided further that where the taxable services referred to in sub-clauses (zzg) and (zzi) of clause (105) of section 65 of the Act, were provided in relation to any goods or material or any immovable property, as the case may be, situated in India at the time of provision of service, through internet or an electronic network including a computer network or any other means, then such taxable service, whether or not performed in India, shall be treated as the taxable service performed in India; ]
(iii)	specified in clause (105) of section 65 of the Act, but excluding, — a) sub-clauses (zzzo) and (zzzv); (b) those specified in clause (i) of this rule except when the provision of taxable services specified in clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property; and (c) those specified in clause (ii) of this rule, be such services as were received by a recipient located in India for use in relation to business or commerce. [ Provided that where the taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act was received by a recipient located in India, then such taxable service shall be treated as taxable service provided from outside India and received in India subject to the condition that the tangible goods supplied for use were located in India during the period of use of such tangible goods by such recipient.]

It was submitted that as the taxable services received by them in the case was Business Exhibition Services taxable under section 65(105)(zzo), Rule 3(ii) was applicable in their case. The Rule 3(ii) said that for business exhibition services, the said services will be treated as imported services if the service was performed in India. Further, the proviso further stated that if a service was performed partly in India, then the service shall be treated as performed in India. However, in their case, the business exhibition services were being provided by the foreign service provider outside India. As such, the said ‘Business Exhibition Services” would not be treated as import of service as per the Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Hence, there was no liability to pay service tax under reverse charge mechanism on the business expenditure services received from outside India and performed outside India.
4.    Aligning with the above, they also submitted that even in the negative list tax regime, this situation of non-leviability of service tax on the business exhibitions conducted outside India was being continued which itself indicated the intention of the legislature that no service tax was leviable on business exhibitions conducted outside India. The entry no. 31 of the Mega Exemption Notification No. 25/2012-ST dated 20.06.2012 stated that exemption was granted to services provided by an organiser to any person in respect of business exhibition held outside India. Therefore, when the service provider was exempted from the levy of service tax, the question of paying service tax by the service recipient under reverse charge mechanism did not arise. Moreover, even if the exemption was not given in the Mega Exemption notification, then too, it would not have been leviable to service tax because the place of provision of service in the case where business exhibition was organised would be governed by Rule 6 of the Place of Provision of Service Rules (POPS), 2012. The Rule 6 of POPS Rules, 2012 states that place of provision for service provided by way of admission to, or organisation of any event or celebration, conference, fair, exhibition shall be the place where the event etc. was actually held. As in the present case, the event, i.e., the exhibition was held outside India, the place of provision of service was also outside India and no service tax was leviable because the charging section 66B states that “There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.” As the place of provision of service was in non-taxable territory, no service tax was leviable on the business exhibition services received by them and the impugned show cause notice deserved to be quashed.
5.    In continuation to the above, they also relied on the various judicial pronouncements on the issue in their favour as follows:-
·        PRICOL LTD. VERSUS COMMR. OF C. EX. & S.T., COIMBATORE [2014 (33) S.T.R. 529 (Tri. – Chennai)]:-
Stay/Dispensation of pre-deposit - Business Exhibition service - Liability - Services availed outside India - Similar issue covered in 2011 (24)S.T.R. 424 (Tri.-Del.) - Applicant made out a case for waiver of pre-deposit - Following precedent decision requirement of pre-deposit waived - Section 35 of Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act, 1994. [para 2]

·        MERINO INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MEERUT-II [2011 (24) S.T.R. 424 (Tri. – Del.)]:-
Stay/Dispensation of pre-deposit - Business Exhibition services liable to Service tax provided taxable services partly performed in India - No evidence on record that service partly performed in India - Strong prima facie case in favour of appellant - Full waiver of pre-deposit of Service tax, interest and penalty granted and recovery thereof stayed - Rule 3(ii) of Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 - Section 35F of Central Excise Act, 1944. [para 4]
·        VAISHALI METALS (P) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I [2013 (31) S.T.R. 246 (Tri. - Del.)]:-
Stay/Dispensation of pre-deposit - Business Exhibition Services - Services for promotion of export sale of products received from various foreign service provider abroad - HELD : Prima facie, services covered by Section 65(105)(zzo) of Finance Act, 1994 in accordance with Rule 3(ii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, to have been received in India, services must be performed in India - Services performed abroad therefore, not to be considered as having been received in India - Impugned view supported by Tribunal’s decision in Merino Industries Ltd. [2011 (24)S.T.R. 424 (Tri.-Delhi)] - Requirement of pre-deposit of Service Tax demand, interest and penalty waived of - Recovery stayed - Section 65(105)(zzo) of Finance Act, 1994 - Section 35F of Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act, 1994. [para 4]
·        XL LABORATORIES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR [2012 (26) S.T.R. 431 (Tri. - Del.)]:-
Stay/Dispensation of pre-deposit - Business exhibition - Booking of space/stalls by assessee in India for participation in exhibitions and trade fares organised in foreign country - Prima facie, since service provider as well as its performance was in foreign country, service cannot be treated as received in India and Service tax cannot be charged from assessee - Sections 65(105)(zzo) and 66A of Finance Act, 1994 - Rule 3(ii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 - Section 35F of Central Excise Act, 1944. [para 4]
·        PARAMOUNT COMMUNICATION LTD. VERSUS COMMISSIONER OF C. EX., JAIPUR-I [2012 (25) S.T.R. 76 (Tri. - Del.)]:-
Stay/Dispensation of pre-deposit - Import of services - Business Exhibition Services received abroad in connection with participation in trade fairs - Whether assessee liable to pay Service tax as service recipient on such services - As services not performed in India but outside India, Rule 3(i) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 not invocable - Prima facie Business Exhibition Services received not to be treated as services provided from outside India and received in India and hence, provisions of Section 66A of Finance Act, 1994 not applicable - Pre-deposit of Service tax, interest and penalty waived and recovery stayed - Sections 65(19a), 65(105)(zzo) and 66A of Finance Act, 1994. [paras 2, 4]

In light of the above cited judgments, it was crystal clear that no service tax was leviable on the business exhibition conducted outside India and so they were not liable to pay service tax on the said services availed by them under reverse charge mechanism. Therefore, the impugned show cause notice should be dropped.

6.    Aligning with the above, they also wished to place reliance on the DGFT Policy Circular No.1(RE-08)/2004-2009 dated 11.04.2008,wherein it had been clarified that Participation in exhibition outside the country was not leviable to service tax. The contents of the DGFT Policy Circular were produced for the sake of convenient reference as follows:-

To

All Regional Authorities;
All Commissioners of Customs;
Exporting Community.

Subject: Clarification regarding Service Tax Refund.
…

Attention was invited to the provision contained in paragraph 2.48.1 to 2.48.3 of FTP wherein it has been stated that Service tax on services linked to exports shall be refunded / exempted.  In line with this, Department of Revenue have issued Service Tax Notifications from time to time stipulating the methodology to refund the service tax paid on exports.  These Notifications were 41/2007, 42/2007, 3/2008 and 17/2008 which can be downloaded from the CBEC website http://www.cbec.gov.in.

In addition to this, Department of Revenue has clarified that:

(a)       As per Section 66 of Finance Act, 1994, Service Tax was leviable only on taxable services provided in India. Services provided  from India to outside India and consumed outside India was not leviable to Service Tax as per Export of Services Rules, 2005. Accordingly, the following Services relatable to Exports were not leviable to Service Tax in India:

(i)  Participation in Exhibition outside the country;
(ii) Services availed outside the Country such as Customs House Agent (CHA) Services, Steamer Agent Services, Accountancy Services, Market Research Agency Services, Port Services, Cargo Handling Services, Inspection and Quality Control Services.

(b)       Receipt of Export Proceeds by exporters and payment for imports in foreign exchange will not attract Service Tax under the newly introduced “Foreign Exchange Dealer” Service.

(c)       Clearing and Forwarding (C&F) Agency Service was not leviable to Service Tax;

(d)        Loading and un-Loading Service falls under the taxable service “Cargo Handling Service” as defined under Section 65(23) of the Finance Act, 1994 which specifically excludes handling of export cargo from the levy of Service Tax.  Accordingly, loading and un-loading of export cargo does not attract service tax;

(e)       While notifying new areas for imposition of Service Tax, Department of Revenue would simultaneously issue Refund Notifications for such Services rendered for exports wherever linkage could be established with exports by verifiable methods.

Any difficulty in availing the aforesaid provisions may be brought to the notice of this Directorate.

            This issues with the approval of Competent Authority.
In light of the above clarification issued by the DGFT, it was very much clear that no service tax was leviable on the services of business exhibition organised outside India. Therefore, the impugned show cause notice proposing to demand service tax on the business exhibition services availed outside India was totally erroneous and should be quashed.
7.    Aligning with the above, they submitted that the clarifications issued by way of issuance of circulars/trade notices/policy notices etc were binding on the departmental officers and they were bound to follow the circulars/trade notices/policy notices. This view was supported by the decision given by the Supreme Court in the case of Collector of Central Excise, Vadodara vs Dhiren Chemical Industries [2002 (139) ELT 3 (SC)]. In this decision, hon’ble Supreme Court held that the order passed by the revenue authorities in contravention to the clarifications given was void ab initio. In this case it was held as follows:-

“Departmental clarification - C.B.E. & C. Circulars binding on Revenue even if placing different interpretation then Supreme Court - Regardless of the interpretation that the Court have placed on the phrase “on which the appropriate amount of duty has already been paid”, if there were circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue - Section 37B of Central Excise Act, 1944.”

The analysis of this decision made it clear that while deciding any case, the Circulars/clarifications were to be kept in mind. Accordingly, the impugned show cause notice that had been issued ignoring the above cited Policy Circular was void ab initio and was liable to be withdrawn.

8.    They further submitted that the impugned show cause notice had raised demand by treating the transactions of outward remittances made by them as that pertaining to “Business Auxiliary Services”. In this respect, It was submitted that it was worth observing that commission paid under Business Auxiliary Services was exempted from the levy of service tax for the exporters in terms of notification no. 42/2012-ST dated 29.06.2012. It was stated in the notification no. 42/2012-ST that service provided by a commission agent located outside India and engaged under a contract or agreement by the exporter in India, to act on behalf of exporter to cause sale of goods exported by him was exempt from the levy of service tax subject to filing of half yearly return in Form EXP-4. They submitted that this clearly revealed the intention of the government to exempt the levy of service tax on the services availed by the exporters. Not only this, the government had also granted a refund mechanism to the exporters for claiming refund of service tax paid by them on various services availed for the export of goods. The sole reason behind this was that the government did not intend to export domestic taxes. Therefore, keeping in mind the intention of the government, the service tax demand raised on them under the “Business Auxiliary Services” was not at all tenable because they were otherwise exempted from levy of service tax on fulfillment of certain conditions. However, the impugned show cause notice was issued in contradiction to the intention of the government and was not sustainable in the light of following decisions:-
BALWANT SINGH VERSUS JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]:-
Interpretation of statutes - Legislative intention - Provisions of statute including every word to be given full effect keeping legislative intent in mind to ensure achieving projected object - No provision treatable as enacted purposelessly - Court not to give interpretation to provisions to render them ineffective or odious. [para 14]
COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VERSUS RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]
Interpretation of statute - Question whether a statutory provision was mandatory or directory depends upon intent of Legislature, and not language in which the intent was couched - Literal construction which makes a particular provision manifestly absurd or leads to anomalous results, to be avoided. [para 9]
The analysis of above decisions of hon’ble Supreme Court and High Court made it clear that the intention of the law makers was to be kept in mind while interpreting any provision.If any interpretation defeats the intention of the law makers, it should be avoided. In their case also, the interpretation taken by the impugned show cause notice was defeating the intention of law makers that no service tax should be leviable on services availed for export of goods. As such, the impugned show cause notice was not sustainable and should be dropped being devoid of merits.
9.    They further submitted that as in view of the above discussion, the service tax demand itself was not sustainable, the question of paying interest at the applicable rate under section 75 did not arise. Hence, the impugned show cause notice deserved to be set aside.

10. They also submitted that the impugned show cause notice had been issued by invoking the extended period of limitation. Moreover, it was also alleged that they were requested by the jurisdictional Superintendent, Service Tax Range-I, vide letter no. CE-5/STR-I/JDR/Remittance/5/12/1321 dated 20.06.2014 to deposit the due service tax along with interest but they neither deposited the dues nor replied to the letter. In this respect, It was submitted that the show cause notice had been issued on wrong facts as they had duly replied to the above referred letter wherein it was clearly intimated that there was no service tax liability on the aforesaid transactions as pointed out. However, their submissions had been simply ignored and on the contrary, impugned show cause notice was been issued to them by invoking the extended period of limitation. Moreover, it had been alleged in the impugned show cause notice that they had suppressed the correct nature and value of taxable service received by them from the company based outside India. In this respect, they submitted that from the above cited submissions, it was very much clear that there was no service tax liability on the specified transactions and as such, there was no good reason to hide or suppress any information from the revenue department so as to invoke the extended period of limitation. As such, when the query from the department was duly replied, the charge of suppression was not sustainable and so the impugned show cause notice was barred by limitation.

Furthermore, when any information was not required to be provided, its non submission cannot be alleged as suppression as held in following cases:-

Ø APEX ELECTRICALS PVT. LTD. VS UNION OF INDIA [1992 (61) E.L.T. 413 (GUJ.)]:-
“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”
Ø PROLITE ENGINEERING CO. VS UNION OF INDIA [1995 (75) ELT 257 (GUJ.)]:-
“Demand - Limitation - Non-disclosure of information which was not required to be disclosed or recorded by statutory provision or prescribed proforma does not amount to suppression or concealment - Extended period of limitation not invokable - Proviso to Section 11A(1) of Central Excises & Salt Act, 1944 - Rules 9(2) and 57-I of Central Excise Rules, 1944.”
An analysis of both of these decisions given by hon’ble High Courts makes it clear that the information not required to be submitted under law does not amount to suppression. In the instant case, they were not required to provide the details of transactions on which no service tax was payable by them. As such, non providing of information not required to be provided under law, does not amount to suppression. Therefore, in the light of above decisions, the allegation of suppression was not sustainable and the demand was barred by the clause of limitation.
11. They further submitted that invocation of extended period of limitation was not justified in their case in the light of decision of hon’ble Supreme Court in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] wherein it has been held that for invoking the extended period, two ingredients were essential – (i) Wilful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This was also held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC- CX) - [1989 (40) E.L.T. 276 (S.C.)] that extended period of limitation could only be invoked in case of fraud, collusion, suppression or willful misstatement. In absence of these essential ingredients, extended period cannot be invoked. Verdicts of hon’ble Supreme Court held as under:-
“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, was required before it was saddled with any liability, before the period of six months.”
Thus, in the light of above decision, extended period could not be invoked blindly in every case. Where the assessees had been acting in the boundaries of law, the extended period could not be invoked. Similar decision was given in the following cases:-
Ø PUSHPAM PHARMACEUTICALS COMPANY VS. CCE, MUMBAI ( 2002-TIOL-235-SC- CX )
Ø LARSEN & TOUBRO LTD. Versus COMMISSIONER OF C. EX., PUNE-II [2007 (211) ELT 513(S.C.)]
Ø PADMINI PRODUCTS vs. CCE[1989 (43) ELT 195 (Supreme Court)]

In the above cases, it was held that mere negligence or failure to pay duty on part of assessee was not sufficient to invoke the extended period of limitation. It should be proved that there was suppression of facts with intent to evade payment of service tax. This was not the case here. They had rightfully not paid service tax on the specified transactions as no service tax was payable on the said transactions and were also not required to disclose the information separately to the department. As such, this was not the case of suppression. Thus, the extended period was wrongly invoked in the instant case and the demand was barred by the clause of limitation.
12. They also submitted that no penalty was imposable under section 78 of the Finance Act, 1944. It was submitted in the preceding paragraphs that there was no suppression of facts and so the extended period of limitation was not invocable in their case. It was submitted that when it had been established that there was no fraud, collusion or wilful mis-statement or suppression of facts with malafide intention, then the penalty under section 78 could not be imposed. Hence, the proceedings initiated vide the impugned show cause notice were not at all tenable and deserved to be quashed.
13. Moreover, mere stating the Section/Rule was not sufficient and rather, the specific clause along with proper reasoning was required to be given in the show cause notice so as to impose penalty on the assessee. In this regard, reliance was placed on the recent judgment of Hon’ble Madras High Court, wherein the appeal filed by the Revenue for imposition of penalty under section 11AC was dismissed on account of the fact that there was no discussion as regards the various requirements which were necessary for the purpose of levy of penalty under Section 11AC of Central Excise Act 1944. It was submitted that as the section 11AC of the Central Excise Act, 1944 was similarly worded as section 78 of the Finance Act, 1994, the ratio of the below cited decision was squarely applicable in the present case also. The citation and the synopsis were reproduced as follows for the sake of convenient reference:
·        CCE vs M/s Crocodile India Pvt Ltd. [2013-TIOL-518-HC-MAD-CX]:
CE - Reversal of CENVAT Credit before issue of Show Cause Notice - SCN does not detail grounds for imposing penalty application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section - No penalty : A cursory reading of the notice shows that except for mere reference to the proposal to levy penalty under Section 13(1) of CENVAT Credit Rules, 2002, there was no discussion as regards the various requirements which were necessary for the purpose of levy of penalty under Section 11AB of Central Excise Act 1944. The Apex Court pointed out that the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section was applicable, the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. In so holding, the Apex Court held that in every case of non payment or short payment of duty, penal provisions cannot be automatically invoked; in other words, the conduct of the assessee in each of the case, before imposing penalty, has to be looked at on the bona fides of the assessee as regards his claim which otherwise would not be sustained in law. - Revenue Appeal Dismissed : MADRAS HIGH COURT.
In the present case also, mere reference has been made to the provisions of section 78 without even specifying the clause under which penalty was imposable on them. As such, no penalty was imposable on them under section 78 and the impugned show cause notice should be quashed.

14. In continuation to the above, they further submitted that even the highest court of India – Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY VERSUS GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee was based on the interpretation taken by the Tribunal, penalty could not be imposed as the act was based on bonafide belief. The verdicts of Apex Court were produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”
In the present case, their act of non-payment of service tax on business exhibition organised outside India was backed by the number of decisions given by the Tribunal. The analysis of above decision makes it clear that since they have acted under bonafide, no penalty can be imposed on them. Therefore, the benefit of above decision of Hon’ble Supreme Court should be extended to them and the whole proceedings should be dropped.
15. It was also submitted that when there was no malafide intention to evade duty or to suppress facts from the department, penalty was not imposable in view of Supreme Court judgment given in the case of Hindustan Steel Vs. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation was a result of proceedings which were quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. In view of Supreme Court judgment, since intention to evade payment of duty was not there, penal provisions could not be invoked. The show cause notice invoking penal provisions was thus liable to be dropped.
16. They also submitted that in view of proviso inserted in Section 78, w.e.f. 10.05.2008, it was specifically stated that :

“Provided further that if the penalty was payable under this section, the provisions of section 76 shall not apply.”

Therefore, in view of the specific provision in the Act w.e.f., 10.05.2008, simultaneous imposition of penalties under section 76 & 78 was not warranted. It has been held by hon’ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Chandigarh-I Vs M/s Cool Tech Corporation, Chandigarh [2011-TIOL-23-HC-P&H-ST] that the penalty under section 76 & 78 were mutually exclusive and cannot be imposed simultaneously. Similar decision has been given in following cases:-
·        M/s Anand Agencies v/s CCE (Service Tax), Coimbatore [2010-TIOL-364-CESTAT-MAD](ANNEXURE - )-
Service Tax – Penalty – Section 76 and 78 were mutually exclusive – Penalty under Section 76 set aside: CHENNAI CESTAT;

·        M/s Safe Test Enterprises v/s CCE, Salem [2010-TIOL-355-CESTAT-MAD](ANNEXURE - ) -

Service Tax – Penalty under Section 76 and Section 78 were mutually exclusive – penalty under Section 76 set aside and penalty under Section 78 reduced to 25% in terms of Section 73 (2) as the assessee has paid the service tax prior to the issue of show cause notice: CHENNAI CESTAT;
·        M/s AR AS PV PV Motors Erode (P) Ltd v/s CCE, Salem [2010-TIOL-1241-CESTAT-MAD](ANNEXURE - )-
Service tax – Penalty under Section 76 and 78 – Since the provisions of Section 76 and 78 were mutually exclusive, penalty under Section 76 was set aside and penalty under Section 78 reduced to 25% of the service tax demanded: CHENNAI CESTAT;
In the light of above decisions, it was ample clear that the penalties cannot be imposed simultaneously under the provisions of section 76 and 78 of the Finance Act, 1994. Thus, extending the ratio of above decisions, the impugned show cause notice should be quashed and proceedings initiated against them should be dropped.

17. They further submitted that although the service tax demand raised in the impugned show cause notice pertains to period 2007-08 to 2012-13, and the amendment in section 78 had been made effect from 10.05.2008, but there were many judicial pronouncements that have concluded that simultaneous imposition of penalties under section 76 & 78 was not proper even for the period prior to the amendment. In this regard, they also wished to place reliance on the following judicial pronouncements on the issue concerning imposition of penalties under section 76 & 78 of the Finance Act simultaneously:-
·        CCE, COMMISSIONERATE VS FIRST FLIGHT COURIER LTD. [2011-TIOL-67-HC-P&H-ST]:-
·        CCE VS. PANNU PROPERTY DEALERS, LUDHIANA [2012-TIOL-874-HC-P&H-ST]

Apart from the above High Court decisions, reliance was also being placed on the latest decisions given by various Tribunals as follows:-

·        SURYA CONSULTANTS Vs COMMISSIONER OF CENTRAL EXCISE JAIPUR-I [2013-TIOL-1717-CESTAT-DEL]

·        COMMISSIONER OF CENTRAL EXCISE, HALDIA Vs MITTAL TECHNOPACK P LTD [2012-TIOL-1507-CESTAT-KOL]

·        M/S CHANSAMA TALUKA SARVODAY MAZOOR KAMDAR SAHAKARI MANDLI LTD VS CCE, AHMEDABAD [2012-TIOL-41-CESTAT-AHM]
·        COMMISSIONER OF C. EX., SALEM VERSUS PHOENIX MARKETING [2010 (19) S.T.R. 755 (TRI. - CHENNAI)]
·        JOE TRANSPORT VERSUS COMMISSIONER OF CENTRAL EXCISE, TRICHY [2010 (18) S.T.R. 646 (TRI. - CHENNAI)]
·        ANDHRA BANK VERSUS COMMISSIONER OF C. EX., HYDERABAD [2010 (18) S.T.R. 475 (TRI. - BANG.)]
·        COMMISSIONER OF CENTRAL EXCISE, SALEM VERSUS PKN BUS SERVICE [2010 (18) S.T.R. 424 (TRI. - CHENNAI)]
·        COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH VERSUS GREWAL TRADING CO.[ 2010 (18) S.T.R. 350 (TRI. - DEL.)]
·        COMMISSIONER OF C. EX., LUDHIANA VERSUS AKASH CABLE [2010 (19) S.T.R. 753 (TRI. - DEL.)]
·        M/S SRI SELVAM AGENCY VS COMMISSIONER OF CENTRAL EXCISE, SALEM [2010-TIOL-1616-CESTAT-MAD]
It was submitted that the benefit of the above cited decisions should be extended to them and the impugned show cause notice should be quashed.

Reasoning of the judgment:-It was found that the show cause notice was issued on the basis of “List of Outward Remittances for Import of Services” received in reply to the Superintendent, Central Excise (Service Tax) Range-I, Jodhpur’s letter No. CE-5/ST-II/JDR/Remittance/9/12Pt./87 dated 03.04.2014 wherein State Bank of Bikaner and Jaipur, Bhagat ki Kothi, Jodhpur statedly furnished “the details of ST w.e.f. 20017-08 to 2012-13 along with the address of senders.” It was found that the details so furnished by the State Bank of Bikaner and Jaipur, Bhagat ki Kothi, Jodhpur was in the form of a tabular list having columns viz. date, payee, foreign currency, amount i.e. in foreign currency, amount in INR i.e Indian Rupees, senders’ name and address and purpose of remit which have been briefly stated as commission, law charges, Reg charges, Education fee, charges, Investment in shares, protesting chg., family maintain, lab testing chg., exhibition fee, booking of stall, rent of building, export claim, NAC, refund, claim, loan tuition fee, gift, excess payment refunded, hotel booking, commission and erection chg, professional fees, purchase of carton label, over payment return by DR note, participation in fair, design and sample charges, adv for ocean freight, for US Sales Tax no., Comm. on sales, service charges to marketing agent, cancellation of export order, payment of Dr note, law labour fees, claim against export, cost of registration, fair charges, rent of furniture, chg for electricity connection, adv refunded. It was found that “Purpose of Remit” in the entries where sender’s name is stated as Curio Craft, C-55, M.I.A., Basni, Jodhpur in the above list against which the impugned Show Cause Notice is issued contain “Purpose of Remit” as mentioned in the following table:

Date	Payee	Foreign Currency	Amount	Amount- INR	Purpose of remit
13.04.2009	Messe Frankfurt	EUR	283.22	18735.00	Booking of Stall
26.05.2009	Messe Frankfurt	EUR	8630.83	574295.00	Booking of Stall
28.06.2009	Dieter Sehmitz Germany	EUR	1154.30	78758.00
13.08.2009	Frankfurter Sparkasse	EUR	391.51	27002.00	Booking of Stall
15.12.2009	Messe Frankfurt	EUR	7582.50	517202.00	Booking of Stall
03.02.2009	Messe Frankfurt	EUR	1731.45	112371.00	Booking of Stall
06.06.2009	Messe Frankfurt	EUR	262.99	15840.00	Booking of Stall
28.03.2013	Pier 1 Import USA	USD	14168.10	770036.00	Adv Refunded
				2114239.00

It was found out that the only document that was relied upon for issuance of the impugned Show Cause Notice is the “List of Outward Remittances for Import of Services” received in reply to the Superintendent, Central Excise (Service Tax) Range-I, Jodhpur’s letter No. CE-5/ST-II/JDR/Remittance/9/12Pt./87 dated 03.04.2014 wherein State Bank of Bikaner and Jaipur, Bhagat ki Kothi, Jodhpur statedly furnished “the details of ST w.e.f. 20017-08 to 2012-13 along with the address of senders.”
It was found out from the perusal of the correspondence and invoices submitted in respect of remittance of US$14168.10 as also the information furnished by the State Bank of Bikaner and Jaipur, Bhagat ki Kothi, Jodhpur indicated the fact that the said amount was excess received by the assessee against export of goods which was refunded to the buyer namely, PIER 1 IMPORT USA. Hence, as far as the entry of US$14168.10 was concerned, there was no substance in the allegation brought out in the Show Cause Notice that “the remittance made in convertible foreign currencies to their service provider for import/obtaining the service of Business Auxiliary Services” and any other services as the documents available on record did not demonstrate or even indicated any event of receipt of service. As such, demand of service tax is not maintainable on remittance of the said amount.
As regards, the remaining entries appearing in respect of the assessee in the list furnished by the State Bank of Bikaner and Jaipur, Bhagat ki Kothi, Jodhpur, it was found that against all the entries except the entry of remittance of €1154.30 made to Dieter Sehmitz Germany, the list furnished by the State Bank of Bikaner and Jaipur, Bhagat ki Kothi, Jodhpur mentioned the purpose of remittance as “Booking of Stall”. The assessee had also submitted copies of invoices raised by the overseas service provider except in respect of remittance of €283.22 to Messe Frankfurt. All the invoices submitted revealed that the invoices were raised in respect of event or fair. Further, it was found that in respect of the entry pertaining to remittance of €283.22, the State Bank of Bikaner and Jaipur, Bhagat ki Kothi, Jodhpur has mentioned the purpose of remittance as “Booking of Stall”. Thus, it was found that the amounts remitted in respect of all the entries, which were effected in the period prior to 01.07.2012, except the entry of US$14168.10 were for “Business Exhibition” performed outside India and therefore, the same were covered under the definition of the term “Business Exhibition” as provided under Section 65(19a) of the Finance Act, 1994 and taxability thereof is covered under section 65(105)(zzo) ibid. read with Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 1994 and Section 66A of Chapter V of the Finance Act, 1994.
It was found out that all the above remittances were in respect of the services received and in respect of exhibitions held outside India. The services of Business Exhibition are classifiable under Section 65(105)(zzo) of Chapter V of Finance Act, 1994. As per Section 65(19a) of Chapter V of Finance Act, 1994, “Business Exhibition means an exhibition,- (a) to market; or (b) to promote; or (c) to advertise; or (d) to showcase, any product or service, intended for growth in business of the producer or provider of such product or service, as the case may be. Futher, as per Section 65(105)(zzo) ibid. “taxable service” means any service provided or to be provided,- to an exhibitor, by the organiser of a business exhibition, in relation to business exhibition. Moreover, Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 provides that “Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services,- specified in sub-clauses (a), (f), (h), (i), (j), (l), (n), (o), (w), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zz), (zza), (zzc), (zzd), (zzf), (zzg), (zzi), (zzm), (zzo), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzk), (zzzzl), (zzzzo), of clause (105) of section 65 of the Act, be such services as are performed in India. It is also provided vide the First Proviso to Rule 3(ii) ibid. that “Provided that where such taxable service is partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under Section 67 of the Act and the rules made thereunder.”
In view of these discussions, it was found that the remittances of the amounts under the impugned Show Cause Notice were in respect of Business Exhibition held outside India, therefore, the same is covered under Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, hence, the same are not taxable under Chapter V of the Finance Act, 1994. It was therefore held that the remittances of Rs. 2114239.00 were not in respect of any taxable services received by assessee and therefore, the demand did not survive. Since the demand was not maintainable, the question of interest and penalties did not arise.
Decision:-SCN proceedings discharged.
Conclusion:-The essence of this case study is that each and every transaction of foreign remittance cannot be considered as import of service and cannot be leviable to service tax. The nature of transaction will be determinative of the fact whether the same is import of service and whether the same is leviable to service tax under the reverse charge mechanism or not. In the present case, one transaction pertained to refund of the amount mistakenly paid twice by the buyer and so cannot be considered as import of service leviable to service tax. Moreover, the remaining transactions pertained to business expenditure conducted outside India and so are not leviable to service tax either in the pre-negative list tax regime or in the post negative list tax regime. Hence, the show cause notice issued was dropped by the adjudicating authority.

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PJ/Case Study/2015-16/105
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PJ/Case Study/2015-16/105 23 May 2015

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PJ/Case Study/2015-16/105
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