2015 (8) TMI 543 - AT - Service Tax

Demand of service tax - Commission agent service - Reverse charge mechanism - Held that - For the demand of service tax liability under reverse charge mechanism from 01.04.2003 to 18.04.2006 the adjudicating authority is correct in dropping the demands as during the relevant period provisions of Section 66A of the Finance Act 1994 were not in statute. Provisions of taxing an amount paid by an assessee in India under reverse charge mechanism was brought into statute from 18.04.2006. This law is settled by the Hon ble High Court of Bombay in Indian National Ship Owners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT and upheld by the Hon ble Apex Court in 2009 (12) TMI 850 - SUPREME COURT OF INDIA . Accordingly we hold that the impugned order to the extent it drops the proceedings initiated against respondent-assessee upto 18.04.2006 is correct and legal and does not require any interference. In respect of demand post 18.04.2006 the provisions of Section 66A would be applicable in this case and the respondent-assessee is liable to discharge appropriate service tax liability on the amount paid by them as commission to agents appointed abroad for procuring export orders. We uphold that portion of the order which confirms the demand of service tax from 18.04.2006 to 31.3.2007. Since we uphold the demands of service tax liability the interest liability under Section 75 of the Finance Act 1994 would also requires to be discharged - However penalty is set aside - Decided partly in favour of asessee.

Summary

Issues:
Service tax liability on commission paid to agents for procuring export orders; Interpretation of Section 68 and Rule 2(1)(d)(iv); Applicability of reverse charge mechanism; Liability period from 01.04.2003 to 31.3.2007; Demand of service tax post 18.04.2006; Interest liability under Section 75; Imposition of penalties under Section 80 of the Finance Act, 1994.

The appeal before the Appellate Tribunal CESTAT Mumbai involved the issue of service tax liability on an amount paid by the respondent to various agents appointed as commission agents for procuring export orders. The Revenue contended that the services are taxable under the reverse charge mechanism, while the adjudicating authority had dropped the proceedings against the respondent by misinterpreting Section 68 and Rule 2(1)(d)(iv) of the Act. The Tribunal noted that the relevant period for the case was from 01.04.2003 to 31.3.2007. It was observed that for the demand of service tax liability under the reverse charge mechanism from 01.04.2003 to 18.04.2006, the adjudicating authority correctly dropped the demands as the relevant provisions were not in statute during that period. The law regarding taxing an amount paid under the reverse charge mechanism was established by the High Court of Bombay and upheld by the Apex Court. Therefore, the Tribunal held that the order dropping the proceedings until 18.04.2006 was correct and legal.

Regarding the demand post 18.04.2006, the Tribunal found that the provisions of Section 66A would be applicable, making the respondent liable to discharge the service tax on the amount paid as commission to agents for procuring export orders. The Tribunal upheld the order confirming the demand of service tax from 18.04.2006 to 31.3.2007. Consequently, the Tribunal also ordered the respondent to discharge the interest liability under Section 75 of the Finance Act, 1994. It was emphasized that the service tax liability and interest post 18.04.2006 needed to be fulfilled by the respondent.

In terms of penalties, the Tribunal considered the issue of interpretation during the relevant period, which was being contested up to the Apex Court. Despite the service tax liability with interest arising from 18.04.2006, the Tribunal held that no penalties were imposable by invoking the provisions of Section 80 of the Finance Act, 1994. Ultimately, the appeal was disposed of with the decision to uphold the service tax liability post 18.04.2006, interest liability, and the non-imposition of penalties on the confirmed amounts.