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2016 (8) TMI 797 - GUJARAT HIGH COURT

2016 (8) TMI 797 - GUJARAT HIGH COURT - 2016 (45) S.T.R. 39 (Guj.) - Business auxiliary services - reverse charge mechanism sales promotion expenses pertained to business expenditure to promote its products by conducting the doctor meetings, scientific sessions with doctors, distributing physician samples, printing of literatures, printing of gimmicks, printing of visual aids, supporting hospitals and clinics to purchase medical instruments, field business meeting to discuss about market trend .....

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etitioner receiving taxable service by petitioner under section 66A - absence of proposal in SCN Held that: - Mere reference to the statements of the officers of the company which may have a hint of any such providing of service, would not enable the department to levy service tax without a show cause notice and adjudication on this aspect. - Relegate the petitioner to appellate remedy Held that: - Commissioner had no jurisdiction to levy tax in absence of any finding that the petition .....

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. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR DHAVAL SHAH, ADVOCATE FOR THE RESPONDENT : DS AFF.NOT FILED (N), MR DHAVAL D VYAS, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged an order dated 29.1.2016 at Annexure-A to the petition passed by the Commissioner of Service Tax in following background. 2. The petitioner is a company registered under the Companies Act and is engaged in manufacture, marketing and distribution of pharmac .....

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t be recovered under proviso to Section 73(1) of the Finance Act,1994 (for short the Act ) (ii) Interest, at the applicable rate, on the amount mentioned in (i) above, should not be charged and recovered under Section 75 of the Finance Act,1994 and (iii) Penalty should not be imposed under Section 77 & 78 of the Finance Act,1994. 3. In the show cause notice, it was stated that the petitioner had incurred expenses towards the sales promotion. Upon being inquired, the company had informed that .....

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appeared to be covered under the category of Business Auxiliary Service and the petitioner was therefore, liable to pay service tax on the same. The show cause notice further refers to the statement of Shri Satish, Director of the company dated 12.9.2012 which includes details of sales promotion expenses made by the company during the period between 2007-08 to June,2012. The show cause notice also refers to a statement of Shri Banibrata Lahiry, an officer of the company giving details of total e .....

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ot paid service tax on the same. These activities appear to be covered under the category of Business Auxiliary Service . Therefore, the assessee is liable topay service tax on the said expenses. Thus, the assessee is liable to pay service tax totally amounting to ₹ 4,51,68,519/- (service tax ₹ 4,38,52,930/- + Education cess ₹ 8,77,059/- + S.H. Education Cess ₹ 4,38,530/-) for the F.Y. 2007-08 to 2012-13 (upto June-2012), as detailed in the Annexure-A to this SCN. 8. Wher .....

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70 of the Finance Act,1994, read with Rule 7 of the Service Tax Rules, 1994, with the jurisdictional Range office, within the stipulated period. They were also required to selfassess the amount of service tax leviable on the taxable income and deposit the service tax charged at the applicable rate, under the provisions of Section 66 and 68 of the Finance Act,1994. It further appears that the assessee has neither paid the service tax leviable on the Sales promotion expenses , failing under the c .....

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expenditure to promote their products by conducting doctor meeting, scientific sessions with doctors, distributing physician samples, printing of literatures, printing of gimmicks, printing of visual aids, supporting hospitals and clinics to purchase medical instruments, field business meeting to discuss about market trends and strategies, sales target related incentives to field personnel, brand reminders etc. and the assessee failed to discharge service tax liability totally amounting to S .....

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y not obtaining service tax registration, non-payment of Service Tax and non-filing of ST-3 returns. It also appears that at no point of time they have initimated / disclosed their activities regarding Business Auxiliary Service to the department. These facts have come to the knowledge of the department only during audit of the records of the assessee by the audit party. Thus, the service tax totally amounting to ₹ 4,51,68,519/- (Service Tax ₹ 4,38,52,930/- + Education Cess ₹ 8 .....

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the assessee is liable for penalty under the provisions of Section 78 of the Finance Act,1994. 11. It also appears that the assessee has contravened the provisions of Sections 69 and 70 of the Finance Act,1994, on account of their failure to obtain service tax Registration and file ST-3 returns in respect of Business Auxiliary Service and thereby, they are liable for penal action under provisions of Section 77 of the Finance Act,1994, for such contravention. 4. It was in background of such facts .....

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promote its products in the market which are, inter-alia, for the activities such as conducting the doctor meetings, conducting scientific sessions with doctors, distributing physician samples etc. It was contended that such sales promotion services were obtained by the petitioner from Indian service providers and the consideration for such services was paid to Indian service providers and that therefore, the petitioner had no liability to pay any service tax on such services nor has been regist .....

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the period between Financial Year 2007-08 to 2012-13 and further service tax of ₹ 1.09 crores for the period between July,2012 to June,2013. It provided for recovery of said sums with interest. He also imposed penalty under Section 76 of the Finance Act,1994. We may reproduced relevant portion of the order. 18.09 In view of above, I find that in the instant case, the assessee has provided services to promote & market their products and incidental & auxiliary support services as def .....

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impugned Show Cause Notice are correct and the notice is liable to pay service tax for services provided under Business Auxiliary Service as defined under Section 65(19) of the Finance Act,1994. 18.10 Now, I turn to the their defence submission wherein it has been contended that the expenses were incurred in India as a part of business requirement towards purchase of promotion materials and availment of certain promotional services. The expenditure accounted under the Head Sales Promotion Expens .....

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hey had provided services to promote their product and incidental or Auxiliary Support Service as detailed at Sr.No.(vii) to the definition of Business Auxiliary Service as defined under Section 65 (19) of the Finance Act,1994. 18.11 xxx xxx xxx 18.12 They have further contended that the Sales Promotion Services was not subject to Service Tax under Section 66 and Section 66A of the Act but it had been alleged in the Show Cause Notice that the Sales Promotion Expenses incurred by the Company was .....

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hat they are manufacturer of Pharma Drugs. Therefore, as a Business Protocol, they were required to use services of Medical Representatives, meet the doctors, conduct training sessions with the doctors and use other promotional and advertising services for their business. They had also appointed more than 200 field Representatives to meet the Doctors and customers, distribute, market and sell the medicines in India. Such expenses were routine Business Expenses which were incurred locally in Indi .....

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arious services to promote their products and thus aptly covered under the definition of Business Auxiliary Service as defined under Section 65 (105) (zzb) of the Finance Act,1994 and taxable as per Section 66 of the Finance Act,1994. 18.14 xxx xxx xxx 18.15 I have gone through the above contention of the notice and Sample Invoices produced by them. I, find that the Invoices produced by them are regarding purchase of some materials as PVC table Cover, Twist Velvetta Ball pen, Roller Ball pen etc .....

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ed in detail in foregone paras that services provided by them are aptly covered under the definition of Business Auxiliary Service and chargeable to Service Tax under Section 66 of the Finance Act,1994 and thus I find that the case law cited by them are not squarely applicable to instant case. 18.16 xxx xxx xxx 19.16.1xxx xxx xxx 18.17 xxx xxx xxx 18.17.1 I have gone through the case records and find that during the course of Audit of their unit on scrutiny of their Financial records, it came to .....

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ned show cause notice were correct. As far as their contention that the substantial part of the show cause notice pertains to purchase of materials / goods done by their H.O. is not tenable as in the financial records no bifurcation of the figures had been given. 6.1 It is this order the petitioner has challenged in the present petition. 7. Learned counsel for the petitioner agrees that against the impugned order, statutory appeal lies before the Tribunal. However, he contended that in the prese .....

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net does not arise. Elaborating such contention, learned counsel submitted that service tax as a rule is levied from the service provider unless the reverse charge mechanism is provided for a taxable service in India by a notification issued by the Government or where such mechanism would apply since the service provider is situated outside India. In the present case, the neither of the eventualities arise. In the show cause notice as well as in the impugned order, the authority has referred to .....

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ntertained. In any case, the question of liability of the petitioner to pay service tax is not free from doubt. The petitioner company is a subsidiary of a foreign company based in Belgium. The petitioner also undertakes the task of providing sales promotion to said Belgium company on which the service tax would be leviable. 9. We have referred to at some length the contents of show cause notices as well as the impugned order in order to demonstrate that very foundation of the department s case .....

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use notice. It merely deals with the objections of the petitioner and rejects them by confirming prima facie assertions recorded in the show cause notice to finally come to the conclusion that the petitioner was required to pay service tax for the Business Auxiliary Service. The show cause notice and the final order completely beg the question as to in what manner the petitioner would be liable to pay such services tax when it is not the case of the department that the petitioner has not provide .....

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) of the Act. 11. Section 66 of the Act pertains to charge of service tax and provides that there shall be levied a tax referred to as service tax at the rate prescribed therein on the value of taxable services referred to in various sub-clauses contained in sub-section including sub-clause (zzb) of clause (105) of Section 65. Section 66A of the Act pertains to charge of services tax on services received from outside India. It reads, thus; 66A. Charge of service tax on services received from out .....

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ndia, such service shall, for the purposes of this section, be 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 is an individual and such service received by him is 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 th .....

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ll be treated as separate persons for the purposes of this section. Explanation 1. - A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. Explanation 2. - Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.] (3) The provisions of this section shall not apply with effect from such date as the Central Government may, by notifica .....

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sidence in India in which the taxable service shall be treated as if the recipient himself has provided the service in India. In other words, by deeming fiction in cases falling under said sub-section (1) of Section 66A, service recipient shall be liable to pay services tax instead of service provider. 11.2 The provisions of Section 68 of the Act pertains to payment of service tax. Sub-section (1) thereof provides that every person providing taxable service to any person shall pay service tax at .....

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vice tax on and after Finance Act,2012 and provides a negative list of services other than those where service provided or agreed to be provided would be chargeable to service tax. In the present case, we are, however, not directly concerned with this provision. 13. In exercise of the powers conferred under the Act, the Government of India has promulgated the Service Tax Rules,1994. Rule 2 thereof contains definitions. Clause (d) thereof pertains to person liable to pay service tax. Sub-clause ( .....

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chanism applies. 15. Having perused the show cause notices and the impugned order, we do not find any case set up by the department that in the present case, such reverse charge mechanism applies. If the case of the department was, as is sought to be projected from the affidavit-in-reply, that the petitioner had provided services to its parent company situated in Belgium, no such foundation has been laid in the show cause notices, no elaboration made in the final order on adjudication. We theref .....

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f it is a case of the department that the petitioner had received any taxable service which would fall under Section 66A of the Act or that the petitioner had provided a taxable service to any one, no such case has been set up by the department so far in the present proceedings. Mere reference to the statements of the officers of the company which may have a hint of any such providing of service, would not enable the department to levy service tax without a show cause notice and adjudication on .....

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e final order of adjudication, there is no such finding or conclusion arrived at by the Commissioner. If the department has an independent case that the petitioner had either provided taxable service without payment of tax or was liable to pay service tax by way of reverse charge mechanism, it would be open for the department to initiate the proceedings as permissible under law, with respect to which, we offer no comment since such issue has not arisen before us. 17. The last attempt on the part .....

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