TMI Blog2024 (4) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... HELD THAT:- The submissions made by the appellant to effect that the demand is barred by limitation for the reason that the audit was conducted on various dates between 24.09.2012 to 06.05.2013, so the fact was in the knowledge of the department within the normal limitation period and the show cause has been issued only on 05.10.2015, not agreed upon. Proviso to Section 73 (1) of the Finance Act,1994 provides that extended period of limitation can be invoked if the necessary ingredients as prescribed therein exist. The fact that appellant was making the expense entries in the book of accounts, in case of the receipt of services from the associated enterprises was well in knowledge of the appellant and the provisions of the Section 67 read with Rule 6(1) and Rule 7 of the Point of Taxation Rules, 2011 clearly laid down the manner in which the service tax liability was to be discharged in respect of these entries. By not following the said procedure appellant have sought to short pay the service tax, by suppressing the fact of the said entries in their book of accounts with intent to evade payment of tax at time and in the manner prescribed as per law. In case of COMMISSIONER OF C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of service tax on reverse charge basis in respect of certain services received which were chargeable to service tax on reverse charge basis. 2.2. The Appellant was receiving technical know-how and IT software services from its associated enterprise in South Korea. The technical persons visit the Appellant s workplace and by the end of their stay period, they submit their expenses incurred while their stay in India. So, the Appellant, before receipt of such actual expenses, at the end of the Financial Year creates a provision in respect of such estimated expenses in its book of accounts. This provision is not created in respect of any particular service provider. This provision is reversed on the 1st April of the subsequent financial year. Thereafter, the Appellant remit the actual expenses, makes entry in the books of accounts and at that point of time, service tax is paid on such remittance on reverse charge basis. 2.3 The Audit was conducted by the Department on 24/26.02.2012, 10/11/10.2012, 14.01.2013 and 06.05.2013 for the period March 2009 to March 2012. The Audit team alleged that the liability to pay the service tax arises at the time of making the entry in the books of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ninety eight only) under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 73(2) of the Finance Act, 1994 and order to be recovered from them, along with applicable Interest under Section 75 of the Finance Act, 1994 as amended, as discussed supra. 4) I impose penalty of Rs. 44,10,298/- (Rupees Forty Four Lacs Ten thousand Two Hundred and Ninety eight only) under Rule 15(3) of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 for contravention of provisions of Service Tax law amp; order to be recovered from them. The adjudged dues shall be paid henceforth 2.7 Aggrieved appellant filed appeal before the Commissioner (Appeal) who by the impugned order while setting aside the order of original authority to the extent it was in relation to disallowing the CENVAT credit, upheld the order in respect of the provisional entries made in the book of accounts by the appellant. 2.8 Aggrieved appellant have filed this appeal. 3.1 We have heard Shri Atul Gupta learned Counsel for the appellant and Shri Manish Raj learned Authorised Representative appearing for the revenue. 3.2 Arguing for the appellant learned counsel submits that: In the instant case, the SCN w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisional entry would be contradictory to the very nature of the service tax levy. As per CBEC Circular M.F. (DR) Letter DOF No. 334/1/2008-TRU dated 19.02.2008, the intention behind the introduction of the levy of service tax based on the book entries in the case of transaction with associated enterprise was to put an end to the practice of delayed payment of service tax and. The intention was not to tax something which notional or provisional in nature, but to tax actual confirmed amount payable as debited in books of account. service tax can be demanded only on the actual amount charged for the services by the foreign associated enterprise. In such a situation, even if it is assumed that the date of provisional entry is the correct date to determine the point of taxation, then in such a case the demand must be limited to the interest leviable on account of delayed payment of service tax, i.e, from the date of provisional entry till the date of payment of service tax. Section 67(2) of the Act which provides that where gross amount charged by the service provider is inclusive of service tax payable, then the value of such taxable service shall be such amount as, with addition to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier. 8.3 From the above, it is observed that prior to the period 01.04.2012, wherever accounting entries relating to service transaction finds a place in books of account of the person liable to pay tax, would be relevant for payment of Service Tax. Further, the broad reference of the nomenclature of the account as well as the inclusion of debit and credit is a clear pointer to the intent of the legislation of not allowing books of account to be used for attributing the liability while deferring tax payment in relation to transaction with associated enterprises. In view of this, the claim canvassed on behalf of the appellant that any debit or credit entry that can be linked to the service is sufficient, does not lend credence. Reliance is placed on judgement of Hon ble Tribunal, Mumbai in the case of General Motors (I) Pvt. Ltd. Vs CCE, Pune-1, reported in 2015 (40) STR 962 [Tri. Mum.] 8.4 I is also observed that the appellant has shown drastically reduced figures as actual expense booking without any corroborative evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited , as the case may be, to any account, whether called Suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise. Thus the determination of taxable value in case of associated enterprises was to be made on the basis of any amount credited or debited in any book of accounts of the person liable to pay service tax, where the transaction was between the associated enterprises. Thus the determination of taxable value was to be after taking into accounts all the credit and debit and credit entries made by the person liable to pay service tax, in case of transaction of services between the associated enterprises. 4.5 Pursuant to the above amendment, following Explanation was inserted in Rule 6 of the Service Tax Rules, 1994, w.e.f. 10-5-08 :- Explanation. - For the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it or credit in books of accounts of the person liable to pay service tax, whichever is earlier. This rule was amended by the notification No 21/2011-ST dated 31.03.2011 to read as under: 7. Determination of point of taxation in case of specified services or persons.-Notwithstanding anything contained in these rules, the point of taxation in respect of,- (a) . (b) the persons required to pay tax as recipients under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Finance Act, 1994; (c) . shall be the date on which payment is received or made, as the case may be: Provided that . Provided further that in case of services referred to in clause (b) where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist. Provided also that in case of associated enterprises , where the person providing the service is located outside India, the point of taxation shall be the date of credit in the books of account of the person receiving the service or date of making the payment whichever is earlier. This rule was amended by the notification No 4/2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in terms of Section 67 of the Finance Act, 1994 in respect of the service transactions between the associated enterprises. The tax was required to be paid, on the occurrence of any of event as specified. Appellant have failed to discharge the tax liability in the manner as provided, i.e. at the time of making the provisional entries in their book of accounts. In case of General Motors (I) Pvt Ltd [2015 (40) STR 962 (T-Mum)] following has been held: 11. The learned counsel for appellant contends that the scope of the Explanation is not extendable to such deemed payment because it needs to be read in the context of the phrase any payment to be received and since the payment is to be received at quarterly intervals by the service provider, such deemed payment cannot be added for the months where actual payments have not been made. That argument will not suffice in view of the circumstances that led to insertion of the said Explanation as pointed out in circular of Central Board of Excise Customs (334/1/2008-TRU, dated 29th February, 2008) attention to which has been drawn by the learned Counsel himself. Between associated enterprises, the certainty of receipts is not tested against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously insinuated itself in second proviso of Rule 7 of Point of Taxation Rules, 2011 was substituted by debit with effect from 1st April, 2012. And since this reference to debit after that date concerns itself exclusively with reverse charge taxability of associated enterprises , that is how it should be read in its former avatar in Rule 6 of Service Tax Rules, 1994. We find ourselves unable to subscribe to this view as the alteration made in 2012 has not been officially attributed to any error in the Rules as it stood on 1st April, 2011. It would be consistent with the proposition made supra that the use of debit , credit or both is not critical to the valuation mechanism as either of these does not exist in isolation while making an entry in the books of account. A debit entry will have a corresponding credit entry and the existence of such entry with respect to royalty on vehicles manufactured by the appellant during a particular month, without an entry in the supplier s ledger, suffices for it to be included in the value of taxable service and liable to be taxed by the fifth of the following month. 14. This is not a dispute about taxability. Tax liability has been discharged by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19) E.L.T. 718 (TLB)] do not come to the direct assistance of the appellant whose liability arises from a plain reading of the deeming provision relating to associated enterprise in the law relating to service tax and the system of acknowledging royalty in their books of account. The Explanation in Rule 6 of Service Tax Rules, 2004 lends itself to literal construction without having to look elsewhere for clarity. The observation of the Hon ble Supreme Court in re Commissioner of Income Tax v. Keshab Chandra Mandal [AIR 1950 SC 265] that hardship or inconvenience cannot alter the meaning of the language employed by the Legislature if such meaning is clear on the face of the statute flowing from this primary rule for interpretation of statutes strikes at the base of the appellant s contention. 4.10 Annexure 1 to the show cause notice, determines the service tax short paid for the same period by stating as follows: Financial Year Head Taxable Value Service Tax Rate % Payable Paid Short Paid 2011-12 Professional Fee 66,524,168 10.3 6851989 197742 0 487456 9 IT Expenses 46,710,419 10.3 4811173 479616 7 15006 113,234,58 7 1166316 2 677358 7 488957 5 4.11 As per the Appellant Provisional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand has been made by stating the total tax payment towards these services to be Rs 67,73,587/-. 4.12 For the Year 2013-14, show cause, notice demands service tax only in respect of the Professional Fees. The calculation of tax short paid is as indicated in the table below: Financial Year Head Taxable Value Service Tax Rate % Payable Paid Short Paid 2012-13 Profession al Fee 3,86,51,27 4 12.3 6 47,77,297 22,02,364 25,74,93 3 Thus the total demand made by in the show cause for the entire period is as follows: Financial Year Head Demand as per SCN Tax Paid As per Revenue Appellant 2011-12 Professional Fees 4874569 1977420 4863925 IT Expenses 15006 4796167 5185142 2012-13 Professional Fees 2574933 2202364 2202364 2013-14 Professional Fees 285529 399741 399741 IT Expenses 510281 697088 697088 Total 82,60,318 1,00,72,780 1,33,48,260 4.13 Adjudicating authority has after allowing the deduction towards R D Cess confirmed the demand of Rs 50,43,814/-. However in our view if the correct figure of the tax payment as per the appellant was to be taken the demand would have been further reduced by Rs 32,75,680/- (Rs 1,33,48,260/- - Rs 1,00,72,780/-). Thus the total demand would have been reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be open to the Central Excise Officer, in exercise of his discretion to serve the show cause notice on the person chargeable to such duty within one year from the relevant date. 12. The Proviso under the said sub-section stipulates that in case of such non levy, etc. of duty which is by reason of fraud, collusion, or any mis-statement or suppression of facts, or contravention of any provisions of the Act or the rules made thereunder, the provisions of sub-section (1) of Section 11A of the Act shall have effect as if the words one year have been substituted by the words five years . 13 . The Explanation which follows stipulates that where service of notice has been stayed by an order of a Court, the period of such stay shall be excluded from computing the aforesaid period of one year or five years, as the case may be. 14 . Thus the scheme that unfolds is that in case of non levy where there is no fraud, collusion, etc., it is open to the Central Excise Officer to issue a show cause notice for recovery of duty of excise which has not been levied, etc. The show cause notice for recovery has to be served within one year from the relevant date. However, where fraud, collusion, etc., st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date nugatory and such an interpretation is not permissible. 19. The language employed in the proviso to sub-section (1) of Section 11A, is, clear and unambiguous and makes it abundantly clear that moment there is non-levy or short levy etc. of central excise duty with intention to evade payment of duty for any of the reasons specified thereunder, the proviso would come into operation and the period of limitation would stand extended from one year to five years. This is the only requirement of the provision. Once it is found that the ingredients of the proviso are satisfied, all that has to be seen as to what is the relevant date and as to whether the show cause notice has been served within a period of five years therefrom. 4.16 In case of King Bell Apparels [2019 (365) E.L.T. 681 (Mad.)] Hon ble Madras High Court has held as follows: 17 . Next we move on to the question as to whether the extended period of limitation could have been invoked. This very issue has been answered in the decision in Neminath Fabrics Pvt. Ltd. (supra) by the High Court of Gujarat. The question which was framed for consideration was whether the Tribunal was justified in importing the concept of knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining a doubt about the views expressed by the authorities themselves. It is in this background that the Court had gone to hold that there had been no deliberate suppression. 39 . Similarly the judgment of the Apex Court in the case of Jai Prakash Industries Ltd. (supra) relied upon by the learned counsel for the assessee is also clearly distinguishable in the facts of the present case. In the said case, there were divergent views of the various High Courts, the issue as to whether crushing of bigger stones or boulders into smaller pieces amounts to manufacture. In these facts, it was held that if the assessee had not taken licence or he did not pay the duty, the extended period of limitation could not be invoked. 40 . For the reasons recorded above, we find that the Tribunal under the order impugned is not justified in recording a finding that the extended period of limitation cannot be invoked, inasmuch as from what has been recorded by us herein above, it is crystal clear that there has been suppression of material fact as well as contravention of the provisions of the Act, 1944 and the rules framed thereunder at the hands of the assessee with an intent to evade the demand of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the section. 4.19 Thus we summarize our findings as follows: a. Appellant is required to pay Service Tax on the service received by them from their associate enterprises on the taxable value as determined in terms of section 67 of the Finance Act, 1994. Appellant should furnish the complete details of the expenses incurred by it towards the receipt of these services to the adjudicating authority. b. The service tax liability is to be discharged by the appellant in the manner and at the time as determined in terms of Rule 6 of the Service Tax Rules, 1994 read with Rule 7 of Point of Taxation Rules, 2011. For any delay in payment of Service Tax from the due date interest at appropriate rate should be paid by the appellant in terms of Section 75 of the Finance Act, 1994 for period of delay in payment of tax. c. Extended period of limitation for making the demand as per Section 73 is invokable for making this demand. d. Demand of service tax needs to be recomputed after determining the value of taxable service as per section 67 and after adjusting the tax actually paid by the appellant. Reconciliation in the figures of tax paid as per show cause notice and as claimed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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