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TMI Blog2025 (3) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... romote, market, advertise and distribute such products. Once UCT received definitive order from its customers, purchase order was placed on the Appellant by UCT as per clause 3.3 of the agreement. In consideration for such supply of software and related services by Appellant to UCT, the Appellant received 60% of the total net revenue received by UCT from end user for the sale of such software product by UCT to the end user as provided under clause 3.4 of the agreement. Based on the premise that UCT is acting as an agent for the Appellant for sale of software in overseas market which is a taxable service under the reverse charge under the category of business auxiliary services, a Show Cause Notice was issued demanding Rs. 4,03,47,312, on Reverse Charge basis, by invoking the extended period provisions. Revenue alleged that UCT is undertaking marketing of products, procuring customers, effecting sale of such products and getting commission for same. Another demand of Rs.39,81,736 was made under Reverse Charge Mechanism on alleged import of Management or Business Consultancy Services on the ground that the appellant is using third party software for which they have remitted the royal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an obligation on someone. That it has been incorrectly held that UCT is carrying out marketing activities and acting as commission agent. It is submitted that no such inference can be drawn as the agreement nowhere mandates marketing activity to be undertaken by UCT and the Appellant has only granted marketing rights to UCT in connection with sale of software (as per clause 2) which cannot be confused with obligation to do marketing activity. In fact, most of the marketing activity is carried out by Appellant himself as per clause 1.3 of 2003 Agreement. * Thus, the terms of the contract are explicit and cannot be interpreted otherwise to fasten liability. Further, intention of the parties to the agreement should be given effect to which is to undertake supply of software and services of installation etc to the other party. * Further, from various clauses, it is evident that UCT is subcontracting the orders received by it to the Appellant. That there exists buyer seller relationship between Appellant and UCT and not Appellant and the end customers. That the end customers are customers of UCT, which is also clear from the fact that as per clause 3.3, the purchase orders are fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that demand cannot be based on estimation without any tangible evidence. * The Appellant humbly submits that the fact that right to use the software product has been granted to UCT is evident from the agreement. It is submitted that the right to use software product is deemed sale as held in Quick Heal Technologies Limited v. Commissioner of Service Tax, Delhi, 2020-VIL- 27-CESTAT-DEL-ST affirmed by the Hon'ble Supreme Court in Commissioner of Service Tax, Delhi v. Quick Heal Technologies Limited 2022-VIL-45-SC-ST. * That further, the Appellant uses third party software along with its own software to provide telecommunication billing solutions and for using such third party software, the Appellant was remitting royalty outside India. The issue for consideration is that whether the Appellant has received business management and consultancy services as procurement of third party software and hence, service tax is payable under reverse charge mechanism on the royalty paid by the Appellant. 4. In view of the above submissions, the appellant contends that the appeal may be allowed on merits. 5. The appellant also takes the stand that the confirmed demand is not legally sustaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all times. Therefore, invocation of extended period is unsustainable and hence, the Impugned Order is liable to be set aside. 6. In view of the above arguments, the Ld Advocate prays the appeal may be allowed on account of time bar also. 7. The Ld AR appearing on behalf of the Revenue, submits that this is not a case where the appellant is selling their software to UCT. That entity is merely acting as an agent of the appellant procuring the orders on their behalf. The appellant is directly despatching the software to the third parties. On the total bill raised by UCT on the third party, the revenue is shared at a proportion of 40 : 60 or 30 : 70. This shows that the consideration received by UCT is nothing but commission for the orders canvassed by them. While the appellant is trying to make out this is only the profit margin on account of trading by UCT, the case is otherwise and is clearly covered by BAS. The appellant has failed to discharge the Service Tax liability by paying the same on Reverse Charge basis. Therefore, he prays that the appeal may be dismissed. 8. He submits that though the appellant was paying Service Tax and was registered in the normal course, they neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the SCN was issued under the proviso to Section 73(1) of the Act and therefore, Ld. Respondent was mandatorily required to decide the case and pass an order within one year from the date of issuance of the SCN, as per S. 73(4B)(b) of the Act. However, in the present case, the Impugned Order has been passed on 29.02.2016, which is beyond the time limit prescribed in S. 73(4B)(b) of the Act. Therefore, the Impugned Order has been passed in clear violation of the provisions and hence, is liable to set aside. 10.5 It is submitted that in addition to the present provision under the Finance Act, similar provisions are contained under other indirect tax legislations such as S. 11A(11) of the Central Excise Act, 1944 ("Excise Act") and S. 28(9) of the Customs Act, 1962 ("Customs Act") wherein timeline has been prescribed to pass the order adjudicating the SCN. 10.6 The issue whether such time limit to pass the order is mandatory or directory came up for consideration before various Courts and a consistent view has been taken by the Courts that the timeline is mandatory and is required to be followed by the adjudicating officers. In this regard, the Appellant places reliance on a recent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the stipulated period that the authorities may deviate from the time limit prescribed under the Statute; (iii) The mandate of the legislature that the show cause notice should be adjudicated within six months or one year, as the case may be, only provides flexibility for extension of the period when it is not practicable or possible to adjudicate it within the said time limit. The time limit period cannot be extended endlessly without any plausible justification; (iv) The indifference of the Adjudicating Authority to complete the adjudicating process within the statutory time limit cannot be condoned to the detriment of the assessee or detrimental to the interest of the exchequer; (v) There is a definite purpose and intention of the legislature to prescribe such time limit. The legislature has clearly intended to avoid uncertainly, which otherwise can emerge..." 10.9 In the present case, the order has admittedly been passed after a delay of one year and hence, is in contravention to S. 73 (4B) of the Act. That further, no reason has been provided by the Ld. Respondent for not adhering to the time limit prescribed in S. 73 (4B) of the Act and for the delay in passing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of notice, where it is possible to do so in respect of cases falling under sub- section (4)" 10.12 That the aforementioned provision of the Customs Act was interpreted by the Hon'ble Delhi High Court in the case of Swatch Group India Pvt. Ltd. vs. Union of India (2023) 10 Centax 5 (Del.) wherein, it was held that the time limit prescribed in the statute to pass an order is mandatory and is required to be adhered to by the Department. Relevant extract of the decision is as follows: "34. The flexibility, at the same time, in our opinion, cannot be equated with the lethargy of the Department or its officers. The Legislature has mandated the show cause notices to be adjudicated within six months or one year as the case may be; it has provided flexibility only to the extent that if the same is not practicable/possible the period can be extended. The phrase 'where it is possible to do so' would only mean that wherever it is not practicable/possible to do certain act, the period can be extended. The same, however, cannot be an endless period without any plausible justification. ... 46. In our view, there is no material to show that it was not possible for the proper Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice. The SCN was issued on 15.10.2014 and the OIO was passed on 29.02.2016, which is within less than 2 years. This shows that inordinate delay has not occurred in respect of most of the above appeals. 12.3 The Hon'ble Beach should have referred the matter in M/s Kopertek Metals Pvt. Ltd to a larger bench only after acknowledging disagreement with their own orders. Accordingly, the decision in Kopertek Metals Pvt. Ltd, passed violating judicial disciplines, is bad in law and cannot be relied upon. 12.4 The present notice was issued on the basis of facts and laws prevailing during the point of time. Moreover, the appellant did not challenge the notices before any judicial forum to make such notices non-est. They participated in the adjudication process and thereby admits the power to issue such notices by a proper officer. Such question cannot be raised before a statutory court like CESTAT. Legality of show cause notices cannot be challenged before any appellate forum except before High Court through a Writ Petition and Hon'ble High Court may give relief on such petitions in exercising power under Article 226 of the Indian Constitution. Hon'ble Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be governed by the provisions of sub-section (11) of section 11A, as it stood during the period from 28.04.2015 to 13.05.2015. Sub-section (11) of section 11A, as it stood during this period, provided that the Central Excise Officer shall determine the amount of duty within six months from the date of notice, where it was possible to do so, in respect of cases falling under sub-section (1). However, in respect of cases falling under sub-section (4) or sub-section (5), the Central Excise Officer shall determine the amount of duty within one year from the date of notice, where it is possible to do so. The show cause notice in this appeal was issued under sub- section (4) of section 11A. Thus, the Central Excise Officer had to determine the amount of duty within one year from the date of notice, where it was possible to do so. 11. What is important to note is that the show cause notice that was issued on 28.04.2015 was required to be adjudicated latest by 27.04.2016; 12. It was incumbent upon the Adjudicating Authority to determine the amount of duty within one year from 28.04.2015, where it was possible to do so. The discussion and findings in the impugned order start fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The legislature has clearly intended to avoid uncertainly, which otherwise can emerge; and (vi) Even if no time limit is prescribed for adjudication of a show cause notice, then too the adjudication has to be done within a reasonable period. However, what would be a reasonable period would depend upon the nature of the Statute, rights and liabilities thereunder and other relevant factors. 27. The show cause notice, in the present case, was issued on 28.04.2015. It called upon the noticees to show cause within thirty days from the date of receipt of notice, failing which it was specifically provided that the matter would be adjudicated ex parte without any further communication. It is seen that the period one year from 28.04.2015 expired on 27.04.2016. Even if cause was not shown by the noticees to the said notice, the Adjudicating Authority should have proceeded to decide the matter ex parte, but what is seen is that the Adjudicating Authority even let this statutory time limit of one year pass without even adhering to the stipulation contained in the show cause notice that the matter would be decided ex parte even if no cause is shown within thirty days. It appears that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable speed and dispatch. A statutory authority when faced with such a challenge would be obligated to prove that it was either impracticable to proceed or it was constricted by factors beyond its control which prevented it from moving with reasonable expedition. This principle would apply equally to cases falling either under the Customs Act, the 1994 Act or the CGST Act. 86. When we revert to the facts that obtain in this batch, we find that the respondents have clearly failed to establish the existence of an insurmountable constraint which operated and which could be acknowledged in law as impeding their power to conclude pending adjudications. 18. The Hon'ble Bombay High Court in the case of IDFC First Bank Ltd. vs. Union of India, (2023) 10 Centax 256 (Bom.) wherein while deciding whether the time limit as prescribed in S. 73 (4B) of the Act are mandatory or directory in nature, the Hon'ble High Court laid emphasis on the word "shall" used in the provision to hold that the time limit prescribed in S. 73 (4B) of the Act is mandatory and held as under : 14. In short, the contention of the respondent is to the effect that Section 73(4B) does not make it mandatory to dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clause (a) of sub-section (4B) is concerned, cannot be read to nullify or attaching no weightage to the timelines so prescribed. It can however, be acceptable that a reasonable/plausible delay beyond six months may in a given case be justified depending on the facts and circumstances of the case, for reasons which do not make it possible for the adjudicating officer to conclude the proceedings of the show cause notice. This can be for reasons which are acceptable in law which a reasonable body of persons would accept to be absolutely justifiable, considering the duration of such period. This would certainly not mean that it can be an unexplained, unjustified, unreasonable and an inordinate delay. The same principle would apply to clause (b) of sub-section (4B) of Section 73. 17. We may also observe that when the legislature uses the words 'where it is possible to do so' in clauses (a) and (b), the legislature is conscious of some free play which is required to be made available to the adjudicating officer. However, such limited relaxation cannot be intended to mean that it would defeat the sanctity and purpose for which the period of six months and one year has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of CGST and CX, DIV- IX, Mumbai Central GST Commissionerate 2022 (382) E.L.T. 206(Bom.). 19. The importance and significance of these words have been extensively dealt by the Delhi High Court in the case of Swatch India - 2023 (386) E.L.T. 356 (Del.). It may be useful to go through the relevant portion, which is extracted below : 32. The unamended Section 28(9) of the Customs Act, specifically provides that the proper officer "shall‟ determine the amount of duty within six months or within one year, as the case may be, from the date of notice. It only provides certain degree of inbuilt flexibility by incorporating the words "where it is possible to do so‟. 33. The phrases "as far as possible" and "as far as practicable" appear in other statutes as well came up for consideration before the Apex Court in C.N. Paramasivam and Another v. Sunrise Plaza: (2013) 9 SCC 460/[2013] 30 taxmann.com 320 (SC). It is observed that the words "possible" and "practicable" are more or less interchangeable along with the other words such as feasible, performable etc. The incorporation of such words gives certain degree of flexibility to the Department such as if some circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d significance of these words as well as to whether these are directory or mandatory in nature, have already been interpreted in the case laws cited above 22. In the Kopertek Metals Pvt Ltd.[Kopertek for short], decided by the Principal Bench - Delhi Tribunal, it has been held that non adjudication of the order, with no reason being given to the effect that the order could not be passed on time due to circumstance beyond the control of the Adjudicating authority, the same would be fatal to the legality of the order. In VOS judgement, cited supra the Delhi High Court has also held so and has noted that the delay is required to be viewed from the facts of the case. As per these decisions, when the reason for delay is not explained by way of plausible reasons in the Order in question, it fails to prove that "it was not possible to pass the authority" within the time-frame. 23. The Revenue countering the claim of the appellant that Kopertek Metals case should be applied, has taken the stand that in that case, the delay in passing the Order in Original was very high whereas the delay in case of the OIOs passed in the present case are not that high and hence, this case law cannot be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 (with effect from 6.8.2014), the Section 73 (4B), was inserted to specify the time- frame for adjudication of the Service Tax matters. Hence, there was no time-frame applicable for Adjudication of the SCN issued in 2011. The appellant had only made a normal reference towards the delay without citing any statutory provisions or the case laws. In that context the decision was rendered by the Tribunal. 27. In the case of Citicorp, again the issue is that of Service Tax demand. The Show Cause Notice was issued on 23.04.2012. Therefore, even in this case, on the date of issue of SCN, the statutory provision with regard to the time-frame to complete the Adjudication had not come into force. The Adjudicating authority had confirmed demand holding that appellant has not appeared for Personal Hearing nor have they filed any reply. This was properly countered by the appellant before the Tribunal showing evidence of having filed the replies and also appearing for the Hearing. They raised the additional point about the delay in completion of the adjudication proceedings. The Tribunal did not negate this claim. But considering the overall factual details of the case, the Tribunal took th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunication. It is seen that the period one year from 28.04.2015 expired on 27.04.2016. Even if cause was not shown by the noticees to the said notice, the Adjudicating Authority should have proceeded to decide the matter ex parte, but what is seen is that the Adjudicating Authority even let this statutory time limit of one year pass without even adhering to the stipulation contained in the show cause notice that the matter would be decided ex parte even if no cause is shown within thirty days. It appears that it is only on 07.09.2016 i.e. almost after a period of five months after the expiry of one year that the first hearing was fixed by the Adjudicating Authority on 07.09.2016. 31. In the Order in Original, there is no mention of the circumstances which proved to be impediment in completing the adjudicating process within one year. Another issue weighing in our mind is that in this case, the appellant is a duly registered assessee. They have been paying Service Tax and filing their Returns. The demand as per the Revenue, emanates from the transactions pertaining to import of service. As submitted by the appellant and also held consistently by the Tribunals and Courts that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax and takes the credit. We note that the issue as to confirmation of service tax liability arose on the payment made to CRS Company, as decided by majority decisions, in three cases namely British Airways, Thai International Public Co. Ltd. and Austrian Airways wherein the question of revenue neutrality arose, which was answered in favour of assesses therein. It is trait law that question of Revenue Neutrality is a good ground, more so when the tax liability is being discharged under reverse charge mechanism. This very plea of revenue neutrality in an identical issue was raised in British Airways case and decided also. It is settled law when an issue is raised and decided in a judgement, the ratio applies. 36. This Bench in the case of Eldyne Electro System Pvt Ltd Vs CST - 204 (25) Centax 2234 (Tri-Kol), has held as under : 9. Regarding the demand of interest, we observe that there is no suppression of facts with intention to evade the tax established in this case. The entire demand has been raised on the basis of the information available in their Balance Sheet and Profit and Loss Account. In such circumstances, we hold that extended period of limitation not invokable. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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