Custom, Excise & Service Tax Tribunal
M/S. Needle Industries (I) Pvt. Ltd vs Cce, Salem on 20 August, 2009
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
S/73/2008
(Arising out of Order in Original No. 1/2008 (Commr.) dated 07.01.2008, passed by the Commissioner of Central Excise (Appeals), Salem).
For approval and signature
Honble Ms. JYOTI BALASUNDARAM, Vice President
Honble Dr. CHITTARANJAN SATAPATHY, Technical Member
_________________________________________________________
1. Whether Press Reporters may be allowed to see the :
order for Publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether the Honble Member wishes to see the fair :
copy of the Order.
4. Whether order is to be circulated to the :
Departmental Authorities? _________________________________________________________
M/s. Needle Industries (I) Pvt. Ltd. : Appellant
Vs.
CCE, Salem : Respondent
Appearance Shri K.R. Natarajan, Adv., Shri R.J. Pillai, Consultant, for the appellant Shri V.V. Hariharan, JCDR, for the respondent CORAM Ms. JYOTI BALASUNDARAM, Vice President Dr. CHITTARANJAN SATAPATHY, Technical Member Date of hearing : 20.08.09 Date of decision : 20.08.09 Final ORDER No._____________ Per: Jyoti Balasundaram, In this case service tax demand of Rs. 1,22,56,765/- together with interest has been confirmed against the assessees as a result of holding that they are liable to pay tax as recipient of Businesses Auxiliary Services from a foreign service provider during the period 09.07.04 to 30.04.07 and penalty of Rs. 200/- per day from the date of failure to pay till the payment of tax upto 17.04.06 and 2% of tax or Rs.200/- whichever is higher for the tax amount to be paid from 18.04.06 under Section 76 of Finance Act, 1994 and penalty of Rs.1000/- under Section 77 for the failure to obtain registration and file ST3 returns has been imposed. A penalty of Rs. 2,45,13,530/- has also been imposed under Section 78 of Chapter 5 of Finance Act, 1944 for deliberate suppression of the value of taxable service with the intent to evade payment of service tax.
2. We have heard both sides. It has been held by the Honble High Court of Bombay in the case of Indian National Shipowners Association Vs. Union of India 2008-TIOL-633-HC-MUM-ST that in the case of foreign service provider providing service outside India, liability to service tax arises w.e.f. 18.04.06. The decision of the High Court has been followed by the Honble High Court of Delhi in the case of Unitech Ltd. 2009 TIOL-293-HC-DEL-ST. In the case of Anant Spinning Mills 2009(14) STR 184 also it has been held that the liability to tax is only with effect from 18.04.06. In the present case the assessees have paid service tax for the period 16.06.05 onwards on 18.06.07. In the light of the fact that the liability to tax has been determined as effective only from 18.04.06, we set aside the demand for the period prior to 18.04.06. Since the assessees have paid even for a period when it has been held such a service is not exigible to tax, the tax liability will be required to be re-determined.
3. As regards the penalties, the assessees do not dispute the liability to penalty in terms of Section 77 which we uphold the same and as far as the penalties under Section 76 and 78, the assessees seek shelter under the provisions of Section 80 of the Finance Act which provides that notwithstanding anything contained in the provisions of Section 76, Section 77 or Section 78, no penalty shall be imposable on the assessees for any failure referred to in the said provisions if the assessees prove that there was reasonable cause for the said failure. According to them, they were in a bonafide belief based upon the service tax Circular No. 36/4/01 dated 08.10.01, that they were not liable to pay service tax. The Circular is reproduced herein below:
Service Tax-Services provided outside the limits of Indian territorial waters not liable to tax.
At present the levy of service tax extends to the whole of India except the State of Jammu and Kashmir. The expression India includes the territorial waters of India. Indian territorial waters extend up to twelve nautical miles from the Indian land mass. Chapter V of the Finance Act which governs the levy of Service Tax has not extended to the levy to designated areas in the Continental Shelf and the Exclusive Economic Zone of India (as has been done in case of Central Excise vide Notification No. 166/87-C.E., dated 11.6.87 and in case of Customs by Notification Nos. 11/87-Cus., dated 14.01.87 & 64/97-Cus., dated 1.12.97). It is, therefore, clarified that the services provided beyond the territorial waters of India are not liable to Service Tax as provisions of Service tax have not been extended to such areas so far. This circular led the field until 10.05.07, when it was withdrawn along with other circulars, by Circular No. 93/04/07-ST dated 10.05.07. Therefore the assessees submit that the penalties imposed under Section 76 & 78 should be set aside by giving them the sanctuary of protection under Section 80.
4. The above prayer is vehemently opposed by the Ld. JCDR was on the ground that once the liability to pay service tax commence w.e.f 18.04.06, the assessees could not have any bonafide belief based upon any CBEC circular.
5. However, we find that the circular which is squarely to the effect that the service provided outside beyond the territorial waters of India are not liable to Service Tax was valid and in force until it was withdrawn on 10.05.07. It cannot be accepted that the assessees could not have had a bonafide belief on the basis of the above. We accept the plea of the assessees based upon the circular and set aside the penalties imposed under the provisions of Section 76 and 78 of the Finance Act.
6. The appeal is thus partly allowed with consequential relief due to the appellants in accordance with law.
(Order dictated and pronounced in the open Court)
(Dr. CHITTARANJAN SATAPATHY) (JYOTI BALASUNDARAM)
TECHNICAL MEMBER VICE PRESIDENT
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