Custom, Excise & Service Tax Tribunal
Ms Samsung India Electronics P Limited vs Ce & Cgst Noida on 16 April, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70141 of 2021
(Arising out of Order-in-Appeal No.NOI-EXCUS-001-APP-847-20-21 dated
24/12/2020 passed by Commissioner (Appeals) Central Goods & Services
Tax, Noida)
M/s Samsung India Electronics (P) Ltd., .....Appellant
(B-1, Sector-81, Phase-II, Noida)
VERSUS
Commissioner of Central Excise &
CGST, Noida ....Respondent
(4th Floor, C-56/42, Renu Tower, Sector-62, Noida-201301) APPEARANCE:
Shri Atul Gupta, Advocate for the Appellant Shri Manish Raj, Authorised Representative for the Respondent CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) FINAL ORDER NO.70180/2024 DATE OF HEARING : 30 January, 2024 DATE OF PRONOUNCEMENT : 16 April, 2024 SANJIV SRIVASTAVA:
This appeal is directed against Order-in-Appeal No. NOI- EXCUS-001-APP-847-20-21 dated 24.12.2020 of the Commissioner Central Goods and Service Tax (Appeal) NOIDA. By the impugned order following has been held:
1.0 Accordingly, the appeal No. 720/ST/Noida/Appl/NOI/2018-19 dated 10.07.2018 filed by M/s Samsung India Electronics Pvt.
Ltd., B-1, Sector-81. Phase-I Noida is disposed off in above terms.
2 Service Tax Appeal No.70141 of 2021 2.1 The Appellant is engaged in the manufacture of goods including Colour TV, Refrigerator, etc. The Appellant was also registered with the Service Tax authorities having registration No.AAACS5123KST026 for rendering services such as Management Consultant Services, Consulting Engineering Services, Market Research Agency Services, Maintenance Repair Services, Business Auxiliary Services, IPR Services, etc. as well as for payment 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 accounts. The audit also computed the tax liability which was arisen due to such allegations.
2.4 After the audit and conducting enquiries and investigations Appellant furnished the details on the same issue of receiving technical services from its associated enterprise for the periods of 2010-11.
3 Service Tax Appeal No.70141 of 2021 2.5 A Show cause notice dated 05.102015 was issued to the appellant asking them to show cause as to why:
a) Amount of Service Tax (including Ed.Cess & S.H.Ed.
Cess) amounting to Rs.82,60,318.00 being Service Tax short paid during the period 2011-12 to 2013-14, should not be demanded and recovered from them under proviso to Sectian 73(1) of the Finance Act, 1994.
b) Interest under Section 75 of the Finance Act, 1994 should not be recovered from them.
c) Penalty should not be imposed upon them under Section 78 of the Finance Act for their contravention of the provisions of Sections 66, 67 & 68 of the Finance Act, 1994 by suppression of facts.
d) Amount of Rs. 62,54,077.00 as CENVAT credit being wrongly taken and utilized, should not be demanded and recovered from them under provisions of Rule 14 of the CENV AT Credit Rules, 2004 read with proviso to Section 73( 1) of the Finance Act, 1994.
e) The interest under Rule 14 of the CENV T Credit Rules, 2004 read with proviso to Section 75 of the Finance Act, 1994 on the amount of CENVAT Credit wrongly availed by them, should not be recovered from them. Penalty should not be imposed upon them under Rule 15 (3) of the CENVAT Credit Rules 2004, read with Section 78 of the Act, ibid for wrong availment of CENVAT credit on input services by suppression of facts.
2.6 The show cause notice was adjudicated by the original authority holding as follow:
"ORDER
1) I confirm Service Tax amounting to Rs. 50,43,814/-
[Rupees Fifty Lacs, Forty Three Thousand Eight hundred and fourteen only] (including Ed. Cess and S & H Ed. Cess), under Section 73(2) of the Finance Act, 1994, as discussed supra and order to be recovered from them, 4 Service Tax Appeal No.70141 of 2021 along with applicable Interest under Section 75 of the Act ibid;
2) I impose a penalty of Rs. 50,43,814/- [Rupees Fifty Lacs, Forty Three Thousand Eight hundred and fourteen only] upon the party under Section 78 of the Finance Act, 1994 for contravention af the provisions as discussed supra;and
3) I confirm demand of inadmissible CENVAT credit of Rs. 44,10,298/- (Rupees Forty Four Lacs Ten thousand Two Hundred and 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 & 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 was issued on 05.10.2015 demanding service tax on provisional entry for the period
5 Service Tax Appeal No.70141 of 2021 2011-12 to 2013-14. It is submitted that demand till the period of September 2013 is time-barred.
the demand is revenue neutral for the fact that even if the Appellant is required to pay Service Tax On the provisional entries, the tax paid would be admissible as CENVAT credit to the Appellant.
Figures taken are wrong and demand for 2011-12 and 2013-14 are not sustainable.
o In respect of 2011-12, the service tax was paid on the higher amount. Therefore, after adjusting the benefit of reduction of R & D cess from the service tax no remaining demand should left.
o In respect of 2013-14, the Order-In-Original dated 27.03.2018 itself observes that the service tax was paid on the provisional entry in the books of accounts. Therefore, for this reason the demand for that period is not sustainable after adjusting the benefit of reduction of R & D cess from the service tax payable as such benefit has already been extended Service tax is not payable when the provisional entries made by the Appellant. the point of taxation with respect to associated enterprises was the date of credit in the books of accounts of the service recipient or the date of payment, whichever was earlier. In the present case, the Appellant was booking the payments as an expense. In accounting standards expenses are debit and for this reason, the same was debited rather than credited in the books of accounts. Hence, the appellant never credited the amount in the books, hence the date of payment would be the point of taxation. For this reason, till 01.04.2012, the Appellant was correctly paying service tax as per the date of making the payment or date of making the final debit entry, whichever was earlier.
On and from 01.04.2012, the point of taxation in cases of associated enterprises was the date on which the books of 6 Service Tax Appeal No.70141 of 2021 accounts of the service recipient are debited or on the date of payment, whichever is earlier. The phrase debit in the books of accounts means the date on which the amount becomes payable or the amount is recognized as an outstanding in the books of the service recipient. Mere entries made to create provision by the Indian service recipient cannot be an expense until the amount has actually become payable to the foreign associated service provider. The position taken by the revenue to demand service tax on provisional 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 tax payable, is equal to the gross amount charged i.e., value shall be considered as inclusive of service tax.
No interest is chargeable, and no penalty is imposable on the Appellant.
7 Service Tax Appeal No.70141 of 2021 3.3 Arguing for the revenue learned authorized representative reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 Impugned order records following findings on the issue in relation to provisional entries:
"8.1 Payment of Service Tax on the provisional entries ?
Now, I proceed to next issue regarding the short payment of service tax on provisional entries made by the appellant. I find that the appellant had contended that the provisional entry is made in its books depending upon the amount that is expected to be paid in relation to the services received and this provisional debit did not reflect the actual expense and placed reliance upon CBEC Circular -_ M.F (DR) Letter DOF No. 334/1/2008-TRU dated 19.02.2008 and Rule of Point of Taxation Rules, 2011. Reliance has also been placed on the case of ED Sassoon Limited Vs Commissioner of Income Tax, Bombay - (1954) 26 ITR 27 (SC), wherein the Hon'ble Supreme Court has explained the difference between the terms 'accrues' and 'arises 8.2. In this context, I observe that the appellant has contested that service under RCM should be demanded from them on the basis of actual debits in their books of account instead of provisional entries made in balance sheet. It is seen that by the amendment introduced in the Finance Act, 2008 w.e.f. 01.05.2008, service tax in respect of transactions between associated the enterprises books of was required to be account paid as soon as the transactions were entered in the books of account instead of waiting for the actual remittances. Further, I find in that relevant proviso of Rule 7 of Point of Taxation Rules, 2011 during the disputed period, reads as under
Upto March, 2012 8 Service Tax Appeal No.70141 of 2021 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.
W.e.f. April, 2012 Provided further 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 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 evidence. It follows that the confirmation of demand in respect of the above issue is subject to the furnishing and verification of the documents establishing the accounting principles mainly attributable between accrual cycle and the billing cycle by the appellant. I find that no material evidences, supporting documents or 9 Service Tax Appeal No.70141 of 2021 plausible explanations have been placed on record by the appellant before the adjudicating authority or before me during the personal hearing or with their grounds of appeal to substantiate their claim except for their own declaration made in their defence reply. In absence of any corroborative evidence or verification of same by the departmental officer, a provisional entry will be the relevant figures for calculating service tax. In view of this, there is no need to interfere in the findings of the adjudicating authority on this issue.
9. As regards interest confirmation is concerned, it is a settled principle that once the duty liability is upheld, the liability to pay interest is automatic and consequential. Further, the breach of a civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty."
4.3 From the facts as above and as recorded in the impugned order, it is evident that the demand of Service Tax has been made in the present case on the basis of certain provisional entries made by the appellant in their book of accounts, as expenses towards the payments to be made to their associate enterprises, for the services of professionals visiting them. Appellants claim that they have paid the service tax at the time of making the actual payments to the associate enterprises, on the basis of actual amount paid.
4.4 By Section 90 (C) of the Finance Act, 2008, Section 67, of the Finance Act, 1994 was amended to substitute, the phrase "book adjustment" by the phrase "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.‟;
The impact of the amendment was to amend the definition of the taxable value which has been defined in terms of the gross amount charged in following manner.
10 Service Tax Appeal No.70141 of 2021 "(c) "gross amount charged" includes payment by cheque, credit card, deduction from account and 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 shall include 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".
4.6 Joint Secretary TRU, has vide his Letter DOF No. 334/1/2008-TRU dated 29.02.2008 clarified as follows:
"6. TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES:
6.1 Service tax is levied at the rate of 12% of the value of taxable services (section 66). Section 67 pertaining to 11 Service Tax Appeal No.70141 of 2021 valuation of taxable service for charging service tax states that value shall be the gross amount charged for the service provided or to be provided and includes book adjustment. As per rule 6 of the Service Tax Rules, 1994, service tax is required to be paid only after receipt of the payment.
6.2 It has been brought to the notice that the provision requiring payment of service tax after receipt of payment are used for tax avoidance especially when the transaction is between associated enterprises. There have been instances wherein service tax has not been paid on the ground of non-receipt of payment even though the transaction has been recognized as revenue/expenditure in the statement of profit and loss account for the purpose of determining corporate tax liability.
6.3 As an anti-avoidance measure, it is proposed to clarify that service tax is leviable on taxable services provided by the person liable to pay service tax even if the amount is not actually received, but the amount is credited or debited in the books of account of the service provider. In other words, service tax is required to be paid after receipt of payment or crediting/debiting of the amount in the books of accounts, whichever is earlier. However, this provision is restricted to transaction between associated enterprises.
This provision shall also apply to service tax payable under reverse charge method (Section 66A) as taxable services received from associated enterprises. For this purpose section 67 and rule 6(1) are being amended."
4.7 Rule 7 of Point of Taxation Rules, 2011 as introduced by Notification No 18/2011-ST dated 01.03.2011 read as follows:
"7. Determination of point of taxation in case of associated enterprises.-
The point of taxation in respect of associated enterprises shall be the date on which the payment has been made, or invoice under rule 4A of the Service Tax Rules, 1994 has 12 Service Tax Appeal No.70141 of 2021 been issued, or the date of debit 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-ST dated 17.03.2012 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 the persons required to pay 13 Service Tax Appeal No.70141 of 2021 tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made:
.........:
Provided further 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 debit in the books of account of the person receiving the service or date of making the payment whichever is earlier."
4.8 From the definition of the gross amount charged the value of taxable service was to be determined on the basis of the all the debit and credit entries in the book of accounts of the person liable to pay service tax. The determination of the gross amount charged by the appellant for the services received by them will be determined on the basis of all the credit and debit entries made. It is quite evident that the appellants were require to pay the service tax as advance tax, at the time of making the expense entry in their book of accounts, for the expense incurred towards the services received from their associate enterprises. The entry so made was to be finally adjusted against the actual amount of service tax to be paid subsequently at the time of either making a credit or debit entry subsequently. In the clarification issued by the JS TRU, it is specifically stated that these provisions have been made as:
Tax avoidance measure; and To ensure timely payment of tax.
These amendments do not create any additional tax liability on the service provider/ service recipient, but only provide for advance payment of tax at the time of making provisional entries in the book of account.
4.9 In view of the above we are in agreement with the submissions made by the appellant that these provisions only provided, for determination of the Point of Taxation, and fixed 14 Service Tax Appeal No.70141 of 2021 the time when the tax liability was to be discharged by the appellants. These amendments in any cases did not provided that the value of the taxable service shall be the determined in any manner other than provided by the Section 67 of the Finance Act, 1994. Thus the value of taxable service was to be determined 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 the enhancement of cash or bank balances; mere book entries have the effect that it may not have between two independent entities. Such book adjustments often serve to delay or defer tax payment without loss of stakeholder value and this deeming provision aims to disincentivize such tendencies. It is quite probable that the intent of the appellant and the associated concerns may not have been so but such a distinction based on intent, as the learned counsel would have us accept, does not only not find a place in the 15 Service Tax Appeal No.70141 of 2021 provision but is also anathema to non-discriminatory taxation. The deeming effect of the Explanation has to be applied wherever accounting entries relating to the service transaction finds a place in the books of the person liable to pay the tax.
12. The learned counsel for the appellant has attempted to lay emphasis on the debit entry in the books of the person liable to pay tax as the due date intended in Explanation in Rule 6. This restrictive interpretation of legislative intent has drawn upon the assumption that the debit and credit are independent unconnected entries in books of account and that, for the purposes of the Explanation, debit entry is all that is relevant when tax liability devolves on the recipient of service. In this attempt it has been overlooked that the Explanation is unambiguous about the circumstances intended to be covered, viz., the passing of entries in less obvious heads with no apparent connection to the account of the provider of the service. The broad reference to the nomenclature of the account as well as the inclusion of debit and credit is a clear pointer to the intent of not allowing books of account to be used for attributing the liability while deferring tax payment in relation to transactions with associated enterprises. A plain reading of the Explanation does not lend credence to the claim canvassed on behalf the appellant - any debit or credit entry that can be linked to the service is sufficient.
13. Taking this argument forward, learned counsel would have us agree with him that receipts-based valuation has always been the intent in taxation on "reverse charge"
basis because of the special treatment accorded in Rule 7 of Point of Taxation Rules, 2011 even after taxation in all other situations was, by these Rules, transformed to "accrual basis". Accordingly, it is contended that the word "credit" which erroneously insinuated itself in second 16 Service Tax Appeal No.70141 of 2021 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 the appellant, albeit in a schedule of their own choosing, relying on the principle of "receipt" of consideration by the service provider. As this happens to be at variance with the provisions of Rule 6 of Service Tax Rule, 1994 and Rule 7 of Point of Taxation Rules, 2011, the tax liability needs to be computed for each month on the amount booked in the "royalty accrued" account with the reversal being taken into account whenever that has occurred. Needless to state, in such months, it would be tantamount to taxes paid in advance and liable to be adjusted against taxes due in the month(s) thereafter. Owing to absence of any definite computation in the impugned order and the claim of reversal, as well as that of tax payment, not having been doubted in the impugned order, it would appear that tax liability has indeed been discharged in full though belatedly in some months. A test 17 Service Tax Appeal No.70141 of 2021 computation for July to September, 2009 and April to June, 2011, relating to which extracts of ledger have been furnished in these proceedings, after allowing exemption of service tax on related intellectual property service to the extent of Research & Development cess paid as per notification 17/2004-S.T., dated 10th September, 2004, has confirmed it to be so. There being no alternative finding in the impugned order, we find no reason not to conclude so. Revenue neutrality arising from availment of Cenvat credit and the contention that the demand is barred by limitation are rendered irrelevant in the circumstances.
15. As the taxes have been discharged during the period under dispute, the appellant‟s liability is limited to interest for the first two months of each quarter to the extent of amount not paid or short-paid. This should have been effected in the impugned order but, not having been done, needs to be remedied.
16. The references made by the learned Counsel to the provisions of the Income-tax Act, 1961 and the decisions of the Hon‟ble Supreme Court in re Commissioner of Income Tax v. Ashokbhai Chimanbhai [(1965) 56 ITR 42 (SC)], Commissioner of Income Tax v. Birla Gwalior (P) Ltd. [(1973) 89 ITR 266 (SC)], International Auto Ltd. v. Commissioner of Central Excise [2005 (183) E.L.T. 239 (S.C.)] and Commissioner of Central Excise & Customs (Appeals) v. Narayan Polyplast [2005 (179) E.L.T. 20 (S.C.)] and that of the Tribunal in re Jay Yuhshin v. Commissioner of Central Excise [2000 (119) E.L.T. 718 (T- LB)] 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 18 Service Tax Appeal No.70141 of 2021 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:
Financia Head Taxable Service Tax
l Year Value Rate Payable Paid Short
% Paid
2011-12 Professiona 66,524,168 10.3 6851989 197742 487456
l Fee 0 9
I T 46,710,419 10.3 4811173 479616 15006
Expenses 7
113,234,58 1166316 677358 488957
7 2 7 5
4.11 As per the Appellant Provisional Expenses booked in the book of accounts by the appellant and the Actual Expenses in Foreign Currency for the year 2011-12 and the service tax paid are as follows:
Provision Provisional Provision Actual Actual Rate of Service tax al Entry Expenses al of Expens Expenses Tax paid Posting Amount Provision e Amount @7.21%/12.36 Date (INR) al Entry Bookin (INR) % Date g Date Professional Technical Fee 31-Mar- 34,065,999 30-Apr- 31-Jul- 45,132,831 7.21% 3,254,077 12 12 12 31-Mar- 15,876,772 30-Apr- 30- 6,367,340 7.21% 459,085 12 12 May-12 31-Mar- 8,214,660 30-Apr- 30- 8,719,625 7.21% 628,685 12 12 May-12 31-Mar- 5,367056 30-Apr- 30-Jul- 5,329,421 7.21% 384,251 12 12 12 31-Mar- 2,999,680 30-Apr- 30- 1,911,610 7.21% 137,827 19 Service Tax Appeal No.70141 of 2021 12 12 Apr-12 Total 66,524,168 67,460,827 4,863,925 IT Expenses 30- 5,955,881 7.21% 429,419 Apr-12 31-Mar- 7,570,700 01-Apr- 26- 353,376 7.21% 25,478 12 Apr-12 12 31-Mar- 1, 865,319 30-Apr- 19- 2,861,390 12.36 356,558 12 Dec-12 % 12 15,296,647 30-Apr- 19- 16,372,354 12.36 1,991,598 12 Dec-12 % 31-Mar- 1,440,260 30-Apr- 04-Jul- 966,287 12.36 119,482 12 12 % 12 16- 912,940 12.36 112,844 Apr-12 % 31-Mar- 5,035,351 01-Apr- 25- 5,228,412 12.36 646,232 12 Apr-12 % 12 31-Mar- 1, 960,161 30-Apr- 25- 1979,729 12.36 244,695 12 Apr-12 % 12 31-Mar- 11,660,000 01-Apr- 25- 5,249,808 10.30 540,730 12 Apr-12 % 12 12- 4,890,963 10.30 503,769 Apr-12 % 31-Mar- 1,881,981 01-Apr- 23- 860,805 12.36 106,395 12 May-12 % 12 23- 873,317 12.36 107,942 Jun-12 % Total 46,710,419 46,505,262 5,185,142 Grand 113,234,58 113,956,08 10,049,069 7 Total 9 Appellant have submitted the above details specifically in response to the audit note, vide their letter dated 22nd November 2013. From the above it is quite evident that the demand in the present case has not arisen on the account of the above issue but is on the basis of the difference in the rate of taxation applied and the computation of the actual tax paid by the appellant. While the impugned order is totally silent on the issue 20 Service Tax Appeal No.70141 of 2021 of computation of demand, order in original summarily rejects the submissions made, by the appellant even without verifying the quantum of tax actually paid by the appellant. Even if the entire case of revenue is to be upheld then also benefit of the tax that has been actual paid by the appellant need to be verified and allowed to the appellant. Appellant has claimed that they have made payment of Rs 1,00,49,069/- towards service tax, whereas the demand 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:
Financia Head Taxable Service Tax
l Year Value Rate Payable Paid Short
% Paid
2012- Profession 3,86,51,27 12.3 47,77,29 22,02,36 25,74,93
13 al Fee 4 6 7 4 3
Thus the total demand made by in the show cause for the entire period is as follows:
Financial Head Demand as per Tax Paid As per Year SCN Revenue Appellant 2011-12 Professional 4874569 1977420 4863925 Fees I T Expenses 15006 4796167 5185142 2012-13 Professional 2574933 2202364 2202364 Fees 2013-14 Professional 285529 399741 399741 Fees I T 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 reduced to Rs 17,68,134/-. The calculation of the demand after correctly determining the tax actually paid by the appellant during the year 2011-12 needs to be worked out by the adjudicating authority.
21 Service Tax Appeal No.70141 of 2021 4.14 In fact the by not paying the service tax at the time of making the expense entries in their book of accounts, appellant has failed to pay the service tax at the relevant time, as per Rule 6 (1) of the Service Tax Rules, 1994. Even if it is concluded that appellant have correctly discharged the service tax liability subsequently they are required to pay interest on the delayed payment of the tax as per Section 75 of the Finance Act, 1994.
4.15 We are not in position to agree with 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 . 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 Neminath Fabrics [2010 (256) E.L.T. 369 (Guj.)] Hon'ble Gujarat High Court has held as follows:
"11. A plain reading of sub-section (1) of Section 11A of the Act indicates that the provision is applicable in a case where any duty of excise has either not been levied/paid or has been short levied/short paid, or wrongly refunded, regardless of the fact that such non levy etc. is on the basis of any approval, acceptance or assessment relating to the rate of duty or valuation under any of the provisions 22 Service Tax Appeal No.70141 of 2021 of the Act or Rules thereunder and at that stage it would 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., stands established the period within which the show cause notice has to be served stands enlarged by substitution of the words "one year" by the words "five years". In other words the show cause notice for recovery of such duty of excise not levied etc., can be served within five years from the relevant date.
15. To put it differently, the proviso merely provides for a situation whereunder the provisions of sub-section (1) are recast by the legislature itself extending the period within which the show cause notice for recovery of duty of excise not levied etc. gets enlarged. This position becomes clear 23 Service Tax Appeal No.70141 of 2021 when one reads the Explanation in the said sub-section which only says that the period stated as to service of notice shall be excluded in computing the aforesaid period of "one year" or "five years" as the case may be.
16. The termini from which the period of "one year" or "five years" has to be computed is the relevant date which has been defined in sub-section (3)(ii) of Section 11A of the Act. A plain reading of the said definition shows that the concept of knowledge by the departmental authority is entirely absent. Hence, if one imports such concept in sub- section (1) of Section 11A of the Act or the proviso thereunder it would tantamount to rewriting the statutory provision and no canon of interpretation permits such an exercise by any Court. If it is not open to the superior court to either add or substitute words in a statute such right cannot be available to a statutory Tribunal.
17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation.
18. The Proviso comes into play only when suppression etc. is established or stands admitted. It would differ from a case where fraud, etc. are merely alleged and are disputed by an assessee. Hence, by no stretch of imagination the concept of knowledge can be read into the provisions because that would tantamount to rendering the defined term "relevant date" nugatory and such an interpretation is not permissible.
24 Service Tax Appeal No.70141 of 2021
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 knowledge in the provisions of Section 11A of the Central Excise Act, 1944 read with sub-section (1) and the proviso thereto‟.
18. Learned Counsel for the assessee before us contended that the department had knowledge of the entire matter as early as in December, 2003, when they had made an inspection of the factory. However, show cause notice was issued only in the year 2007 and the extended period could not have been invoked in the instant case. The argument advanced by the Learned Counsel for the assessee before us is identical to that of the argument which was advanced before the Gujarat High Court in Neminath Fabrics Pvt. Ltd., supra. The Court repelled the contentions on the following lines :
"....."
25 Service Tax Appeal No.70141 of 2021
19. As pointed out in the above referred decision, the proviso comes into play only when suppression is established or stands admitted and it would differ from a case where fraud, etc., are merely alleged or is disputed by the assessee and therefore, the concept of knowledge cannot be read into the provisos because that would amount to rendering the term "relevant date" negatory and such interpretation is not permissible. The contention that once knowledge has been acquired by the department, there is no suppression and the ordinary statutory period of limitation prescribed under sub-section (1) of Section 11 would be applicable was rejected as a fallacious argument inasmuch as once the suppression is admitted, merely because the department acquires knowledge of the irregularity, the suppression would not be obliterated."
4.17 Hon'ble Alalhabad High Court (the jurisdictional High Court) has in case of Rathi Steel & Power Ltd. [2015 (321) E.L.T. 200 (All.)] relying on the decision of Hon'ble Gujarat High Court has held as follows:
"37. The Division Bench of the Gujarat High Court in the case of Commissioner of Central Excise v. Neminath Fabrics Pvt. Ltd. (supra) has explained that proviso to Section 11 comes into play only when suppression etc. is established or stands admitted. (Reference paragraph no.
18).
38. So far as the judgment of the Apex Court in the case of Continental Foundation Joint Venture (supra) relied upon by the learned counsel for the assessee is concerned, the same is clearly distinguishable in the facts of the present case. In the said case, there were various circulars of department operating at different points of time and there was scope for entertaining a doubt about the views expressed by the authorities themselves. It is in this 26 Service Tax Appeal No.70141 of 2021 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 excise duty. Therefore, extended period of limitation had rightly been invoked in the facts of the present case."
4.18 As we uphold the invocation of the extended period of limitation as per Section 73 of the Finance Act, 1994, the penalty as per Section 78 becomes mandatory as has been held by Hon'ble Apex Court in case of Rajasthan Spinning and Weaving Mills Ltd. [2009 (238) ELT 3 (SC)] observing as follows:
"17. The main body of Section 11AC lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced.
18. One cannot fail to notice that both the proviso to sub- section 1 of Section 11A and Section 11AC use the same 27 Service Tax Appeal No.70141 of 2021 expressions : "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.
19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means 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 28 Service Tax Appeal No.70141 of 2021 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 the appellant should be done before concluding any short payment of service tax.
e. Penalty under Section 78 is imposable but needs to be re- determined after computing the tax short paid.
f. For re-computation of the demand of tax and interest, and the penalties imposable the matter need to be remanded back to the original authority.
5.1 Appeal is partly allowed in terms as indicated in para 4.19 above.
(Pronounced in open court on- 16 April, 2024) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) 29 Service Tax Appeal No.70141 of 2021 akp