In Service Tax Appeal No. 10370 of 2014- CESTAT- Extended time proviso under Section 73 of Finance Act not applicable in the case of sales commission to overseas commission agents under the reverse charge mechanism: CESTAT (Ahmedabad)
Member C.L. Mahar (Technical) [12-05-2023]

Read Order: Messrs Aarvee Denims & Exports Ltd v. C.S.T.-Service Tax - Ahmedabad

LE Correspondent

Mumbai, May 16, 2023: The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal, partially allowed the appeal of Messrs Aarvee Denims & Exports Ltd. (appellant), ruling that the extended time proviso under section 73 of the Finance Act, 1994, was not applicable in the case of sales commission to overseas commission agents under the reverse charge mechanism.

Factual matrix of the case was that the appellant, engaged in the business of manufacturing and export of garments, was found to have appointed agents in foreign countries for promotion, marketing, and sale of their goods. The department contended that the appellant had not discharged the service tax liability in relation to the services provided by these foreign agents, as required under the provisions of the Finance Act. Two show cause notices were issued after a detailed inquiry. The first show cause notice, dated 17.03.2008, covered the period from 01.07.2003 to 31.03.2007 and demanded service tax of Rs. 56,93,236/- under section 73 (1) of the Finance Act, invoking a larger period of 5 years for the demand. The second show cause notice, dated 20.03.2009, covered the period from April 2007 to March 2008 and demanded service tax of Rs. 10,96,848/-.

With respect to confirmation of service tax demand under the first show cause notice dated 17.03.2008, the Tribunal set aside the impugned Order-In-Original with regard to confirmation of demand of service tax of Rs. 21,57,937/- under section 73 (1) of the Finance Act and imposition of penalties. The Tribunal referred to its earlier decision in the case of Marck Bioscience Limited v. Commissioner of Central Excise & St, Ahmedabad [LQ/CESTAT/2019/63], wherein it has been observed that, “in the light of the Hon'ble Punjab & Haryana High Court judgment in the case of Ambika Overseas (supra), the appellant was entitled for the Cenvat credit in respect of the service tax payable on commission paid to overseas commission agent. Therefore, even if the service tax was payable, there was a Revenue neutral situation hence, since there is no gain to the appellant, it cannot be said that there was malafide intention on the part of the appellant in non-payment of service tax. Therefore, extended period was clearly not invokable in the facts of the present case.”

With regard to the second show cause notice dated 20.03.2009, the Tribunal observed that since the first show cause notice had already been issued on 17.03.2008 invoking a period of five years, the second show cause notice should have been for the normal period of demand and the department should not have invoked the extended time period for demanding service tax.

The Tribunal concluded that the second show cause notice dated 20.03.2009 was beyond the normal period of limitation. As a result, the matter was remanded back to the original adjudicating authority for re-adjudication. The Tribunal directed the authority to confirm the service tax for the normal period of demand as provided under section 73(1) of the Finance Act, 1994.