CESTAT: Department Should not have Invoked the Extended Time Period for Demanding Service Tax

CESTAT: Department Should not have Invoked the Extended Time Period for Demanding Service Tax

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, by its single member C.L. Mahar (Technical Member) has observed that the second show cause notice should have been for a normal period of demand and the department should not have invoked the extended time period for demanding service tax.

The appellant/assessee-Messrs Aarvee Denims & Exports Ltd., is engaged in the business of manufacturing and exporting garments. The department initiated an inquiry and came to know that the appellant had appointed some agents in foreign countries for the promotion, marketing, and sale of their goods in foreign countries on payment of brokerage or commission.

The department formed a view that the appellant has been receiving service of foreign agents for which they have not discharged the service tax liability as per the provision of the Finance Act, 1994 (hereinafter referred to as ‘the Act’).

It was the contention of the department that as per the provisions of section 66 A of the Finance Act, 1994 read with Section 65 (19) of the Finance Act, 1994 and Section 65 (105) (zzb) of the said act with regard to the Business Auxiliary Service, the appellant should have paid service tax on the services received by him from the persons based outside India.

The assessee contended that the adjudicating authority has dropped the demand for the period 1 July, 2003 to 18 April, 2006 on the ground that the provision of Section 66 A of the Finance Act, 1994, came into operation only on April 18, 2006.

The assessee contended that it was not aware of the concept of reverse charge, which came into effect on 18 April, 2006, and during the relevant period of time, there was a lot of confusion regarding the payment of service tax under the reverse charge mechanism.

The CESTAT observed that the second show cause notice dated 20 March, 2009 was beyond the normal period of limitation, and therefore, the matter was remanded back to the original adjudicating authority to re-adjudicate the matter in view of the above observation and confirm the service tax for the normal period of demand as provided under Section 73 (1) of the Finance Act, 1994.