Demand not sustainable when Service Tax is already paid prior to its levy

The CESTAT, Ahmedabad in Chiron Behring Vaccines Private Limited v. C.C.E. & S.T.-Surat-ii [Service Tax Appeal No. 403 of 2012 dated February 6, 2023] has set aside the demand order issued for the extended period, on the ground that the assessee had already paid the entire Service Tax prior to its levy by the Revenue Department. Held that, the Show Cause Notice ("SCN") under Section 73(3) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") was issued after the Service Tax amount was paid by the assessee, thus, the demand for the tax is not sustainable.

Facts

Chiron Behring Vaccines Private Limited ("the Appellant") received a franchise service for manufacture of rabies vaccine and its sale for which the Appellant entered into exclusive and non- transferable license agreement dated June 1, 1998 ("the Licencing Agreement") with Chiron Behring GmbH & Company ("CB GmbH") in Mumbai. The Appellant would remit 5% royalty on the domestic sales to CB GmbH. The Appellant voluntarily applied for Service Tax registration on April 28, 2008 and suo moto discharged the Service Tax liability from June 16, 2005 to May 7, 2008 under a bonafide belief that the Service Tax needs to be discharged on the net royalty paid after deducting Tax Deducted at Source ("TDS") as per the Income Tax Act, 1961 ("the IT Act").
Subsequently, an investigation was initiated on January 9, 2009 by the Revenue Department ("the Respondent") wherein the Appellant was requested to submit details of Service Tax discharged under Reverse Charge Mechanism ("RCM"). Further, during the investigation, the Appellant paid the balance Service Tax of INR 17,17,373/- on the value of TDS deducted from royaltyalong with interest.

However, an SCN dated November 11, 2019 ("the Impugned SCN") was issued by the Respondent alleging short payment/non-payment of Service Tax on gross royalty amount from June 16, 2005 to May 7, 2008. Further, the Respondent confirmed the demand vide order dated May 19, 2011 ("the Impugned Order"). Being aggrieved, an appeal has been filed before Commissioner (Appeals) wherein vide Order-in-Appeal dated May 19, 2012 ("the OIA") the demand of Service Tax was party dropped to INR 13,43,989/-.

Thus, this appeal has been filed on the grounds that the Impugned SCN and the Impugned Order was issued without jurisdiction and that the services rendered to CB GmbH were not ‘franchise services' as per the Licensing Agreement and thus, not liable to Service Tax under franchise service category. Further, that there is no suppression of fact on the part of the Appellant as the issue on merit was under litigation that whether in case of receipt of service from abroad, the recipient is liable to Service Tax therefore, extended period could not have been invoked. Also, as the Service Tax with interest was paid prior to the issue of SCN, no SCN should have been issued as per Section 73(3) of the Finance Act, 1994 ("the Finance Act") therefore, no penalty can be imposed and the benefit of Section 80 of the Finance Act should be admissible to the Appellant.

Issue

Whether the Impugned Order passed by the Respondent is maintainable?

Held

The CESTAT, Ahmedabad in Service Tax Appeal No. 403 of 2012 held as under:

• Observed that, the issue about taxability on reverse charge basisin respect of service received from foreign based service provider was not free from doubt as the issue was finally decided by the Hon'ble Supreme Court in Union of India v. Indian National Shipowners Association [2010 (17) S.T.R. J57 (SC) dated December 14, 2009].
• Further observed that, the Service Tax was paid by the Appellant even for the period prior to its levyi.e. before April 18, 2006 and the Appellant have filed Service Tax returns wherein details of payments have been declared.
• Noted that, the Appellant alternatively claimed the benefit of Section 73 (3) of the Finance Act on the ground that the entire Service Tax along with interest paid prior to the issuance of Impugned SCN.
• Stated that, the demand for the extended period is not sustainable.
• Further stated that, the demand for the normal period if any, is sustained along with interest.
• Held that, the other issue such as taxability and jurisdiction are not considered due to the Appellant's submission on Section 73(3) of the Finance Act.
• Modified the Impugned Order to the extent of setting aside the penalties.

Relevant Provisions

Section 73(3) of the Finance Act

"Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded

(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid:

Provided that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of thirty months referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation 1: For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub-section.

Explanation 2: For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service-tax under this sub-section and interest thereon."