By TIOL News Service

NEW DELHI, AUGUST 12, 2017: A SCN dated August 23, 2007 demanding Service Tax of Rs. 11,62,728/- on ‘commission paid to overseas agents' under ‘Business Auxiliary Service', on reverse charge basis, was issued to the appellant and which was confirmed by the Joint Commissioner vide order dated August 27, 2008 with penalty and interest.

A Writ petition was filed in the High Court in March, 2012 but the same was dismissed on June 22, 2016 since it was filed four years after the demand was confirmed.

The appellant has filed a Civil Appeal before the Supreme Court.

It is submitted that the SCN was for the period from July 9, 2004 to March 31, 2006 during which period the appellant was paying commission to the overseas agent. After the demand of service tax was confirmed, the demand was not challenged immediately by filing statutory appeal which was available. Upon being threatened with coercive action stating that his bank accounts would be attached, the appellant started making payments and paid the entire service tax in five instalments. Some of these instalments were paid in the year 2011 and one instalment was paid late i.e. on September 17, 2016.However, no amount was paid towards penalty and interest.

As for the delayed approach to the Court, it is stated that they were aware that there were numerous other litigations pending from 2007 onwards by various parties who were under genuine and bonafide belief that they were not liable to pay the service tax; that they (appellant) were unable to file statutory appeal before the Departmental Appellate Authorities since the file had been misplaced due to a change of managerial set-up in the organisation; that in other litigations, it was held that service tax was not payable in the absence of appropriate provision at the relevant time and it became payable only w.e.f. April 18, 2006 when Section 66A was inserted in the Finance Act, as a charging section; that on that basis, on September 26, 2011, the Ministry of Finance issued a circular bearing No. F. No. 276/8/2009-CX-8A which stated that the service tax liability on any taxable service provided by a non-resident or a person located outside India to a recipient in India, would arise w.e.f. April 18, 2006 i.e. the date of insertion of the relevant charging section 66A of the Finance Act, 1994. And, thereafter, the appellant had filed the writ petition in March, 2012.

The Supreme Court inter alia observed -

++ …one thing is clear. The Joint Commissioner had passed the orders on February 27, 2008. No statutory appeal was preferred by the appellant challenging that order. The writ petition was filed only in March, 2012. During this period, the appellant was also making payment towards service tax demanded by the respondents without challenging the order. The appellant now wants to take advantage of other litigation pending in respect of same subject matter . When the appellant had not challenged the demand and was merely sitting on the fence, watching the proceedings in other similar cases, the decision in those cases cannot furnish any cause of action to the appellant to file the writ petition. [ State of Uttar Pradesh & Ors. v. Arvind Kumar Srivastava & Ors. (2015) 1 SCC 347, Rup Diamonds & Ors. v. Union of India & Ors. (1989) 2 SCC 356 , Haryana State Handloom & Handicrafts Corporation Ltd. & Anr. v. Jain School Society (2003) 12 SCC 538, Halsbury's Laws of England , U.P. Jal Nigam & Anr. v. Jaswant Singh & Anr. (2006) 11 SCC 464 , Harwindra Kumar v. Chief Engineer, Karmik & Ors.refers]

++ Ministry of Finance had issued a circular dated September 26, 2011 after the legality of such a demand of service tax was determined. However, in such a scenario, the appellant can succeed only if its case gets covered by the four corners of such circular. A reading of this circular reveals that after the judgment of Bombay High Court holding that service tax would not apply to such cases, which was upheld by this Court on dismissal of special leave petitions, the Central Board of Excise and Customs in the Department of Revenue, Ministry of Finance, Government of India has issued this circular dated September 26, 2011 stating that such a liability would arise w.e.f. April 18, 2006.

++ It is clear from the aforesaid circular that in ‘pending disputes', the Government decided not to press for payment of service tax in such cases. Intention was clear, namely, this circular would not apply to those cases which were already over and were not pending on that date. Otherwise, all those persons who had already paid the demand earlier without protesting the same would start claiming refund of those payments. Therefore, this circular would not come to the aid of the appellant.

++ The legal position which is settled is that this service tax was not payable for the period in question i.e. July 9, 2004 to March 31, 2006 inasmuch as such a liability arises only w.e.f. April 18, 2006 after the insertion of the relevant charging Section 66A in the Finance Act, 1994. This legal position is not confined to only those who approached the Court but is a declaration of law. It can be treated as judgment in rem . [ Arvind Kumar Srivastava & Ors. (2015) 1 SCC 347 refers.]

++ Though the service tax levied for the period in question was to the tune of Rs.11,62,728/- which stands paid by the appellant, liability on account of penalty and interest is also fastened upon the appellant.In a case like this, equities would be balanced by not insisting on payment of penalty and interest.

++ When the appellant approached belatedly, it may not be entitled to refund of service tax already paid but at the same time, the appellant should not be called upon to pay any interest and penalty levied on a tax which was not payable at all in law. The High Court, to this extent, committed an error by not dealing with this aspect of the matter and dismissing the writ petition in its entirety.

The appeal was partly allowed by setting aside the demand qua interest and penalty.

(See 2017-TIOL-289-SC-ST)