ST - Once it is held that no penalty is imposable as non-payment of tax was not for wilful misstatement, then demand for extended period is also to be set aside: HC
By TIOL News Service
MUMBAI, SEPT 27, 2018: DURING the audit of the records of the appellant it was noticed that the appellant had paid royalty of Rs.6 crores on account of technical knowhow charges to M/s. Rochem Switzerland under the technology transfer and License Agreement with Rochem A.G., Switzerland.
A SCN dated 1st February, 2010 invoking the extended period of limitation came to be issued demanding ST of Rs.73,44,000/- on the royalty amount of Rs.6 crores paid during 2007-08 on the basis that the appellant had received "Intellectual Property Right Service" from M/s. Rochem A.G. Switzerland.
The Commissioner, ST, Mumbai cofirmed the demand along with interest but refrained from imposing penalties u/s 76, 77 & 78 of the FA, 1994 by citing s.80 of the FA, 1994.
Before the CESTAT, the appellant argued their case both on merits as well as limitation.
The Bench, while setting aside the order solely on the ground of limitation, observed -
"...If the reason for waiving penalty under Section 78 in terms of the provisions of Section 80 are that there was confusion about the scope of leviability on service receivers under reverse charge mechanism, then, it is the same confusion because of which the appellants had not declared the fact of receiving service by way of import. In fact, the appellants case is even stronger because it has not even been established convincingly by the Commissioner that the service received is entirely covered under the category of Intellectual Property Right Services. ...We hold that the limitation period will apply and the demand is time barred."
We reported this order dated 10th December, 2014 as 2015-TIOL-120-CESTAT-MUM .
Aggrieved Revenue filed an appeal before the Bombay High Court urging the following two questions of law for consideration:-
(a) Whether the service provided by M/s. Rochem AG Swizerland to the Respondent herein is covered under the "Intellectual Property Right Service' falling under Clause (zzr) of Section 65(105)?
(b) Whether the provisions of extended time period laid down in Section 73(i) are invokable in the present case?
The High Court observed that the first question is academic in the facts of the case since the Tribunal had in its order clearly mentioned that since the demand is time barred, the Bench was deciding the matter only on the basis of limitation and not on merits. This, the High Court viewed was legal in view of the apex court ruling in B.V. Jewels - 2004-TIOL-83-SC-CUS .
As regards the second question, the High Court observed –
"(vii) We find that the impugned order of the Tribunal has held that the demand time barred on account of the fact that at the relevant time, the position in law was not clear. This as observed by the Commissioner in his order dated 4 January 2013 while not imposing penalty as this issue was pending adjudication before various judicial forums. The Tribunal further records that Section 78 of the Act and the proviso to Section 73(1) of the Act are similarly worded. Therefore, once it is held that no penalty under Section 78 of the Act is imposable, as non payment of tax was not for wilful misstatement or collusion etc. i.e. identical to the ingredients for invoking the extended period, then the same is to be applied and the demand for extended period be set aside. This is particularly as the Revenue has accepted the order dated 4 January 2013 of Commissioner of Service Tax holding that no penalty is imposable as there was a reasonable case for non-payment of service tax. We find that the view taken by the Tribunal on facts is a possible view and would not merit interference."
The Revenue appeal was dismissed.
(See 2018-TIOL-2015-HC-MUM-ST)
