C.L. Mahar, Technical Member.
1. The issue in brief is that appellant –assessee is engaged in manufacture of insulated wire and cables falling under Chapter heading 8544 of Central Excise Tariff. During the financial year 2006-07, the appellant decided to raise funds for diversification / expansion of their business activities in India and for this purpose, they have taken external commercial borrowings from overseas market. Forgetting the External Commercial Borrowings (ECB) facilitated from abroad, the appellant have engaged M/s. Elara Capital and other agencies, who were based in London, for arranging such external commercial borrowings. After the necessary funds have been arranged by M/s. Elara Capital and others for which they have raised certain invoices indicating their charges in foreign currency for providing services of arranging ECB to the appellant abroad.
2. During the Audit of the CERA, it was noticed by the department that the appellants have not discharged their service tax liability under the category of Banking and Other Financial services as defined under section 65 (105) (zm) of Finance Act, 1994. It has been the contention of the department that as per the provisions of section 66A of the Finance Act, 1994 read with Rule 2 (1)(4) of Service Tax Rules, 1994, and read with Rule 3 of Taxation of Services (provided from outside and received in India) Rules 2006, the appellant assessee should have paid service tax on the amount of commission paid by them to the foreign based service provider under Reverse Charge Mechanism basis. Accordingly, a show cause notice came to be issued wherein a demand of Rs. 48,79,542/- was demanded under section 73(1) of the Finance Act, 1994. The Provisions of section 75, 76 and 78 have also been invoked. Learned Additional Commissioner vide Order-in- Original No. 39/NA/DivI/2012 dated 8.11.2012 has confirmed the demand of service tax, interest and penalties have also been confirmed under the respective sections of the Finance Act. The learned Commissioner (Appeals) vide its order dated 30.8.2013 has confirmed the findings of the Order-in-Original.
3. Learned Advocate appearing for the appellants have contended that the confirmation of demand under the category of banking and other financial services is not legally correct in their case. As the appellants have received the taxable service not in India but abroad and same has also been consumed abroad and therefore, the service tax on the commission paid by them to foreign based service provider is not payable on the reverse charge mechanism basis. It has also been contended that entire demand is barred by period of limitation, that before the show cause notice dated 27.4.2010 came to be issued the appellant has been in correspondence with the department since July, 2007. It has further been added that a letter from the office of the Directorate General of Central Excise Intelligence, Chennai dated 31.7.2007 was received by them and a due reply of the same was given on 18.8.2007 on this issue of commission paid to the appellant. It is further submitted that the foreign based service provider assessee has not heard anything from the department whether any service tax is payable on the services received by them from the service provider based abroad. Therefore, the appellant assessee presumed that the matter is closed by the department being satisfied by the reply given by them. It has also been mentioned that a show cause notice on the same issue was issued by the Jaipur Commissionerate and same has been withdrawn by the department on their own. It has been vehemently contended by the learned advocate that since there have been no suppression of facts on the part of the appellant- assessee with any intention of evading payment of service tax and therefore, the extended time proviso under section 73(1) of Finance Act, 1994 is not invokable and as such, whole demand stand barred by period of limitation.
4. We have also heard the learned DR who has reiterated the findings given in the order in appeal.
5. We have heard both the sides and have perused the record of appeal. It is a matter of record that the appellant assessee have availed services of certain foreign based agencies for receiving external foreign commercial borrowings (ECB) from abroad. It is also a matter of fact that during 2006 to 2007, certain payments in the form of commission have been paid by the appellant assessee to the service provider in foreign exchange. It has not been denied by the appellant that services received by them are classifiable under the category of Banking and Financial Services as provided under section 65 (105) (zm). We find that as per the provisions of Section 66A of the Finance Act, 1994 read with Rule 3 of Taxation of Services (provided from Outside India and received in India) Rules, 2006, the recipient of services of above mentioned category needs to discharge their service tax liability as if such services have been performed in India. It is categorically been provided that even if a part of borrowings have been used abroad for the business purposes, the facts remain that recipient of services is based in India and therefore, as per the provisions Section 66A of Finance Act, 1994 read with relevant rules, the appellant assessee should have discharged their service tax liability in India, on the amount of commission paid by them as the value of services received by them from abroad. Thus, we hold that appellant assessee are legally liable to pay service tax on the service of foreign institutions availed in getting their ECBs.
6. Coming to the second question whether the demand is barred by limitation, in view of the fact that there was certain correspondence with the department in 2007 and as the show cause notice has been issued in April, 2010 by Central Excise & Service tax Commissionerate, Jaipur. In this regard, it is a matter of fact that the assessee is individually registered with various Commissionerates of Central Excise and Service tax and every Commissionerate / Directorate perform its designated function with the mandate given by Government of India to them within their respective jurisdictions. And more often than not, they are not concerned with the activities undertaken by other Commissionerate or Directorates. In view of this, we are of view that it cannot be inferred that since a particular office of a specific jurisdiction came to know of certain facts and therefore, the office where cause of action actually rests, has also became aware about the whole issue. As per the provisions of law, the appellant should have discharged their service tax liability in time after the law became very clear on enactment of Section 66A of Finance Act, 1994. Since the noticee is already registered with the Central Excise department and is also regularly filing his Excise and Service tax returns, they cannot plead ignorance about the provisions of reverse charge mechanism for payment of service tax on the services received from abroad. We do not subscribe to the arguments of the appellant that because they have written certain letters, only because of that extended time proviso is not invokable in their case. So far as the show cause notice pertains to Jaipur II Commissionerate, it had apparently been dropped saying that 'the activity in question was enacted at Delhi and for which the concerned Commissionerate has already issued Show cause notice and therefore, the show cause notice issued for same period on same issue for Bhiwadi Unit has been withdrawn. This fact, in our opinion goes against the argument of appellant that even after coming to know that service tax i
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s apparently payable by them on the services availed by them from abroad, however, they chose not to take any proactive steps in discharging their service tax liability. The Section 68 of Finance Act casts a responsibility on the service provider to pay service tax. In this case, even when the assessee has become aware that in July, 2007 itself that there may be certain legal issues regarding service tax liability on the services availed by them from abroad, however, we find that they have not stirred themselves to final take certain conclusive steps, in making compliance of service tax law. We find that there are valid grounds with the department to invoke the extended time proviso under Section 73(1) of Finance Act, 1994. 7. In view of the above, we do not find any infirmity in the orderin-Appeal. Accordingly the appeal is dismissed.