1
BRIEF FACTS OF THE CASE:
M/s. Intas Pharmaceuticals Limited, having Corporate Office at 2nd Floor, Chinubhai Centre,
Ashram Road, Ahmedabad-380009 (herein after referred to as “M/s. Intas” for the sake of brevity) is
engaged in manufacture of various types of pharmaceuticals and drugs and exporting same to
various foreign countries and holding Central Excise registration certificate. They are also registered
with Service Tax department under the categories of
(i)
Management Consultants service;
(ii)
Advertising Agency service;
(iii)
Market Research Agency service;
(iv)
Custom House Agent service;
(v)
Scientific and Technical Consultancy service;
(vi)
Technical Inspection & Certification service;
(vii) Business Auxiliary service;
(viii) Business & Exhibition service;
(ix)
Intellectual Property Services other than Copyright;
(x)
Transport of Goods by Road service;
(xi)
Renting of Immovable Property service;
(xii) Legal Consultancy services;
(xiii) Online Information & Data Retrieval service;
(xiv) Business Support services etc.
And for the same holding centralized Service Tax Registration bearing
No.AAACI5120LST001. They are discharging service tax liability in respect of all above services
as a recipient of such services from outside of India under Reverse Charge Mechanism in terms of
provisions of Section 66A of the Finance Act, 1994.
2.
And whereas in pursuance of an intelligence gathered by officers of the Directorate General
of Central Excise, AZU, Ahmedabad [herein after referred to as ‘DGCEI” for the sake of brevity] to
the effect that M/s. Intas have not paid Service Tax in respect of expenditure in foreign currency
made towards various taxable services received from various service providers situated outside India
as they, being a recipient of such taxable services provided from outside India, are liable to pa y
Service Tax under Reverse Charge Mechanism in terms of the provisions of Section 66A of the
Finance Act, 1994, investigations were initiated under summons proceedings in the month of March 2012.
2.1
Accordingly, M/s. Intas submitted details of all transaction relating to expenditure made in
Foreign Currency, details of transaction relating to reimbursement of expenditure in foreign
currency against which Service Tax paid by them, copies of Bank Release Advices and its
enclosures relating to remittances made in foreign currencies as “IMPREST” money to the
representative foreign offices for the Financial Years 2007-08 to 2012-13 (up to June), etc.
3.
On scrutiny of documents/details submitted by M/s. Intas, it is observed that
a.
they have incurred expenditure in foreign currency totally amounting to
Rs.12,71,81,048/- towards various taxable services, viz. Business Auxiliary Service,
Banking & Financial Service, Legal Consultancy Service, Market Research Agency
Service, Online Information & Data Base Retrieval Service, Technical Inspection &
Certification Service, Information Technology & Software Services etc. provided by
the various foreign based service providers during the Financial Years 2007 -08 to
2012-13 (up to June), however, they had not paid Service Tax leviable thereon under
Reverse Charge Mechanism.
b.
M/s. Intas has established six representative offices in overseas viz. Canada, New
Zealand, Spain, the UK, Vietnam & the USA. The said offices are working as
representatives of M/s. Intas in respective countries for coordination and controlling
of marketing activities in relation to sales promotion or marketing or sale of goods
produced or provided or belonging to M/s. Intas. M/s. Intas has remitted amounts in
foreign currency as “IMPREST” money as per requirement of respective foreign
offices from time to time to meet with operational expenses at respective locations as
well as for reimbursement of marketing expenses charged by various foreign based
2
service providers or incurred by them in relation to sales promotion or marketing or
sale of goods produced or provided by or belonging to M/s. Intas in respective
countries. Out of the ‘IMPREST” money remitted in foreign currency by M/s. Intas,
the aforesaid representative foreign offices had made payments to the various
persons/service providers based in overseas towards various expenditure incurred for
and on behalf of M/s. Intas in relation to sales promotion or marketing or sale of
goods produced or provided by or belonging to M/s. Intas in respective countries.
c.
Out of the IMPREST money received in foreign currency from M/s. Intas, the
aforesaid representative foreign offices had reimbursed Business Promotion Expenses
(excluding Exhibition Charges) incurred for and on behalf of M/s. Intas , in relation to
sales promotion or marketing or sale of goods produced or provided by or belonging
to M/s. Intas, to various foreign service providers, which was shown as expenditure in
foreign currency by M/s. Intas in their books of accounts. Such reimbursement of
expenditure, appears to be taxable under the category of ‘Business Auxiliary Services’
as defined under Section 65 (105) (zzb) of the Finance Act, 1994.
d.
Out of the ‘IMPREST” money remitted by M/s. Intas in foreign currency, the
aforesaid representative foreign offices had also made reimbursement of expenditures
viz. ‘Telephone & Communication charges’, ‘Professional & Legal Fees’, ‘Bank
Charges’ etc., incurred for and on behalf of M/s. Intas in relation to sales promotion
or marketing or sale of goods produced or provided by or belonging to M/s. Intas, to
various foreign service providers during the Financial Years 2007 -08 to 2012-13 (up
to June) and the
same appears to
be taxable under the categories of
‘Telecommunication Services’, ‘Legal Consultancy Services’ (w.e.f. 01.09.2009) &
‘Banking & Other Financial Services’ respectively under Reverse Charge Mechanism,
however, they had not paid Service Tax leviable thereon under Reverse Charge
Mechanism.
4.
It is thus evident from the above that the liability of service tax can be deduced by
categorizing the services received by M/s Intas under different categories. The same are discussed
as follows:4.1
REIMBURSEMENT OF EXPENDITURE TAXABLE UNDER THE CATEGORIES OF
‘TELECOMMUNICATION SERVICES’, ‘LEGAL CONSULTANCY SERVICES’ (W.E.F.
01.09.2009) & ‘BANKING & OTHER FINANCIAL SERVICES’ RESPECTIVELY.
Out of the ‘IMPREST” money remitted by M/s. Intas in foreign currency, the
aforesaid representative foreign offices had made reimbursement of expenditures to the tune of
Rs.6,72,36,193/- towards ‘Business Promotion Expenses’ ‘Telephone & Communication’,
‘Professional & Legal Fees’, ‘Bank Charges’ etc., incurred for and on behalf of M/s. Intas in
relation to sales promotion or marketing or sale of goods produced or provided by or belonging to
M/s. Intas in respective countries, during the Financial Years 2007-08 to 2012-13 (up to June),
which appears to be taxable under the categories of ‘Business Auxiliary Service’,
‘Telecommunication Services’, ‘Legal Consultancy Services’ (w.e.f. 01.09.2009) & ‘Banking &
Other Financial Services’ respectively under Reverse Charge Mechanism, however, M/s. Intas had
not paid Service Tax to the tune of Rs.73,76,026/- leviable thereon during the Financial Years 200708 to 2012-13 (up to June) at relevant time, as detailed in Annexure-B to the SCN. The summary
of the same is produced herein below:
Category of Service
Taxable
Value
Service Tax not paid (Rs.)
Service
Tax
Edu Cess
SHE
Cess
Total
Banking Financial Service (Bank
Charges)
10,81,843
1,18,985
2,380
1,190
1,22,555
Business Auxiliary Service
(Business Promotion Expenses
44,15,379
4,41,538
8,831
4,415
4,54,784
Business Auxiliary Service
(Business Promotion Expenses)
1,59,59,063 17,32,427
34,649
17,324
17,84,400
3
Professional & Legal Consultancy
Service
1,32,20,725 13,26,152
26,523
13,262
13,65,937
Telecommunication Service
(Telephone & Communication)
3,25,59,183 35,42,087
70,842
35,421
36,48,350
Grand Total
6,72,36,193 71,61,190
1,43,224
71,612
73,76,026
4.2
REIMBURSEMENT OF EXPENDITURE TAXABLE UNDER THE CATEGORY OF
‘BUSINESS AUXILIARY SERVICES’
The aforesaid representative foreign offices have engaged/hired local staff/man power at
respective locations for and on behalf of M/s. Intas for the purpos e of sales promotion or marketing
or sale of goods produced or provided by or belonging to M/s. Intas. They reimbursed an amount of
Rs.1,28,54,197/- towards aforesaid expenditure for and on behalf of M/s. Intas, out of the
IMPREST money received in foreign currency from M/s. Intas during the Financial Years 2007-08
to 2012-13 (up to June). The said local staff/manpower are not the employees of M/s. Intas. For such
services, the said local staff/medical representatives had been reimbursed by way of remittin g their
service charges, in the form of salary, payroll Proc cost/state payment, health insurance, staff
welfare, recruitment cost etc. Such reimbursement of expenditure appears to be taxable under the
category of ‘Business Auxiliary Services’ as defined under Section 65 (105) (zzb) of the Finance
Act, 1994. M/s. Intas, being a recipient of such taxable service, is liable to pay Service Tax totally
amounting to Rs.14,02,822/- (Service Tax Rs.13,61,963/- + Edu Cess Rs.27,239/- + SHE Cess
Rs.13,620/-) leviable thereon under Reverse Charge Mechanism, in terms of Section 66 A of the
Finance Act, 1994 read with Rule 3 (iii) of the Taxation of Service (Provided from Outside India
and Received in India) Rules, 2006, during the Financial Years 2007-08 to 2012-13 (up to June), as
detailed in Annexure ‘C’ to the SCN.
Service Tax not paid (Rs.)
Category of Service
Business Auxiliary
(Local Staff Salary)
Service
Business Auxiliary
(Local Staff Salary)
Service
Business Auxiliary
(Local Staff Salary)
Service
Business Auxiliary
(Local Staff Salary)
Service
Business Auxiliary
(Local Staff Salary)
Service
Business Auxiliary
(Local Staff Salary)
Service
Total Rs.
Year
Taxable Value
Service Tax
Edu Cess
SHE Cess
Total
2007-08
16,99,228
2,03,907
4,078
2,039
2,10,025
2008-09
10,23,929
1,22,871
2,457
1,229
1,26,558
2009-10
7,61,472
76,147
1,523
761
78,432
2010-11
39,09,599
3,90,960
7,819
3,910
4,02,689
2011-12
43,55,965
4,35,597
8,712
4,356
4,48,664
2012-13
11,04,004
1,32,480
2,650
1,325
1,36,455
12854197
13,61,963
27,239
13,620
14,02,822
4.2.1. And whereas it is further observed that said representative foreign offices had neither
received nor provided any of services as mentioned herein above to M/s. Intas, but, in fact, they
have only reimbursed the expenditure incurred for and on behalf of M/s. Intas in relation to sales
promotion or marketing or sale of goods produced or provided by or belonging to M/s. Intas to the
foreigners/foreign service providers, which appears to be taxable under various categories of taxa ble
services as discussed hereinabove.
4.3
Further, while calculating the Service Tax liability of M/s. Intas, the reimbursement of
operating expenses of their representative foreign offices, Salary & other benefits to their own
employees deputed overseas, reimbursement of amount for other than services or services not
taxable under reverse charge mechanism etc. has not been included in the value of services imported
by them. For example, rent, water & municipal taxes, electricity, repair & maintenance, of fice
expenses, security, insurance on assets, stationary & printing, travel-inland, travel-foreign, taxi
charges, hotel charges, petrol/ gas/ conveyance/ parking charges, meals/ snacks, exhibition exp.,
interest paid,
purchases of goods, freight/insurance, samples, regulatory/registration, etc.,
reimbursed out of the “IMPREST money” received from M/s. Intas by Representative Foreign
Offices.
4
5.
Rule 2(1) (d)(iv) of the Service Tax Rules, 1994 provides that the person receiving taxable
service in India is liable to pay service tax in relation to any taxable service provided or to be
provided by any person from a country other than India.
In this regard, Section 66A of the Finance Act, 1994 stipulates that the service tax is
payable by the recipient of taxable service in India, if the provider of taxable service is from outside
India.
“66A. (1) Where any service specified in clause (105) of section 65 is,—
(a) provided or to be provided by a person who has established a business or has a fixed
establishment from which the service is provided or to be provided or has his permanent
address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of
business, fixed establishment, permanent address or usual place of residence, in India, such
service shall, for the purposes of this section, be taxable service, and such taxable service
shall be treated as if the recipient had himself provided the service in India, and ac cordingly
all the provisions of this Chapter shall apply:
Provided that where the recipient of the service is an individual and such service received by
him is otherwise than for the purpose of use in any business or commerce, the provisions of
this sub-section shall not apply:
Provided further that where the provider of the service has his business establishment both in
that country and elsewhere, the country, where the establishment of the provider of service
directly concerned with the provision of service is located, shall be treated as the country
from which the service is provided or to be provided.
(2) Where a person is carrying on a business through a permanent establishment in India
and through another permanent establishment in a country other than India, such permanent
establishments shall be treated as separate persons for the purposes of this section.
Explanation 1.— A person carrying on a business through a branch or agency in any country
shall be treated as having a business establishment in that country.
Explanation 2.—Usual place of residence, in relation to a body corporate, means the place
where it is incorporated or otherwise legally constituted.”
5.1. Rule 3 of the Taxation of Services (provided from Outside India and Received in Ind ia)
Rules, 2006 stipulates,“Subject to Section 66A of the Act, the taxable services provided from outside India
and received in India shall, in relation to taxable services,(i)
specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh) and (zzzr)
of clause (105) of section 65 of the Act, be such services as are provided or to be
provided in relation to an immovable property situated in India;
(ii)
specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y),
(z), (zb), (zc), (zi), (zj), (zh), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd),
(zzf), (zzg), (zzh), (zzi), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy),
(zzzd), (zzze), (zzzf) and (zzzp) of clause (105) of section 65 of the Finance Act, 1994,
be such services as are performed in India;provided that where such taxable service
is partly performed in India, it shall be treated as performed in India and the value of
such taxable service shall be determined under section 67 of the Act and the rules
made thereunder;
(iii)
specified in clause (105) of section 65 of the Act, but excluding,sub-clauses (zzzo) and (zzzv);those specified in clause (i) of this Rule except when the
provision of taxable services specified in clauses (d), (zzzc) and (zzzr) does not relate
to immovable property; andthose specified in clause (ii) of this Rule, be such services
5
as received by the recipient located in India for use in relation to business or
commerce.”
Thus, as per Rule 3 of the Taxation of Services (Provided from Outside India and Received
in India) Rules, 2006, the taxable services are divided into three categories Clause (i) :
Services for which import criteria is based on location of the immovable
property;
Clause (ii) : Services for which import criteria is based on location of performance of
service;
Clause (iii) : Services for which import criteria is based on location of recipient of service.
6.
A statement of Shri Kandarp D. Dholakia, Deputy General Manager (Indirect
Taxation) of M/s. Intas was recorded under the provisions of Section 14 of Central Excise Act, 1944
as made applicable to Service Tax matters vide Section 83 of the Finance Act, 1994, in question answer form on 16.10.2012, which is reproduced herein-below:
Question:1
Answer:1
Please state your portfolio in your company.
I joined in M/s. Intas Pharmaceuticals Limited (for short ‘M/s. Intas’) as Asstt.
General Manager (Indirect Taxation) in 2005, and I am presently working as a Deputy
General Manager (Indirect Taxation). At present, about day-to-day affairs of the
Company, I am reporting to Shri Jayesh Shah, Chief Financial Officer of M/s. Intas.
Question:2
Answer:2
Please provide details about the management of the company.
I state that Shri Nimish Chudgar is the Managing Director and other Directors are
of the Chudgar family. I further state that Shri Nimish Chudgar is the responsible
person for entire affairs including taxation matters of our company, M/s. Intas.
But, he does not involve in day-to-day matters of taxation as Shri Jayesh Shah,
Chief Financial Officer solely takes care of taxation matters.
Question:3
Please provide details of Service Tax registration and taxable services under which
M/s. Intas is registered specifically mention the services wherein service tax is being
under reverse charge mechanism by your company.
I state that M/s. Intas is registered for centralized Service Tax bearing
No.AAACI5120LST001 with Service Tax department, Ahmedabad and following
are the taxable services for which M/s. Intas is registered with the Department:
Answer:3
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
Question:4
Answer:4
Question:5
Management Consultants,
Advertising Agency,
Market Research Agency,
Custom House Agent,
Scientific and Technical Consultancy,
Technical Inspection & Certification,
Business Auxiliary Services,
Business & Exhibition Services,
Intellectual Property Services other than Copyright,
Transport of Goods by Road,
Renting of Immovable Property Services.
Legal Consultancy Services;
Online Information & Data Retrieval Services;
Business Support Services, etc.
Please elaborate the marketing pattern of your products adopted for sale in
abroad.
We are selling our goods directly to customers, to distributors as well as we are also
selling our products through commission agents in some countries where our company
is not having permanent set up for marketing of our products in respective countries
for which we are paying them commission at agreed rates in foreign currency
Please provide the details of expenditure made in foreign currencies against services
against which your company had paid service tax under reverse charge mechanism
and also provide the details of services/expenditure against which your company had
6
Answer:5
not paid service tax under reverse charge mechanism for the F. Years 2007-08 to
2012-13?
M/s. Intas has been paying Service Tax under reverse charge mechanism in respect of
services, viz. Business Auxiliary Services, Market Research Agency Services,
Management Consultancy Services, Advertising Agency Services, Banking & Other
Financial Services, Scientific & Technical Consultancy Service, Insurance Auxiliary
Services, Telecommunication Services, Online Information & Data Retrieval Services,
Business Support Service, Intellectual Property Services, Technical Inspection &
Certification Services, Legal Consultancy Services (w.e.f. 01.09.2009), etc.
Further, our company has not paid the service tax in respect of expenditure
made in foreign currency remitted by our Representative Offices situated abroad and
also on some transactions relating to taxable services received from abroad under
reverse charge mechanism.
Further, our company has not paid service tax in respect of expenditure made
in foreign currency towards various expenditure in Foreign currency against which
our company is not liable to pay service tax under reverse charge mechanism in terms
of the Taxation of Services (Provided from Outside and Received in India), Rules 2006
as well as against the expenditure which are not taxable under Section 65 (105) of the
Finance Act, 1994.
The details of general ledger-wise, transaction-wise, taxable and non-taxable
expenditure are being furnished herewith.
Question:6
Answer:6
Question:7
Answer:7
On going through the details submitted by your company, it is revealed that your
company has not paid service tax in respect of amount remitted in foreign currency to
various service providers directly towards taxable services received from abroad in
respect of some transactions under reverse charge mechanism. Please provide the
details of such remittance with reasons as to why your company has not discharged
the service tax liability on such remittance at the relevant time.
I state that through oversight, our company could not discharge Service Tax liability
under Reserve Charge Mechanism in respect of some expenditure made in foreign
currency which is shown in our books of accounts in “General Ledger” head, viz.
Sales Promotion Marketing expenses, Marketing Development Promotional Expenses,
Software Development/ Purchase Charges, Registration Charges, Foreign MR/CM
Expenses, Legal & Professional Fees, Market Research Expenses, Sales Commission,
Professional Consultancy/Service Charges, taxable under various categories of
taxable services for which we are ready to pay the same.
Please provide transaction-wise details of expenditure made in foreign currency
towards taxable services as mentioned hereinabove, received from abroad against
which your company has not paid applicable Service Tax under reverse charge
mechanism?
I submit herewith a statement showing the transaction-wise details of expenditure
made in foreign currency towards various taxable services along with calculation of
Service Tax not paid by our company thereon, according to which our company has
incurred expenditure in foreign currency totally amounting to Rs.12,71,81,048/ towards taxable services, viz. Business Auxiliary Service, Banking & Financia l
Service, Legal Consultancy Service, Market Research Agency Service, Online
Information & Data Base Retrieval Service, Technical Inspection & Certification
Service, etc. provided by the various foreign based service providers during the
financial years 2007-08 to 2012-13 (up to June). I further state that we are liable to
pay service tax to the tune of Rs.1,36,87,773/- on the taxable value of
Rs.12,71,81,048/- relating to expenditure made in foreign currency towards aforesaid
taxable services under Reverse Charge Mechanism. However, through oversight, we
could not make the payment of Service Tax amount as mentioned above at the relevant
time. After initiation of the inquiry by officers of DGCEI, Ahmedabad, we have made
payment of Service Tax to the tune of Rs.23,10,930/- along with interest of
Rs.6,28,568/- on 07.08.2012 and 08.08.2012 respectively against our aforesaid
liability vide GAR-7 challans detailed herein-below:
Sl.
GAR
7 Date of GAR Service Tax Interest
Total
7
No
.
1
2
Challan No.
7 Challan
(Rs.)
(Rs.)
(Rs.)
00836
00554
140526
1737423
00834
121600
136266
3
4669
18926
374760
3
776
5445
4
00832
109386
19851
129237
5
00555
132591
42494
175085
6
00556
07.08.2012
08.08.20
12
07.08.20
12
07.08.20
12
08.08.20
12
08.08.20
12
580021
171761
751782
231093
0
628568
2939498
TOTAL RS.
I further assure that our company will pay the remaining amount of Service Tax
to the tune of Rs.1,13,76,843/-, which was not paid at the relevant time, along with
appropriate interest leviable thereon, by tomorrow and furnish the proof of payment
thereof.
Question:8
Answer:8
Please provide details of representative offices established in abroad to whom amount
remitted in foreign currency as IMPREST Money against which your company has not
deposited service tax under reverse charge mechanism.
I state that our company has established 6 (six) representative branch offices in
overseas viz. Canada, New Zealand, Spain, UK, Vietnam & USA.
Question:9
Answer:9
Please state the purpose of establishment of representative offices in abroad ?
The representative offices are working as representatives of our company for
coordination and controlling of marketing activities for our products in respective
countries.
Question:10
Please explain as to how the remittance made in foreign currency to your
representative offices situated in abroad with a purpose during the years 2007 -08 to
2012-13 (up to June).
Our Company is remitting an amount as “Imprest” money as per requirement of funds
by respective representative offices from time to time to meet out the operational
expenses at respective locations as well as for reimbursement of expenditures incurred
in relation to sales promotion or marketing or sale of goods produced or provided or
belonging to M/s. Intas.
Answer:10
Question:11
Answer:11
Question:12
The reimbursement of expenditures, out of the foreign exchange remittances made by
M/s. Intas as “IMPREST” money, incurred in relation to sales promotion or
marketing or sale of goods produced or provided or belonging to M/s. Intas by your
representative offices, are taxable under service tax net under reverse charge
mechanism. Why your company has not paid service tax on such reimbursement for the
years 2007-08 to 2012-13 (till date).
As regards amounts reimbursed from imprest money by our representative offices
towards operational expenses at respective countries, I state that the same is not
taxable under service tax net being no service is involved. Further, as regards the
amount reimbursed from imprest money by our representative offices towards taxable
services rendered by various service providers/ persons, I state that since the said
service provider/ persons have already charged taxes as per the prevailing law of
respective country under bills raised by them and the same was reimbursed by our by
representative offices out of the said imprest money, our company has not paid
service tax against aforesaid expenditure under reverse charge mechanism in terms of
Section 66A of the Finance Act, 1994
As stated above, the payment against various taxable services was made to various
service providers by your respective representative offices in abroad out of the imprest
money remitted from your company located in India to them, please state under which
status, they have made payment to the aforesaid service providers and purpose of such
8
Answer:12
Question:13
Answer:13
Question:14
Answer:14
Question:15
Answer:15
Question:16
Answer:16
expenditure?
Our foreign offices, being a representative of our company, have made payment to
various service providers who have provided services in relation to sales promotion o r
marketing or sale of goods produced or provided or belonging to M/s. Intas, out of the
foreign exchange remittances made by M/s. Intas as “IMPREST” money, to them.
Is it true that your representative offices are not independently carrying out any
business activity or providing any service, other than what has been stated
hereinabove?
Yes.
Have you brought with you copies of Debit Notes raised by the service providers
towards taxable services provided in relation to sales promotion or marketing or sale
of goods produced or provided or belonging to M/s. Intas along with respective Bank
Advices, etc., payment thereof made out of the foreign exchange remittances made by
M/s. Intas as “IMPREST” money, to them, for the years 2007-08 to June 2012, as
called for under summons?
I am submitting herewith the documents relating to remittance made in foreign
currency as IMPREST money to our foreign offices. The copies of Debit note /
vouchers raise by various service providers, payment thereof made out of IMPREST
money by our Branch offices for the year 2011-12 are submitted herewith whereas the
documents for the remaining periods are at present not available with our office and
same are lying at respective foreign branch offices. Hence, I could not produce the
same at present.
Have you submitted details of remittance made in foreign currency to your
representative branch offices during the years 2007-08 to 2012-13 (up to June)
against which Service Tax was not paid under reverse charge mechanism?
Out of the imprest money, our representative offices have been remitting expenditures
for and on behalf of our company, M/s. Intas, to various companies / service providers
against debit notes / bills / vouchers raised by them and our representative offices are
submitting the periodically summary statement of expenditures made towards each
head, which was remitted by them out of the imprest money. On the basis of said
summary statement, we have prepared a statement showing month-wise details of
expenses incurred against each head, which were remitted by our foreign offices out of
the imprest money for the period 2007-08 to 2012-13 (upto June) in respect of each
foreign office, according to which our foreign offices had remitted the expenditures
incurred for and on behalf of our company M/s. Intas against various heads viz.
Salary and Other Employee Benefit, Rent, Rates & Taxes, Telephone &
Communication, Travel Expenses, Professional & Legal Expenses, Business
Promotion Expenses, Bank Charges, Freight Expenses, Regulatory Expenses, etc. and
I submit the details of the same herewith. We have already submitted summary
statement of overseas office expenses of Canada, New Zealand, Spain, UK, USA and
Vietnam against each head of expenditures for the year 2007-08 to 2011-12 vide our
letter dated 29-08-2012 and for the year 2012-13 (upto June) vide our letter dated 0609-2012.
Please explain as to why Service Tax was not paid / payable in respect of each head of
expenditure as mentioned hereinabove, by your company ?
I state that the expenses shown against the heads viz. Rent, Rates & Taxes relates to
rent of offices, operating expenses of our branches etc., Travelling Expenses, Fre ight
Expenses, Regulatory Expenses and Capital purchases, are not taxable under Reverse
Charge Mechanism and hence not paid the Service Tax thereon by our company. I
further state that expenses shown against Salary and Other Employee Benefits, were
remitted by our branches to local staff deployed in relation to sales promotion or
marketing or sale of goods produced or provided or belonging to M/s. Intas, in
respective countries. Similarly, our foreign offices have also remitted expenditures
towards Telephone and Communication services, Professional and Legal fees,
Business Promotion Expenses, Bank Charges and purchase of software shown under
the head of Capital Purchases for or on behalf of our company, out of the imprest
money remitted by our company during the period 2007-08 to 2012-13 (upto June) and
also our company has not paid Service Tax under Reverse Charge Mechanism thereon
9
for the said period.
Question:17
Answer:17
Question:18
Answer:18
Question:19
Answer:19
Question:20
Answer:20
Question:21
Answer:21
Question:22
Answer:22
The expenditures shown against the heads of ‘Salary and Other Employee Benefits’,
which were remitted by your branches to local staff deployed in relation to sales
promotion or marketing or sale of goods produced or provided or belonging to M/s.
Intas and ‘Business Promotion Expenses’ are taxable under the category of ‘Business
Auxiliary Services’, but your company has not paid the Service Tax in respect of the
aforesaid taxable service under Reverse Charge Mechanism. Please explain the
reason for the same.
So far as salary to employee is concerned I will check from our HR Department as to
whether the said employees are of our company M/s. Intas Pharmaceuticals Limited or
otherwise and submit the reply by tomorrow. So far as the Business Promotion
Expenses is concerned, it consist of three different heads viz. Business Promotion
Expenses, Gift purchases and given to clients for marketing of our company’s
products, as well as exhibition expenses. I further state that expenditures incurred for
Business Promotion expenses and gifts are taxable under the category of ‘Business
Auxiliary Services’ but the exhibition expenses are not taxable under Reverse Charge
Mechanism as performed outside India and falls under Category (ii) of Rule 3 of the
Taxation of Services (Provided from Outside and Received in India) Rules, 2006.
Please confirm as to whether the persons working at your foreign representative
offices are appointed as employee by M/s. Intas. If so, please provide the copies of
appointment letters issued by M/s. Intas in respect of each person working for an on
behalf of M/s. Intas to provide services in relation to business of M/s. Intas or to
market the product of M/s. Intas in respective countries ?
I will check with our HR department and come back tomorrow with all the details.
Is it true that after lapse of more than 6 (six) months, your company couldn’t produce
any documentary evidence on the basis of which M/s.Intas can claim that the
expenditure towards various taxable services, which were reimbursed for or on behalf
of your company including the expenditure shown under ‘Salary and Other Employee
Benefit’ out of imprest money remitted in foreign currency by representative foreign
offices, are not taxable under Reverse Charge Mechanism?
No.
While working the taxable value of services to be charged for Service Tax under
Reverse Charge Mechanism, department has not considered the expenditure towards
salary and other expenses incurred for your company’s own employees. Do you agree
with the same ?
Yes.
The expenditures shown against the head of ‘Telephone & Communication’,
‘Professional & Legal Fees’, ‘Bank Charges’, ‘Capital Purchase (Software)’ are
taxable under the categories of ‘Telecommunication Services’, ‘Legal Consultancy
Services’ (w.e.f. 01.09.2009), ‘Banking & Financial Services’ and ‘Information
Technology & Software Services’ w.e.f. 16.05.2008 respectively under Reverse
Charge Mechanism, but your company has not paid the Service Tax in respect of the
aforesaid taxable services. Please explain the reason for the same.
Our company has also not paid Service Tax in respect of aforesaid expenditures
remitted out of the imprest money by our representative foreign offices as entire
amount remitted to our representative offices, as per our view, are not taxable.
Please submit the details of expenditures shown against heads of ‘Salary and Other
Employee Benefits’ & ‘Business Promotion Expenses’, ‘Telephone & Communication’,
‘Professional & Legal Fees’, ‘Bank Charges’, ‘Capital Purchase (Software)’,
reimbursed out of the imprest money for and on behalf of your company by your
foreign representative offices, taxable under the category of ‘Business Auxiliary
Services’ ‘Telecommunication Services’, ‘Legal Consultancy Services’ (w.e.f.
01.09.2009), ‘Banking & Financial Services’ and ‘Information Technology & Software
Services’ w.e.f. 16.05.2008, for the Financial Year 2007-08 to 2012-13 (up to June)?
I submit the details of expenditures incurred and remitted for and on behalf of our
company by our foreign representative offices out of imprest money towards aforesaid
10
taxable services as under:
Expenses
Salary
&
Other
Employee
Benefits
Telephone
&
Communica
tion
Professiona
l & Legal
Fees
Business
Promotion
Expenses
(excluding
exhibition
charges)
Bank
Charges
Total
Expenses
Question:23
Answer:23
Service
Category
2007-08
2008-09
2009-10
2010-11
2011-12
Business
Auxiliary
Service
74852086
113102461
90318262
205744488
217341674 13584895
714943866
7645064
8355531
5207283
4687915
1060712
32559184
0
3410129
6871893
2734709
203994
13220725
2748427
3852904
3334960
4415380
5798059
222499
20372229
243384
266838
231447
145831
166728
30199
1084427
83446576
124867267
105650329 222384875
Telecommunic
ation Service 5602679
Legal
Consultancy
Service (wef
01.09.2009)
0
Business
Auxiliary
Service
Banking
Financial
Service
2012-13
(upto June) Grand Total
&
230729085 15102299
782180431
Please state as to whether your company has intimated the facts in any form to the
department that your company has not paid Service Tax under Reverse Charge
Mechanism in respect of expenditure made in foreign currency totally amounting to
Rs.12,71,81,048/- towards taxable services, viz. Business Auxiliary Service, Banking
& Financial Service, Legal Consultancy Service, Market Research Agency Service,
Online Information & Data Base Retrieval Service, Technical Inspection &
Certification Service, etc. provided by the various foreign based service providers as
well as expenditures to the tune of totaling Rs.78,21,80,431/- reimbursed by foreign
representative offices, towards aforesaid taxable services out of the imprest money
remitted in foreign currency to them by M/s. Intas during the financial years 2007 -08
to 2012-13 (up to June).
No.
6.1
Further statement of Shri Kandarp D. Dholakia, Deputy General Manager (Indirect Taxation)
of M/s. Intas was recorded under the provisions of Section 14 of Central Excise Act, 1944 as made
applicable to Service Tax matters vide Section 83 of the Finance Act, 1994, in question-answer form
on 22.10.2012, which is reproduced herein-below:
Question:1 Please peruse your earlier statement dated 16.10.2012 and confirm the facts stated
therein.
Answer:1
I have perused my earlier statement dated 16.10.2012 and I put my dated signature
thereon in token of having agreed with the facts stated therein
Question:2 Please state as to whether your company had paid Service Tax to the tune of
Rs.1,36,87,773/- in respect of expenditure made in foreign currency totally
amounting to Rs.12,71,81,048/- towards taxable services, viz. Business Auxiliary
Service, Banking & Financial Service, Legal Consultancy Service, Market Research
Agency Service, Online Information & Data Base Retrieval Service, Technical
Inspection & Certification Service, etc. provided by the various foreign based
service providers during the financial years 2007-08 to 2012-13 (up to June), which
was not paid by your company at the relevant time, as assured by you in your earlier
statement?
Answer:2
I agree that through oversight our company could not make payment of Service Tax
of Rs.1,36,87,773/- leviable on aforesaid taxable services under reverse charge
mechanism at the relevant time. However, after initiation of the inquiry by officers
of DGCEI, Ahmedabad, we have made entire payments of Service Tax i.e.
Rs.1,36,87,773/- along with interest to the tune of Rs.82,91,327/- against aforesaid
liability, vide various GAR-7 Challans are submitted herewith, copies thereof are as
under:
Sl. GAR
7 Date of GAR-7 Service Tax
No. Challan No. Challan
(Rs.)
Interest
(Rs.)
Total
(Rs.)
11
1
2
3
4
5
6
7
8
9
10
11
12
13
00836
00554
00834
00832
00555
00556
00507
00508
00510
00511
00513
00514
00470
07.08.2012
08.08.2012
07.08.2012
07.08.2012
08.08.2012
08.08.2012
17.10.2012
17.10.2012
17.10.2012
17.10.2012
17.10.2012
17.10.2012
19.10.2012
TOTAL
121600
1362663
4669
109386
132591
580021
3072129
6291015
323560
1204022
168180
317940
0
13687776
18926
374760
776
19851
42494
171761
0
0
0
0
0
0
7662759
8291327
140526
1737423
5445
129237
175085
751782
3072129
6291015
323560
1204022
168180
317940
7662759
21979103
Question:3 Have you brought documents relating to the expenditures shown against the heads
of ‘Salary and Other Employee Benefits’ to prove that such expenditure related to
your company’s own employees or otherwise, as stated by you in your earlier
statement?
Answer:3
Yes. I have produced the statement showing the payment of Salary and other benefits
paid to the employees appointed by our company, during 2007-08 to 2012-13 (up to
June) along with copies of appointment letter and/ pay slips. Our representative
offices have reimbursed an amount of Rs.70,20,89,670/- towards salary and other
employees’ benefits out of the IMPREST money during the years 2007-08 to 2012-13
(up to June). Wherever we are unable to produce the appointment letters in respect
of some of our staff members working in respective Representative Offices in
abroad, we have worked out the details of payments made in Foreign Currency to
such local staff which comes to Rs.1,28,54,197/- during the Financial Years 20072008 to 2012-13 (up to June) on which our company is liable to pay Service Tax to
the tune of Rs.14,02,822/- under the category of Business Auxiliary Service, but
same was not paid at the relevant time.
Question:4 Has your Company paid Service Tax in respect of reimbursement of expenditure out
of the IMPREST money by your respective foreign Representative Offices towards
‘Business Promotion Expenses’ (excluding Exhibition charges) & Salary and other
employees’ benefits to local staff engaged in various countries for marketing of
INTAS products, ‘Telephone & Communication’, ‘Professional & Legal Fees’,
‘Bank Charges’, Salary, which are taxable under the categories of ‘Business
Auxiliary Service’, ‘Telecommunication Services’, ‘Legal Consultancy Services’
(w.e.f. 01.09.2009), ‘Banking & Financial Services’ respectively under Reverse
Charge Mechanism, during the period 2007-08 to 2012-13 (up to June)?
Answer:4
We have worked out our Service Tax liability in respect of aforesaid expenditure
and I submit herewith an Annexure showing the taxable value of aforesaid services
and Service Tax amount payable thereon, according to which, our company is liable
to pay Service Tax amounting to Rs.87,78,848/- (Service Tax: Rs.85,23,153/- + Edu
Cess: Rs.1,70,463/- + SHE Cess: Rs.85,232/-) thereon. After initiation of inquiry by
the officers of DGCEI, Ahmedabad, our company has made voluntarily payment of
Service Tax of Rs.87,78,848/- along with interest of Rs.38,18,576/- vide GAR-7
Challan No.00333 and Challan No.00566, both dated 22.10.2012, copies of GAR-7
challans are submitted herewith, details of the payment are as under:
Sl.
No.
1
2
3
4
5
6
7
8
9
10
11
GAR
Challan
No.
00642
00643
00644
00648
00653
00655
00650
00651
00314
00333
00566
TOTAL
7
Date of GAR7 Challan
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
20.10.12
22.10.12
22.10.12
Service Tax
(Rs.)
Interest
(Rs.)
Total (Rs.)
Category of Service
2498041
1150309
351243
1014693
86902
35927
1159426
1079485
0
1266367
136455
8778848
0
0
0
0
0
0
0
0
3229972
577164
11440
3818576
2498041
1150309
351243
1014693
86902
35927
1159426
1079485
3229972
1843531
147895
12597424
Telecommunication Service
Telecommunication Service
Legal Consultancy service
Legal Consultancy service
Banking & Financial Ser.
Banking & Financial Ser.
Business Auxiliary Service
Business Auxiliary Service
Business Auxiliary Service
Business Auxiliary Service
12
7.
In view of the facts discussed hereinabove and material evidences available on records, the
investigations revealed the following facts:
7.1
In respect of expenditure in foreign currency totally amounting to Rs.12,71,81,048/ - incurred
towards taxable services provided by the various foreign based service providers during the
Financial Years 2007-08 to 2012-13 (up to June) against which service tax was not paid at relevant
time, it is noticed that M/s. Intas has incurred expenditure in foreign currency totally amounti ng to
Rs.12,71,81,048/- towards various taxable services, viz. Business Auxiliary Service [Section 65
(105) (zzb)]; Banking & Financial Service [Section 65 (105) (zm)]; Legal Consultancy Service
[Section 65 (105) (zzzzm)]; Market Research Agency Service [Section 65 (105) (y)]; Online
Information & Data Base Retrieval Service [Section 65 (105) (zh)]; Testing Inspection &
Certification service [Section 65 (105) (zzi)], etc. provided by the various foreign based service
providers, during the Financial Years 2007-08 to 2012-13 (up to June), which are included under
clause (iii) of Rule 3 of the Taxation of Services (Provided from Outside India and Received in
India) Rules, 2006 where the import criteria is based on the location of the recipient of the service.
The said taxable services are provided from outside India to M/s. Intas, who is a resident of India.
Therefore, M/s. Intas, as a service recipient, is liable to pay service tax under Reverse Charge
Mechanism in terms of Section 65A of the Finance Act, 1994 read with clause (iii) of Rule 3 of the
Taxation of Services (Provided from Outside India and Received in India) Rules 2006, under the
respective categories of taxable services as mentioned herein above. However, M/s. Intas had failed
to discharge service tax liability totally amounting to Rs.1,36,87,773/- (Service Tax:
Rs.1,32,89,100/- + Education Cess: Rs.2,65,782/- + SHE Cess: Rs.1,32,891/-) leviable thereon at
relevant time as a recipient under Reverse Charge Mechanism during the Financial Years 2007 -08 to
2012-13 (up to June), as detailed in Annexure-A to the SCN. The summary of the same is as
follows:
Sr. No.
1
A/c Head
Foreign Bank Charges
2
Processing Charges
Banking & Financial Services Total
Foreign Salary &
1
Expenses
Service Category
S.Tax
Edu.
Cess
S &H
Edu.Cess
Total
2817658.94
Banking & Financial Services
338119
6762
3381
348263
26445306.51
Banking & Financial Services
2644531
2982650
52891
59653
26445
29826
2723867
3072129
1703048
Business Auxiliary Services
204366
4087
2044
210497
Amt in INR
2
Registration Charges
3020445
Business Auxiliary Services
362453
7249
3625
373327
3
Sales Commission
Sales Promotion Mktg
Exps.
431078
Business Auxiliary Services
51729
1035
517
53281
3322705
Business Auxiliary Services
398725
7974
3987
410686
6408971
Business Auxiliary Services
769077
15382
7691
792149
2810881.6
Business Auxiliary Services
337306
6746
3373
347425
7
Selling Expenses
Foreign MR/CM
Expenses
Sales Promotion Mktg
Exps.
3737039.6
Business Auxiliary Services
448445
8969
4484
461898
8
Sales Commission
78476
Business Auxiliary Services
9417
188
94
9700
9
Registration Charges
2304488.54
Business Auxiliary Services
276162
5523
2762
284447
10
Selling Expenses
Marketing Development
& Promotional Exp.
6401030
Business Auxiliary Services
640103
12802
6401
659306
98106
Business Auxiliary Services
9811
196
98
10105
M R Expenses
Foreign MR/CM
Expenses
Sales Promotion Mktg
Exps.
1075651
Business Auxiliary Services
107565
2151
1076
110792
2366985
Business Auxiliary Services
236699
4734
2367
243799
2033859
Business Auxiliary Services
203386
4068
2034
209487
2310672.2
Business Auxiliary Services
231067
4621
2311
237999
16
Sales Commission
Marketing Development
& Promotional Exp.
43069
Business Auxiliary Services
4307
86
43
4436
17
Registration Charges
16506081.5
Business Auxiliary Services
1650608
33012
16506
1700126
18
Selling Expenses
Marketing Development
& Promotional Exp.
599099
Business Auxiliary Services
59910
1198
599
61707
123618
Business Auxiliary Services
12362
247
124
12733
942853
Business Auxiliary Services
94285
1886
943
97114
1300276
Business Auxiliary Services
130028
2601
1300
133928
22
Registration Charges
Foreign MR/CM
Expenses
Sales Promotion Mktg
Exps.
746351.56
Business Auxiliary Services
74635
1493
746
76874
23
Sales Commission
2777246.71
Business Auxiliary Services
277725
5554
2777
286056
4
5
6
11
12
13
14
15
19
20
21
13
24
Registration Charges
Sales Promotion Mktg
25
Exps.
Marketing Development
26
& Promotional Exp.
Business Auxiliary Services Total
Software Development /
1
Purchase Charges
807400
Business Auxiliary Services
80740
1615
807
83162
290382.3138
Business Auxiliary Services
29038
581
290
29909
890200
Business Auxiliary Services
89020
6788967
1780
135779
890
67890
91691
6992636
1062000
Information Technlogoy & Software
Service
106200
2124
1062
109386
106200
2124
1062
109386
Information Technlogoy & Software Service Total
1
Legal & Professional Fees
2895844.86
Legal Consultancy Services
289584
5792
2896
298272
2
Legal Expenses
245511
Legal Consultancy Services
24551
491
246
25288
3
Legal & Professional Fees
Professional
Consultancy/Services
Charges
825642
Legal Consultancy Services
82564
1651
826
85041
461643
Legal Consultancy Services
46164
923
462
47549
442864
8857
4429
456150
4
Legal Consultancy Services Total
1
Market research
28772
Market Research Agency Services
3453
69
35
3556
2
R & D Expenses Revenue
1263197
Market Research Agency Services
151584
3032
1516
156131
3
Market research
10139163
Market Research Agency Services
1013916
20278
10139
1044334
1168953
23379
11690
1204021
6665
133
67
6865
15645
313
156
16115
69244
1385
692
71321
60147
1203
601
61952
11580
232
116
11927
1322974
26459
13230
1362663
1486255
29725
14863
1530843
54711
1094
547
56353
219094
4382
2191
225667
34873
697
349
35919
4533
91
45
4669
Technical Inspection & Certification Services Total
313212
6264
3132
322608
Grand Total
13289100
265782
132891
13687773
Market Research Agency Services Total
Books & Periodicals (incl.
1
electronic)
55543
2
Subscription Fees
130377
3
Subscription Fees
692436.1
4
601474
5
Subscription Fees
Books & Periodicals (incl.
electronic)
6
Market research
13229736
115800
Online Information & Data Base Retrieval Services Total
Regulatory & Plant
1
Inspection Expenses
455927
Regulatory & Plant
2
Inspection Expenses
2190942
Regulatory & Plant
3
Inspection Expenses
348731
Regulatory & Plant
4
Inspection Expenses
45330
Online Information & Data Base
Retrieval Services
Online Information & Data Base
Retrieval Services
Online Information & Data Base
Retrieval Services
Online Information & Data Base
Retrieval Services
Online Information & Data Base
Retrieval Services
Online Information & Data Base
Retrieval Services
Technical Inspection & Certification
Services
Technical Inspection & Certification
Services
Technical Inspection & Certification
Services
Technical Inspection & Certification
Services
7.1.1 After initiation of the inquiry by officers of DGCEI, Ahmedabad, M/s. Intas has deposited
Service Tax totally amounting to Rs.1,36,87,773/- along with interest to the tune of Rs.82,91,327/against aforesaid liability, vide various GAR-7 Challans, details thereof are as under:
Sl. No.
GAR 7 Challan No.
Date of GAR-7 Challan
1
2
3
4
5
6
7
8
9
10
11
12
13
00836
00554
00834
00832
00555
00556
00507
00508
00510
00511
00513
00514
00470
07.08.2012
08.08.2012
07.08.2012
07.08.2012
08.08.2012
08.08.2012
17.10.2012
17.10.2012
17.10.2012
17.10.2012
17.10.2012
17.10.2012
19.10.2012
TOTAL
Service Tax
(Rs.)
121600
1362663
4669
109386
132591
580021
3072129
6291015
323560
1204022
168180
317940
0
13687776
Interest
(Rs.)
18926
374760
776
19851
42494
171761
0
0
0
0
0
0
7662759
8291327
Total
(Rs.)
140526
1737423
5445
129237
175085
751782
3072129
6291015
323560
1204022
168180
317940
7662759
21979103
14
7.2
In respect of the reimbursement of expenditure by foreign representative offices, out of the
IMPREST money remitted in foreign currency to them by M/s. Intas, to the tune of totally
Rs.6,72,36,193/- towards taxable services provided by the various foreign based service providers
during the Financial Years 2007-08 to 2012-13 (up to June), against which service tax was not paid
at relevant time, it is noticed that said representative foreign offices have made reimbursement of
expenditures to the tune of Rs.6,72,36,193/- towards ‘Business Promotion Expenses’ ‘Telephone &
Communication’, ‘Professional & Legal Fees’, ‘Bank Charges’ etc., incurred for and on behalf of
M/s. Intas in relation to sales promotion or marketing or sale of goods produced or provided by or
belonging to M/s. Intas in respective countries, during the F. Y. 2007 -08 to 2012-13 (up to June) as
discussed in length in foregoing paras. The said expenditures appear to be taxable under t he various
categories of taxable services viz. ‘Business Auxiliary Services’- [Section 65 (105) (zzb)];
‘Telecommunication Services’- [Section 65 (105) (zzzu)]; ‘Legal Consultancy Services’- [Section
65 (105) (zzzzm)] (w.e.f. 01.09.2009); ‘Banking & Other Financial Services’- [Section 65 (105)
(zm)] etc., which are included under clause (iii) of Rule 3 of the Taxation of Services (Provided
from Outside India and Received in India) Rules 2006 where the import criteria is based on the
location of the recipient of the service. The said taxable services are provided from outside India to
M/s. Intas, who is a Resident of India. Therefore, M/s. Intas, as a service recipient, is liable to pay
Service Tax to the tune of totally amounting to Rs.73,76,026/- (Service Tax: Rs.71,61,190/- + Edu
Cess: Rs.1,43,224/- + SHE Cess: Rs.71,612/-) leviable on the aforesaid taxable services under
Reverse Charge Mechanism during the Financial Years 2007-08 to 2012-13 (up to June) in terms of
Section 65A of the Finance Act, 1994 read with clause (iii) of Rule 3 of the Taxation of Services
(Provided from Outside India and Received in India) Rules 2006.
7.2.1 After initiation of the inquiry by officers of DGCEI, Ahmedabad, M/s. Intas has voluntarily
deposited Service Tax totally amounting to Rs.73,76,026/- along with interest to the tune of
Rs.32,29,972/- vide various GAR-7 Challans against aforesaid Service Tax liability, details thereof
are as under:
Sl.
No.
1
2
3
4
5
6
7
8
9
GAR
7
Challan No.
00642
00643
00644
00648
00653
00655
00650
00651
00314
TOTAL
Date of GAR7 Challan
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
18.10.12
20.10.12
Service Tax
(Rs.)
2498041
1150309
351243
1014693
86902
35927
1159426
1079485
0
73,76,026/-
Interest (Rs.)
Total (Rs.)
Category of Service
0
0
0
0
0
0
0
0
3229972
32,29,972
2498041
1150309
351243
1014693
86902
35927
1159426
1079485
3229972
1,06,05,998
Telecommunication Service
Telecommunication Service
Legal Consultancy service
Legal Consultancy service
Banking & Financial Ser.
Banking & Financial Ser.
Business Auxiliary Service
Business Auxiliary Service
7.3
In respect of the reimbursement of expenditure by foreign representative offices, out of the
IMPREST money remitted in foreign currency to them by M/s. Intas, to the tune of totally
Rs.1,28,54,197/- to the local staff/medical representatives engaged in or in relation to business of
M/s. Intas or for marketing of the products of Intas in respective countries during the Financial
Years 2007-08 to 2012-13 (up to June), against which service tax was not paid at relevant time, it is
noticed that said representative foreign offices have made reimbursement of expenditures to the tune
of Rs.1,28,54,197/- to the local staff/medical representatives engaged in or in relation to business of
M/s. Intas or for marketing of the products of M/s. Intas in the form of salary, payroll Proc cost/state
payment, health insurance, staff welfare, recruitment cost etc. Such reimbursement of expenditure
appears to be taxable under the category of ‘Business Auxiliary Services’ as defined under Section
65 (105) (zzb) of the Finance Act, 1994, which is included under clause (iii) of Rule 3 of the
Taxation of Services (Provided from Outside India and Received in India) Rules 2006 where the
import criteria is based on the location of the recipient of the service. The said taxable service is
provided from outside India to M/s. Intas, who is a Resident of India. Therefore, M/s. Intas, as a
service recipient, is liable to pay Service Tax to the tune of totally amounting to Rs.14,02,822/(Service Tax: Rs.13,61,963/- + Edu Cess: Rs.27,239/- + SHE Cess: Rs.13,620/-) leviable on the
aforesaid taxable service under Reverse Charge Mechanism in terms of Section 65A of the Finance
Act, 1994 read with clause (iii) of Rule 3 of the Taxation of Services (Provided from Outside India
and Received in India) Rules 2006 during the Financial Years 2007-08 to 2012-13 (up to June).
7.3.1
After initiation of the inquiry by officers of DGCEI, Ahmedabad, M/s. Intas has
voluntarily deposited Service Tax totally amounting to Rs.14,02,822/ - along with interest to the
tune of Rs.5,88,604/- vide various GAR-7 Challans against aforesaid Service Tax liability, details
thereof are as under:
15
Sl.
No.
1
2
GAR 7 Challan No.
00333
00566
TOTAL
Date of
Challan
22.10.12
22.10.12
GAR-7
Service Tax
(Rs.)
1266367
136455
1402822
Interest (Rs.)
Total (Rs.)
Category of Service
577164
11440
588604
1843531
147895
1991426
Business Auxiliary Service
Business Auxiliary Service
7.4
In view of the above, M/s. Intas had thus made expenditure in foreign currency to
the tune of totally Rs.20,72,71,810/- (Rs.12,71,81,048/- + Rs.6,72,36,565/- + Rs.1,28,54,197/-)
towards taxable services provided by various service providers situated outside India, which were
either reimbursed directly to the foreign service providers from India by M/s. Intas or reimbursed by
their representative foreign offices out of IMPREST money remitted in foreign currency by M/s.
Intas, as discussed in length hereinabove, which are included under clause (iii) of Rule 3 of the
Taxation of Services (Provided from Outside India and Received in India) Rules 2006 where the
import criteria is based on the location of the recipient of the service. The said taxable services are
provided from outside India to M/s. Intas, who is a resident of India. M/s. Intas, as a service
recipient, is, therefore, liable to pay Service Tax to the tune of totally Rs.2,24,66,621/ (Rs.1,36,87,773/- + Rs.73,76,026/- + Rs.14,02,822/-) leviable on various taxable services as
discussed hereinabove under Reverse Charge Mechanism in terms of Section 65A of the Finance
Act, 1994 read with clause (iii) of Rule 3 of the Taxation of Services (Provided from Outside India
and Received in India) Rules 2006, as detailed in Annexure ‘A’, ‘B’ & ‘C” hereto respectively,
which is required to be demanded and recovered from them under the provisions of Section 73 (1) of
the Finance Act, 1994. It is further observed that after initiation of inquiry by officers of DG CEI,
Ahmedabad, M/s. Intas has paid Rs.2,24,66,621/- (Rs.1,36,87,773/- + Rs.73,76,026/- +
Rs.14,02,822/-) towards Service Tax not paid under Reverse Charge Mechanism by them at
relevant time along with interest to the tune of totally Rs.1,21,09,903/- (Rs. 82,91,327/- +
Rs.32,29,972/- + Rs.5,88,604/-) payable thereon, as detailed in para No. 10.1.1, 10.2.1 and 10.3.1
hereinabove, which are required to be appropriated against aforesaid demands of Service Tax not
paid by them & interest leviable thereon.
7.5
Further, Shri Kandarp D. Dholakia, Deputy General Manager (Indirect Taxation) of M/s.
Intas in his statements dated 16.10.2012 and 22.10.2012 has categorically admitted to have not paid
Service Tax in respect of expenditure made in foreign currency towards various taxable services
provided by various service providers situated outside India, which were either reimbursed directly
to the said foreign service providers by M/s. Intas from India or reimbursed by their representative
offices out of IMPREST money remitted in foreign currency by M/s. Intas, under Reverse Charge
Mechanism during the Financial Years 2007-08 to 2012-13 (up to June) as discussed in length in
foregoing paragraphs.
8.
In light of the facts discussed hereinabove and the material evidences available on records, it
further revealed that M/s. Intas has contravened following provisions of Chapter V of the Finance
Act, 1994 and the Service Tax Rules, 1994 with intent to evade payment of Service Tax in respect
of various taxable services:
(i)
Section 67 of the Finance Act, 1994 in as much as they have failed to determine the value of
taxable services received from various service providers situated outside India;
(ii)
Section 66A of the Finance Act, 1994 read with Section 68 ibid and Rules 2 & 6 of the
Service Tax Rules, 1994 in as much as they have failed to pay the Service Tax, as a recipient of
taxable services provided by foreign service providers, in the manner and at the rate as provided
under the said provisions;
(iii) Rule 5 of the Service Tax Rules, 1994 in as much as they have failed to furnish to
jurisdictional Superintendent of Service Tax a list of all the accounts maintained by them in relation
to service tax payable under Reverse Charge Mechanism;
(iv) Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 in as
much as they have failed to furnish returns in form ST-3 mentioning the particulars of the aforesaid
taxable services received by them from abroad, the value of taxable services determinab le and other
particulars in the manner as provided therein and incorporating the required information to the
jurisdictional Superintendent of Service Tax.
16
9.
It further appeared that M/s. Intas was having full knowledge of the fact that in respect of
expenditure made in foreign currency towards aforesaid taxable services provided by various service
providers situated outside India, which were either reimbursed directly from India to the service
providers situated outside India by M/s. Intas or reimbursed by their representative offices out of
IMPREST money remitted in foreign currency by M/s. Intas to them, they, being a recipient of such
taxable services provided by the foreign service providers, were liable to pay Service Tax under
reverse charge mechanism, but they neither declared the taxable value of such taxable services
received from abroad nor furnished the information in respect of such taxable services received from
abroad in Service Tax return(s) as prescribed, nor paid the due service tax under Reverse Charge
Mechanism. M/s. Intas appears to have suppressed the facts of receiving various taxable services
from the foreign service providers from the Jurisdictional Service Tax Authorities and failed to
determine and pay the due Service Tax with an intention to evade payment of Service Tax in
contravention of various provisions of the Finance Act, 1994 and Rules made there under, as
discussed herein above in length, as also admitted by Shri Kandarp D. Dholakia, Deputy General
Manager (Indirect Taxation) of M/s. Intas, in his statement dated 16.10.2012. Therefore, extended
period of limitation, as provided under proviso to sub section (1) of Section 73 of the Finance Act,
1994 appears to be invokable for recovery of Service Tax to the tune of totally Rs .2,24,66,621/(Rs.1,36,87,773/- + Rs.73,76,026/- + Rs.14,02,822/-) not paid by them as a recipient of taxable
services provided by the various service providers situated outside India under Reverse Charge
Mechanism, as detailed in Annexure ‘A’, ‘B’ & ‘C” hereto. Consequently, M/s. Intas also appears to
be liable to pay interest as per Section 75 of the Finance Act, 1994 for delayed payment of Service
Tax evaded, besides penal action under Sections 76 ibid for failure/ delay in payment of evaded
Service Tax, Section 77 ibid for failure to pay Service Tax by due dates and not furnishing the
information in respect of taxable services received from abroad and taxable value thereof in
prescribed periodical ST-3 returns filed by them as well as under Section 78 of the Finance Act,
1994 for suppression of taxable value of various taxable services received from abroad with intent to
evade payment of Service Tax leviable thereon.
10. Now, therefore, M/s. Intas Pharmaceuticals Limited, 2nd Floor, Chinubhai Centre, Ashram
Road, Ahmedabad-380009, were issued show cause notice F.NO. DGCEI/AZU/36- 295/2012-13
dated 23.10.2012 requiring them to show cause to the Commissioner of Service Tax, Service Tax
Commissionerate, Ahmedabad, having his office at 1st floor, Central Excise Bhavan, Near
Polytechnic, Ambawadi, Ahmedabad, within 30 days of the receipt of this Show Cause Notice as to
why:(i)
an amount of evaded Service Tax to the tune of totally Rs.2,24,66,621/- (Rs.1,36,87,773/- +
Rs.73,76,026/- + Rs.14,02,822/-) (Rupees Two Crore Twenty Four Lakh Sixty Six Thousand Six
Hundred and Twenty one only) leviable on Expenditure in Foreign Currency totally amounting to
Rs.20,72,71,810/- (Rs.12,71,81,048/- + Rs.6,72,36,565/- + Rs.1,28,54,197/-) incurred towards
various taxable services provided by the various service providers situated outside India during the
Financial Years 2007-08 to 2012-13 (up to June), should not be demanded and recovered from them
under proviso to Section 73(1) of Chapter V of the Finance Act, 1994, as detailed in Annexure ‘A’,
‘B’ & ‘C’ hereto respectively;
(ii)
an amount of Rs.2,24,66,621/- (Rupees Two Crore Twenty Four Lakh Sixty Six Thousand
Six Hundred and Twenty one only) voluntarily paid by them after initiation of Inquiry by DGCEI,
as detailed in paras 10.1.1, 10.2.1 and 10.3.1 hereinabove, should not be appropriated against the
evaded Service Tax as demanded and mentioned at S. No. (i) hereinabove;
(iii) interest for delay in payment of Service Tax evaded as mentioned at S. No. (i) here inabove,
should not be recovered from them under Section 75 of Chapter V of the Finance Act, 1994;
(iv) an amount of totally Rs.1,21,09,903/- (Rs. 82,91,327/- + Rs.32,29,972/- + Rs.5,88,604/-)
(Rupees One Crore Twenty One Lakh Nine Thousand Nine Hundred and three only) voluntarily paid
by them after initiation of Inquiry by DGCEI as detailed in para No. 10.1.1, 10.2.1 and 10.3.1
hereinabove, should not be appropriated against interest recoverable from them;
(v)
the penalty for failure to pay Service Tax and/or delay in payment of service tax on due dates
should not be imposed upon them under Section 76 of Chapter V of the Finance Act, 1994 read
with Rule 6 of the Service Tax Rules, 1994;
17
(vi) the penalty for failure to pay Service Tax by due dates and not furnishing the information in
respect of taxable services received from abroad and taxable value thereof in prescribed periodical
ST-3 returns and for contravention of the provisions of Sections 68 & 70 of Chapter V of the
Finance Act, 1994 read with Rules 4 and 7 of the Service Tax Rules, 1994, should not be imposed
upon them under Section 77 of Chapter V of the Finance Act, 1994;
(vii) the penalty for suppression of taxable value of various taxable services received from abroad
with intent to evade payment of service tax leviable thereon, should not be imposed upon them
under Section 78 of Chapter V of the Finance Act, 1994.
11.
DEFENCE REPLY DATED 23.10.2012 FILED BY M/S INTAS:
M/s Intas deny the allegations set out in the Show Cause Notice as incorrect and
unsustainable on the basis of the following grounds which are independent and without prejudice to
each other.
11.1
Commissioner of Service Tax, Ahmedabad has no jurisdiction to pass the order
*
Show Cause Notice has been issued under Section 73(1) of the Finance Act, 1994 proposing
to demand Service tax allegedly not paid by M/s Intas . Section 73(1) of the Finance Act
provides that: “where service tax has not been levied or paid or short levied or short paid or
erroneously refunded, the Central Excise officer may within one year from the relevant date
serve notice on the person who is chargeable with service tax requiring him to show cause as
to why he should not pay and amount specified in the notice”. The said term “Central Excise
Officer” has not been defined under the Finance Act, 1994. Section 65(121) of the Finance
Act provides that the words and expressions used but not defined in Chapter V (Finance Act)
but defined under Central Excise Act, 1944 or the Rules made thereunder shall appl y, so far
as may be, in relation to Service Tax as they apply in relation to Central Excise duty. Section
2(b) of the Central Excise Act defines the term “Central Excise Officer” as Chief
Commissioner of Central Excise, Commissioner of Central Excise, Commissioner of Central
Excise (Appeals), Additional Commissioner of Central Excise, Joint Commissioner of
Central Excise, Assistant Commissioner of Central Excise or Deputy Commissioner of
Central Excise or any other officer of the Central Excise department.
Rule 3 of the Service Tax Rules, 1994 provides that the Central Board of Excise and Customs
(CBEC) may appoint such Central Excise officer for exercising the powers under Chapter V
of the Act within such local limits as it may assign to them as also specify the taxable service
in relation to which any such Central Excise Officers shall exercise his powers. Since, there
is no notification issued by the CBEC appointing Commissioner of Service Tax, Ahmedabad
as “central excise officer” in terms of Rule 3 of the Service Tax Rules, 1994. Hence, the
show cause notice, being without jurisdiction, is void ab initio. Therefore, Commissioner of
Service Tax, Ahmedabad is not the competent central excise officer to adjudicate show cause
notice and adjudicate the matters of M/s Intas .
Apart from the above, no order has been issued under Rule 3 ibid for appointing central
excise officers for the purpose of assessment and collection of Service Tax. Commissioner of
Service Tax, Ahmedabad has not been notified as the central excise officer so far. Therefore,
show cause notice itself is void. Hence, the entire proceedings have to go on this count alone.
They have also referred to CBEC Notification No. 14/2002-CE (NT) read with Notification
No. 16/2007-ST, Letter No. A. 11013/47/2004-Ad. IV, dated 14-9-2004 and Trade Notice
No. 1/2000- Service Tax dated 30.6.2000 issued by Commissioner of Central Excise, Pune
and drawn to the conclusion that services performed outside India are not subject to service
tax. This fact also show the fallacy contained in the above show cause notice. Therefore, the
above show cause notice is liable to be dropped on this ground alone.
the above show cause notice categorically admits that the alleged services have been
provided by the foreign service providers from outside India. The said foreign service
providers do not have any office in India. Hence, M/s Intas submit that no central excise
officer has jurisdiction to matters relating to registration, assessment, adjudication etc. over
the premises from where the service has been provided when such premises is located outside
India. In this regard they referred to Trade Notice No. 85/99, dated 27 -8-1999, the Madurai
Commissionerate
Merely because an assessee has registered premises under one Jurisdiction, it does not suo
moto give authority to the said Commissionerate to assume jurisdiction over services
provided in different parts of the country or even beyond the territory of India. Similarly,
*
*
*
*
*
18
merely because the service provider or service receiver has an office located within one
Jurisdiction, it does not suo moto give authority for the said Commissionerate to assume
jurisdiction.
11.2 The above mentioned show cause notice is vague and cryptic and hence, needs to be
dropped
*
*
*
The above show cause notice does not indicate as to how the activity undertaken by the
foreign branches/ offices, which is sought to be taxed by the department, falls under the
definition of ‘business auxiliary services’’ service and other taxable services as defin ed under
the Finance Act, 1994. Hence, question of demanding service tax either from the foreign
branches/ offices or M/s Intas does not arise. Therefore, the above show cause notice is liable
to be dropped on this ground alone.
The above show cause notice does not even allege that the services provided by the foreign
branches/ offices have been received by M/s Intas in India. The show cause notice is wholly
unsubstantiated and proceeds on various assumptions and presumptions. No evidence is
produced on record by the department to prove the allegations contained in the above show
cause notice. Hence, the above show cause notice, proceeding on erroneous presumptions, is
liable to be set aside. In this regard they relied upon
a.
Tribunal decision of United Telecom Ltd. 2011 (21) STR 234 (Tri.-Bang).
b.
decision of the Hon’ble Supreme Court in the case of Amrit Foods V/s CCE 2005
(190) ELT 433 (SC)
the above show cause notice has not produced/placed on record any evidence to show that the
alleged taxable services are received in India. In view of this submission, the above show
cause notice needs to be dropped forthwith on this ground alone.
11.3 The employees employed by the overseas branches/ offices are employees of M/s Intas
only. No service tax can be demanded on reimbursement of salary expenses to the overseas
branches/ offices
*
*
*
*
demand of service tax on reimbursement of salary and other employee related expenses made
by M/s Intas to branches/ offices situated abroad is not liable to service tax. The
costs
related to employees like salary and other expenses are booked in the books of accounts of
M/s Intas in India. For all practical purposes they are treated as employees of M/s Intas only.
There cannot be any service by the employee to the employer. Therefore, it is submitted that
to the extent the reimbursement is pertaining to salary and other costs related to employee,
the proposed demand of service tax is not sustainable and hence the proposed demand of
service tax of Rs.14,02,822 as mentioned in Annexure-C of the show cause notice is liable to
be dropped and the amount of service tax already deposited by M/s Intas is entitled to be
refunded to them.
The show cause notice has created artificial distinction between the employee deputed from
India and employee directly employed at Branches though in both the cases payment are
made by such branches/ offices abroad.
the demand raised in the show cause notice for the said expenditure made towards salary
made under “Business Auxiliary Service” is highly erroneous and unsustainable. Department
has failed to show under which specific clause of Section 65(19), the said amount can be
classified for levy of tax. Thus, the demand of service tax on salary paid to the employees
.raised under the “business auxiliary service” under reverse charge mechanism deserves to be
set aside.
Section 66A was inserted with effect from 18.04.2006 and sub-section (1) artificially levies
service tax on the service receiver when the service is provided by a person fr om outside
India to a person located in India. Thus, by way of deeming fiction created by Section
66A(1), the services provided by the non-resident service provider to a resident service
provider are taxable in the hands of resident service recipient. In essence, the non-resident
service provider and resident service receiver shall be a independent fixed/permanent
establishment in order to invoke the provisions of Section 66A(1) of the Act. The head office
and the representative offices/ branches are part of same entity rather the representative
offices are an extension of the head office for market research and survey of the market in
other countries. Thus, there are no two independent fixed/permanent establishments involved
and all the representative offices and head office are part of the same entity, therefore the
provisions of Section 66A(1) of the Act does not apply.
19
*
*
*
*
*
the provisions of Section 66A(2) of the Act are not applicable to the present case as in the
present case it is necessary to examine the legislative history of taxability of service provided
by the person located on foreign countries and received by a person located in India.
Explanation to section 65(105) of the Act was inserted w-e-f 16.6.2005 as under:
“Explanation. - For the removal of doubts, it is hereby declared that where any
service provided or to be provided by a person, who has established a business or has
a fixed establishment from which the service is provided or to be provided, or has his
permanent address or usual place of residence, in a country other than India and such
service is received or to be received by a person who has his place of business, fixed
establishment, permanent address or, as the case may be, usual place of residence, in
India, such service shall be deemed to be taxable service for the purposes of this
clause”.
The explanation has, at first glance, seemed to have expanded the scope of the service tax by
making something, which was not taxable. In this explanation, service received by a person
who has his place of business/ fixed establishment in India from a person whom has
business/fixed establishment outside India. In the Act, ‘fixed establishment’ has not been
defined. However, in Letter F.No B1/6/2005-RTU dated 27.7.2005, CBEC has clarified that a
company may be incorporated in one country but may have fixed establishments in other
countries. CBEC further clarified that a business establishment would be the head office.
CBEC further clarified that fixed establishment should have both the technical an d human
resources are necessary for providing or receiving the service at the place where the
establishment is located. The above clarification given by the CBEC is not applicable in
terms of section 66A, as in section 66A business establishment has been defined as branch
office or agency. Moreover the Circular has not clarified about the fixed establishment
therefore, same is not relevant in the present case.
the phrase ‘carrying on business through a permanent establishment’ would mean that the
permanent establishment is capable of entering into contracts and discharging the contractual
obligations independently. The permanent establishment should be a self sustained
establishment and it should not be dependent on any other establishment for its surviva l. In
the present case export contracts are entered by M/s Intas with the customers. In terms of the
contract, goods are manufactured in India and thereafter, same are exported to customer
directly by M/s Intas from India. . The employees who worked at the representative offices/
branches are recruited by M/s Intas . Bills for exports are raised by M/s Intas from India.
The payment against the bill is also received by M/s Intas in India. Further income from the
export is booked in India and expenses made at the representative offices/ branches are also
claimed in India. This fact is evident from the audited financial statements of M/s Intas also.
From the above it is evident that the representative offices/ branches are not capable to be
self sustained establishment as the same are dependent on M/s Intas for everything thus the
same cannot be said to be permanent establishment.
The representative offices/ branches as such are normally not supposed to undertake any
other activity other than that those incidental and related to the market research and survey
and liasioning with local government offices. From this it can be safely concluded that the
representative offices/ branches do not have independent existence of their own and cannot
be regarded as a permanent establishment of M/s Intas situated abroad.
for an office to be regarded as a permanent establishment, it must have some degree of
permanence and must have sufficient resources to carry on the business activity
independently. In the present case, the representative offices/ branches are merely an
executing arm of the head office and do not have sufficient resources to carry on the business
activity. Thus, the representative offices/ branches cannot be regarded as permanent
establishment for this reason also.
the term ‘fixed establishment’ has not been defined under the Finance Act, 1994. However,
CBEC has issued a letter dated 27.07.2005 wherein the meaning of fixed establishment has
been explained. In terms of the explanation issued by CBEC, “A fixed establishment is an
establishment other than the business establishment. It should have both the technical and
human resources necessary for providing or receiving services permanently present.” Thus,
an office can be regarded as a fixed establishment only when it has sufficient technical and
human resource necessary for providing or receiving services with sufficient degree of
permanence. The relevant part of the Letter is reproduced herein under:
26.4
A fixed establishment is an establishment other than the business establishment. It
should have both the technical and human resources necessary of providing or
20
receiving services permanently present. A business may have several fixed
establishment including a branch. If there is no business or other fixed establishment
in any country and the business is a limited company or other body corporate, it
belongs wherever it is legally constituted.
In view of the above submission, it may be seen that an office which does not have
the necessary technical and human resources permanently present cannot be regarded as a
fixed establishment in terms of the clarifications issued by the CBEC. By applying the above
to the instant case, the representative offices/ branches of M/s Intas do not have a permanent
presence of sufficient technical or human resources necessary for providing services. The
head office only executes its work through the representative offices/ branches and the
representative offices/ branches do not have any existence of their own. Therefore, the
representative offices/ branches of M/s Intas cannot be regarded as a fixed establishment for
the purpose of levying service tax. In this regard they placed reliance on :
a. the decision of the European Court of Justice (ECJ) in the case of Ministero
dell’Economia e delle Finanze, Agenzia delle Entrate v. FCE Bank plc, (Case C 210/04),
b. Aro Lease v. Inspecteur in Case C.No. 190-95 dated 17th July, 1997 wherein it is
held that if an establishment does not have the staff and the requisite resources, the
same shall not qualify as a fixed establishment.
*
since the concept of ‘permanent establishment’ is not very clear from the service tax law
and jurisprudence in India as well as other countries, an analogy can be drawn from the
scope of ‘permanent establishment’ as in the context of income tax law. The notion of
‘permanent establishment (hereinafter referred to as PE) is one of the most important
issues in treaty based international fiscal law. Almost all modern tax treaties use PE as
the main instrument to establish tax jurisdiction over a foreigner’s unincorporated
business activities. The foreign enterprise’s profits from business activities are taxable
by the country where the activities are performed only if the enterprise has a PE there.
Used for the same purpose, the concept of PE is also decisive in the internal
international fiscal laws of many countries. The general definition of PE is formulated in
the following way in the OECD model treaty:
“For the purpose of this Convention, the term ‘permanent establishment’
means a fixed place of business through which the business of an enterprise is
wholly or partly carried on”.
In most of the Double Taxation Avoidance Agreements that India has entered
into with several countries, Article 5 deals with the concept of ‘permanent
establishment’. The relevant article is reproduced hereinbelow:
Article 5- Permanent Establishment
1. For the purpose of this Convention, the term ‘permanent establishment means a
fixed place of business through which the business of an enterprise is wholly or partly
carried on.
2. The term ‘permanent establishment’ includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a sales outlet;
(g) a warehouse in relation to a person providing storage facilities for others;
(h) a farm, plantation or other place where agricultural, forestry, plantation or
related activities are carried on; and
(i) a mine, an oil or gas well, a quarry or any other place of exploration or
extraction of natural resources.
3. A building site or construction, installation or assembly project or supervisory
activities in connection therewith constitutes a permanent establishment only if such
site, project or activities last more than 270 days.
21
4. Notwithstanding the preceding provisions of this Article the term ‘permanent
establishment’ shall be deemed not to include:
(a) the use of facilities solely for the purpose of display of goods or merchandise
belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise
solely for the purpose of storage or display;
(c) the maintenance of a stock of goods or merchandise solely for the purpose of
processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing
goods or merchandise or for collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purposes of carrying on,
for the enterprise, any other activity of a preparatory or auxiliary character;
(f) the maintenance of a fixed place of business solely for any combination of
activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity
of the fixed places of business resulting from this combination is of a preparatory
or auxiliary character.
The starting point is that all activities considered as business activities
under domestic laws will constitute a PE. However, the OECD based tax treaties
recognise that taxing jurisdictions over the business activities of non-resident
enterprises are to be viewed from the perspective of accumulation of capital. Some
activities, though undoubtedly parts of business activity, are considered
insignificant in this perspective, and are specifically exempted under the modern
tax treaties (negative list). The treaties dichotomize the exempted business
activities into auxiliary and preparatory activities. Thus, the OECD based
‘negative list’ is concluded with the catch-all term ‘any other activity of a
preparatory or auxiliary character’. (Permanent Establishment, Erosion of a Tax
Treaty Principle, by Arvid A. Skaar, Wolters Kluwer, pg. 283). However, the
scope of the phrase ‘preparatory or auxiliary character’ depends on the facts of
each individual case as the scope of the phrase has been left open in the tax
treaties. For each individual case, the activities undertaken by a specific
establishment have to be analysed if they qualify as ‘preparatory or auxiliary
character’. Thus, the OECD Model Commentary on Article 5 of tax treaties
discusses exactly such a situation. As per para 23 of the Commentary, To a
considerable degree it limits that definition (in para 1) and excludes from its rather
wide scope a number of forms of business organizations which, althou gh they are
carried on through a fixed place of business, should not be treated as PEs. It is
recognized that such a place of business may well contribute to the productivity of
the enterprise, but the services it performs are so remote from the actual
realization of profits that it is difficult to allocate any profit to the fixed place of
business in question. Examples are fixed places of business solely for the purpose
of advertising or for the supply of information or for scientific research or for the
servicing of a patent or a know-how contract, if such activities have a preparatory
or auxiliary character. In this connection, they placed reliance on the Advance
Ruling in the case of UAE Exchange Centre LLC, In re [2004] 268 ITR 9 (AAR)
and also to the observation of the Honourable Supreme Court of India regarding
the expression 'business connection' in the case of CIT v. R.D. Aggarwal & Co.
and Anr. AIR 1965 SC 1526 that 'the expression business connection postulates a
real intimate relation between the trading activity carried on outside the taxable
territories and the trading activities within the territories, the relation between the
two confirming to the earning of income by the non-resident in his trading
activity.' They also placed reliance on the decision of the Hon'ble Delhi Tribunal
in the case of IAC v. Mitsui & Co. Ltd. [1991] 39 ITD 59 (Delhi) . The appellant
in the said case was carrying out activities in India through representative offices.
The Special Bench of the Tribunal held, based on the facts of the case, that even
though the appellant had a representative office, the activities were covered under
the exclusion contained in the treaty for activities which are preparatory and
auxiliary in nature and therefore, would not constitute a PE in India.Further, the
Delhi High Court in the case of UAE Exchange Centre Ltd. v. U.O.I. reported in
(2009) 223 CTR 250, also observed thus at P.267:
Once an activity is construed as being subsidiary or in aid or support of the main
activity it would, according to us, fall within the exclusionary clause. To say that a
22
particular activity was necessary for completion of the contract is, in a sense, saying
the obvious, as every other activity which an enterprise undertakes in earning profits
is with the ultimate view of giving effect to the obligations undertaken by an
enterprise vis-à-vis its customer if looked at from that point of view, then no activity
could be construed as preparatory or an "auxiliary" character.
Moreover, they also placed reliance judgment in the case of Western Union Financial
Services Inc. V. ADIT [2007] 29 1ITR 176 (Delhi).
*
*
*
In the present case, for the sake of administrative convenience M/s Intas have established
representative offices/ branches in countries across the world. These representative offices/
branches do not have any independent revenue or clients. These representative offices/
branches are engaged in performing market survey/ sales promotion and research as well as
liasioning with local government offices under instructions from M/s Intas , in relation to the
goods manufactured by the Indian unit of M/s Intas . The purchase order or contracts are
entered by the customers with M/s Intas, India and representative offices do not enter into
any contract with the customers. Few of the employees working at these representative
offices/ branches are sent from India and most of the employees have been recruited locally.
The salary of the employees is remitted from M/s Intas, India to the representative offices/
branches as explained above which further pay the same to the employees working there. M/s
Intas, India also reimburses the other expenses incurred by the representative offices for their
operation as explained above. Since the representative offices/ branches do not have any
source of income they are dependent on M/s Intas, India and all expenses incurred by the
representative offices are reimbursed by them. From the facts, it is clear that any of the
representative offices/ branches of M/s Intas all across the world, in this case, has not
performed any 'core business activity' and has confined itself to preparatory and auxiliary
activities only. In fact, all that seems to have been done by the representative offices/
branches fall within the maintenance of a fixed place for the purpose of auxiliary and
preparatory activities to the final contracts entered into by M/s Intas with various customers
abroad. Plainly, the instant activities are in 'aid' or 'support' of the main activities and
accordingly fall in the realm of preparatory and auxiliary activities. The representative office/
branch is very much covered within the exclusionary Clauses (e) and (f) of Article 5(4) of the
treaty and consequently, can't be regarded as a PE. Therefore, the representative offices/
branches of M/s Intas in several countries cannot be regarded as a PE of M/s Intas as per the
exclusionary provision, as referred to above, of Article 5(4) of the treaty. In the light of the
above discussion and the facts stated by M/s Intas , it is clear that M/s Intas ’ representative
offices/ branches cannot be regarded as a Permanent Establishment of M/s Intas as per the
exclusionary provision, as referred to above, of Article 5(4) of the Treaty. M/s Intas submit
that representative offices/ branches of M/s Intas are not considered as permanent
establishment for the purpose of Income tax. Therefore, the present demand relying on the
provisions of Section 66A is not sustainable. Hence, the entire demand raised in the instant
show cause notice is liable to be dropped on this ground alone.
Without prejudice to the above submissions, M/s Intas submit that in Para 6 of the Show
Cause Notice, the department has accepted that the branches/ representative offices are not
permanent establishment of M/s Intas . The said para clearly states that M/s Intas have
established branches/ representative offices only at those places where they do not have any
permanent establishment. Further it s accepted in the show cause notice that such offices at
abroad had not rendered/provided any service to M/s Intas . The present dispute pertains to
the expenses incurred by the overseas branches and representative offices only. Therefore,
the demand raised in the show cause notice is liable to be dropped on this ground also.
As per the Tax Treaties/ OECD Model Tax Convention, the entity can only have a
‘permanent establishment’ in a country where it is not a tax resident. Therefore, based on the
above, it could be said that the expression ‘fixed establishment’ is different from the term
‘permanent establishment’. Even the wording of Section 66A itself makes clear distinction
between the expression ‘permanent establishments’ and ‘fixed establishments’. Clearly in the
present case, a head office of M/s Intas cannot be said to be a ‘permanent establishment’ of
M/s Intas in India as it is a tax resident in India. Therefore the transaction between the
overseas representative offices/ branches and the head office cannot be said to be a
transaction between two ‘permanent establishments’. In view of the above transaction
between M/s Intas , a tax resident company of India and its overseas office, even assuming
without admitting are permanent establishments of M/s Intas in foreign countries, cannot be
23
*
*
*
*
*
said to be the transactions between two permanent establishments and hence cannot be said
to be covered within the ambit of section 66A(2).
Section 66A uses various words namely Place of business, fixed establishment, permanent
address, usual place of residence, business establishment and permanent establishment. These
words have not been used interchangeably. Further business establishment and usual place of
residence has been defined in explanation 1 and explanation 2 to the section. M/s Intas
submit that it is a cardinal principle of interpretation that each word has to be given a
meaning. In the present case M/s Intas are having the usual place of residence in India as the
same has been incorporated in India therefore M/s Intas cannot have a permanent
establishment in India. Since M/s Intas do not have permanent establishment in India,
services allegedly provided by the representative offices/ branches cannot be taxed under
section 66A of the Finance Act, 1994, even assuming without admitting that representative
offices/ branches are permanent establishments.
representative offices/ branches at the foreign countries can be treated as business
establishment in terms of explanation 1 to section 66A which defines that a person carrying
on a business through a representative office or agency in any country shall be treated as
having a business establishment in that country. M/s Intas submit that once the
representative offices/ branches of M/s Intas are business establishment the same cannot be
treated as permanent establishment. Since representative offices/ branches are not permanent
establishment service tax cannot be demanded on the services allegedly provided by the
representative offices/ branches under section 66A(2) of the Finance Act, 1994. Services
received and consumed by foreign Branches / offices shall not be treated as service received
in India in terms of Section 66A of Finance Act and recipient is based in foreign country
only. For the reason mentioned above entire demand proposed to be raised in the present
show cause notice deserves to be dropped. Even otherwise, the remittance made by M/s Intas
are in the nature of reimbursement of expenses. These remittances cannot be considered as
consideration for the services.
at para 5 of the show cause notice, the department has admitted the fact that the
representative foreign offices had neither received nor provided any of services to M/s Intas ,
but, in fact, they have only reimbursed the expenditure incurred for and on behalf of M/s
Intas in relation to sales promotion or marketing or sale of goods produced or provided by or
belonging to M/s Intas to the foreigners/foreign service providers. In this regard they
referred to judgement delivered by Hon’ble Delhi High Court in case of Intercontinental
Consultants and Technocrats Pvt. Ltd. 2012-TIOL-966-HC-DEL-ST. Therefore, in view of
the above decision of the Hon’ble Delhi High Court these cannot be treated as consideration
for the services rendered and therefore, not taxable.
Similarly, the show cause notice has proposed to raise demand of service tax on
reimbursement of expenses made to foreign branches. Applying the same logic, since M/s
Intas have merely reimbursed the expenses to the foreign branches, the same is not liable to
service tax in view of the above referred Hon’ble Delhi high Court decision. In view of the
above, the entire demand proposed to be raised in the show cause notice deserves to be
dropped on this ground also.
the grounds on which service tax is proposed to be demanded under the present Show cause
notice, services are rendered outside India. No part of the service is received in India. It is
submitted that when all the services are rendered outside India the same cannot be taxed in
India. M/s Intas humbly submit that the provisions contained in Sect ion 64 of the Finance
Act, 1994 extend to the whole of India and not beyond India. Section 64 of the Finance Act,
1994 provides as under:
"Extent, commencement and application:
This Chapter extends to the whole of India except the State of Jammu and
Kashmir. It shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint. It shall apply to taxable services
provided on or after the commencement of this Chapter.
From the perusal of the above it is clear that service tax is leviable only on specified
services as defined in the Finance Act, 1994 and that the Act extends to whole of India,
excluding the State of Jammu and Kashmir. The above section does not make any specific
mention about the Finance Act having extra territorial applications. Thus the services which
are rendered in India can only be taxed. In this regard they referred to to the decision of the
Constitution Bench of the Hon'ble Supreme Court in Bengal Immunity Co. Ltd. v. State of
Bihar, (1955) 2 SCR 603, which stated that the laws of a nation apply to all its subjects and
to all things and acts within its territories.
24
*
the effect of introduction of Section 66A is that any services received by a person residing in
India will be a taxable service, even if service is rendered by a non-resident outside India. In
other words, the service should be consumed in India, namely its benefit should be applied in
India and not that the service and its benefit is consumed outside India. Merely because the
beneficiary of the service is in India does not mean that the service is received in India. As
per the Board Circular No. 111/05/2009-ST dated 24.02.2009, the benefit of the service
being enjoyed abroad, there cannot be any import of services. The section nowhere specifies
that it extends the applicability of service tax beyond India. The effect of this section cannot
be extended to bring services rendered outside India in the service tax net. It merely provides
that if the services are rendered by a non-resident in India to a resident in India, they shall be
deemed to be taxable service in the hands of the Indian recipient of service and the Indian
recipient will be the person liable to pay service tax under rule 2(l)(d)(iv) of Service tax
Rules, 1994. Thus, in the absence of the abovementioned Section specifying that it is
extending the applicability of service tax beyond India, it is submitted that section 66A has to
be read harmoniously with section 64 which inter alia states that only services provided in
India are taxable. In this regard they placed reliance on the notes on clauses of the Finance
Bill, 2006 which provided that the new section 66A is inserted with a view to levy service
tax on taxable services provided from outside India and received in India. Also, the marginal
note to section 66A of the Act reads as “Charge of service tax on services received from
outside India”. It clearly shows that the intention behind section 66A of the Act is to cover
only those services which are provided from outside India and received in India. The relevant
text is reproduced as under:
Notes on clauses of the Finance Bill, 2006 relating to insertion of section 66A in
the Act:
Service Tax
Clause 68 of the Bill seeks to amend Chapter V of the Finance Act, 1994,
relating to service tax in the manner, namely:..
(3) ‘sub-clause (C) seeks to insert new section 66A with a view to levy service
tax on taxable services provided or to be provided from outside India and
received in India’.
[Emphasis supplied]
*
CBEC had issued a Circular F. No. B1 / 4 / 2006-TRU dated 19.4.2006 after introduction of
section 66A and Import of Services (IOS) Rules. The abovementioned Circular clarifies that
for the purpose of levy of service tax the service provider must be located outside India and
the service receiver must be located in India and such services must be received in India.
they have in this regard relied on the judgment given by the Hon’ble Delhi High Court in
M/s Orient Crafts Ltd. v. Union of India reported at 2006 (4) STR 81 (Del. HC) wherein the
Hon’ble High Court had, inter alia, upheld the validity of section 66A and IOS Rules. The
court observed that taxability under these provisions is restricted to services received in India
even after introduction of Section 66A.
the intention of the Department is to tax the services provided from outside India and
received in India by a resident. The Circular makes a specific mention about the fact that the
services must be received in India. In view of the above, M/s Intas submit that in his case the
services are never received in India and therefore the same are not exigible to service tax
within the provisions of the Finance Act, 1994.Further, in this regard M/s Intas submit that it
is a settled position in law by the following decisions of the Apex Court that the Board
Circulars are binding on the Revenue authorities:
 Paper Products Ltd vs. CCE - 1999 (112) ELT 765 (SC)
 CCE Vadodara vs. Dhiren Chemical Industries 2002 (139) ELT 3 (SC)
(Constitution Bench)
 Ranadey Micro Nutrients vs. CCE - 1996 (87) ELT 19
 SAIL Vs C.C. Bombay - 2000 (115) ELT 42 SC
 Circular No.36/4/2001-CX dated 08.10.2001
 Trade Notice issued by Indore Commissionerate dated 14.10.1998
 circular/ clarification in October, 2003 and reported in (2003) 158 ELT T23 -T37
 CIT v. Toshuku Ltd 1980 (Supp) SCC 614 (SC).
 Carborandum Co. v. CIT (1977) 108 ITR 335 (SC)
*
*
25
it is clear that no service tax can be levied on the activities performed outside India. Therefore, the
present show cause notice is liable to be dropped on this ground alone.
11.4
No specific charging section for levy of Service tax on services received outside India
*
M/s Intas wish to submit that Section 66A was inserted w-e-f 19.4.2006 which provides for
a situation where the service provider is situated outside India and the service recipient is located in
India then by way of deeming fiction such service shall be deemed to be a taxable service for the
purpose of this section and all the provisions of the chapter shall apply.
*
M/s Intas submit that a close reading of Section 66A make it clear that there is no specific
charge or levy of service tax which is created by Section 66A unlike Section 66 wherein there is a
specific charge which is created on services referred in sub-clauses of Section 65(105). The
provision of Section 66A is reproduced herein under:
"66A. (1) Where any service specified in clause (105) of section 65 is, —
(a) provided or to be provided by a person who has established a business or has a
fixed establishment from which the service is provided or to be provided or has his
permanent address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of
business, fixed establishment, permanent address or usual place of residence, in India,
such service shall, for the purposes of this section, be taxable service, and such
taxable service shall be treated as if the recipient had himself provided the service in
India, and accordingly all the provisions of this Chapter shall apply. “
*
Section 66A is an independent provision which is to be read as it is. The section nowhere
states that services provided outside India shall be taxable. Section 66A provides for two
deeming fictions. First deeming fiction says, “such service shall, for the purposes of this
section, be taxable service”. This simply means that services provided by a person who has
established a business or has a fixed establishment from which the service is provided or to
be provided or has his permanent address or usual place of residence, in a country other than
India shall be taxable if it is received by a person who has his place of business, fixed
establishment, permanent address or usual place of residence, in India. The second dee ming
fiction says, “Such taxable service shall be treated as if the recipient had himself provided
the service in India”. This means that liability to pay service tax on activities which were
made taxable by virtue of first deeming fiction shall be on the recipient of service. Therefore,
the emphasis in section 66A is on the person liable to pay service tax and not on services
provided outside India. The intention behind introducing section 66A was to give legislative
backing to rule 2 (1)(d)(iv) of service tax rules, 1994 which contemplates a situation wherein
service provider is situated outside India and service receiver is situated in India. The rule
said that in such a situation service receiver shall be the person liable to pay service tax.
There is no rate specified in section 66A for the levy of service tax on such services covered
under the provision of Section 66A. This leads to the conclusion that section 66A is either
not a charging section or is a half-baked or defective charging section. Even if it is assumed
that section 66A is a charging section then in order to levy service tax on a particular service
it has to be read with section 66 which provides for the rate at which service tax shall be
charged. Now, Section 66 is subject to section 64 which restricts the applicability of service
tax to whole of India except state of Jammu and Kashmir. Therefore, even if it is assumed
that section 66A is a charging section; its applicability shall be restricted only to the territory
of India. Therefore, it is respectfully submitted that Section 66A does not create any levy on
services which are rendered outside India. Thus, the present show cause notice is liable to be
dropped on this ground alone.
11.5
Services allegedly provided by foreign representative offices/ branches cannot be
subjected to service tax under Section 66A since same are not specified in Clause (105) of
Section 65 as the same are provided to self
*
the representative offices in several countries and the head office at India (i.e. M/s Intas ) is
not a separate legal entity. Demand has been proposed on the basis of section 66A(2) which
deems the permanent establishment as separate person. Thus, Section 66A of the Act
26
provides that any service specified in Section 65(105) of the Act shall be treated as taxable
service provided by the service recipient himself if the following conditions are satisfied:

The service is provided or to be provided by a person who has established a business, a
fixed establishment, or has his permanent address or usual place of residence outside
India; and

The service is received by a person who has a place of business, fixed establishment,
permanent address or usual place of residence in India.
From the above provision it is clear that to tax a service under section 66A the service
must be specified under clause (105) of section 65 of the Finance Act, 1994. In the present
case show cause notice has proposed to classify the alleged services provided by the foreign
representative offices under the taxable category of business auxiliary services. Thus for any
transaction to be regarded as a transaction for service, it must have the following
concomitants:

There must be two independent parties namely service provider and service recipient,

There must be an understanding between the parties to provide and to receive service,

There must be flow of service between the two parties,

There must be a consideration for the said services.
In the present case M/s Intas and representative offices/ branches belong to the same
company thus M/s Intas and foreign representative offices/ branches are not different person.
Two different persons are not involved in the instant case and the provision of services, if
any, will be a provision of service to M/s Intas itself. The head office at India and the
representative offices in other countries are a part of same legal entity i.e., M/s Intas
Pharmaceuticals Ltd. Both the offices cannot be treated as an independent entity for the
purposes of charging service tax. There has to be an independent service provider and an
independent service receiver for the purposes of levying service tax under section 65(105) of
the Finance Act, 1994. Since in the instant case all the representative offices/ branches are
part of the same legal entity and the same are not different person, the services provided by
the representative offices/ branches is not covered under section 65(105) of the Finance Act,
1994. It is submitted that to tax a service under section 65(105) of the Finance Act, 1994
service must be provided by an independent person to any other independent person. If the
service is not provided by an independent person to any other independent person, the same
will not be taxable under section 65(105) of the Finance Act, 1994. In this regard they p laced
reliance on the following cases :

Precot Mills Ltd. Vs CCE 2006 (2) STR 495 (Tri-Bang)

Rolls Royce Indus. Power (I) Ltd. v. CCE 171 ELT 189 (Tri-Del)

Bajaj Auto Ltd. v. CCE 179 ELT 481 (Tri-Mum)

Saturday club Ltd. v. Assistant Commissioner, Service Tax Cell, Calcutta 180 ELT
437 (Cal-HC).

Dalhousie Institute Vs. Assistant Commissioner, Service Tax Cell 2006 (3) STR 311
(Cal-HC)
*
On the basis of the above submissions, it can be concluded that as the representative
offices/ branches of M/s Intas cannot be treated as separate legal entities. Such representative
offices/ branches are to be treated as merely an extension of the head office and thereby there
cannot be transaction of any taxable service between head office and the representative
offices under section 65(105) of the Finance Act, 1994. I in the present case services
allegedly provided by the representative offices to M/s Intas are not specified under Section
65(105) of the Finance Act, 1994 as in Section 65(105) services provided by an inde pendent
service provider to another independent service provider are specified. M/s Intas submit that
since services allegedly provided by the representative offices/ branches are not specified
under section 65(105) of the Finance Act, 1994, the same cannot be taxed under section 66A
as to tax a service under section 66A the prime condition is that service must be a specified
under section 65(105) of the Finance Act, 1994. M/s Intas submit that since in the present
case services are not taxable under section 65(105) of the Finance Act, 1994 tax cannot be
charged on the same under section 66A of the Finance Act, 1994.
Section 66A of the Act has been introduced in line with international practices to charge the
tax on the services provided by overseas service provider to the domestic service receiver
under reverse charge mechanism. The intent of introducing such provision under the Act was
to prevent distortion of competition whereby the tax impact of the service would be neutral
irrespective of the place from where the service is received (within India or from outside
India). The said intent of the legislation has been clearly spelt out in the Letter F.No.
27
B1/4/2006-TRU, dated 19-4-2006 issued at the time of introduction of Section 66A. The
legislature never intended to tax the overseas operations of the Indian entities rather it
intends to tax the overseas service providers (who are based outside India) who provides the
services to any person based in India. In the view of the above submissions, M/s Intas
submit that the show cause notice is liable to be dropped on this ground alone.
to tax a service there must be a charge on the service. Section 66A is not a charging section.
Section 66A only deems the services recipient as service provider for the purpose collection
of tax. It is submitted that for collecting the service tax under section 66A charging section is
section 66. In this regard they relied on the Commissioner of Central Excise, Madurai, Trade
Notice No. 43/2008 (Service Tax No. 16/2008), dated 11.9.2008 which was issued on the
basis of CBEC letter issued from F. No. 345/1/2008-TRU dated 27-6-2008. From the above it
is evident that under section 66A tax can be collected only on such services which are
taxable under section 66 of the Finance Act, 1994. In the present case, show cause notice
proposes to charge the tax under taxable service of business auxiliary service which are
specified under (zzb). It is submitted that clause (zzb) covers the services provided by an
independent person to another independent person. In the present case services are not
taxable services and there is no charge on the services under section 66 of the Finance Act,
1994. Since there is no charge on the services under section 66, tax cannot be collected on
such services under section 66A of the Finance Act, 1994 also.
*
11.6 Demand of service tax on services availed by M/s Intas abroad and foreign service
providers have charged service tax/ GST/ VAT in foreign country. Tax cannot be levied once
again in India
*
The show cause notice has demanded service tax on certain services availed by M/s Intas
abroad on which the foreign service provider has already charged Service tax/ GST/ VAT as
may be applicable in that respective foreign country. M/s Intas have paid for the services
they have availed and also the tax charged by the service provider situated abroad.
Export of Services Rules and Import of Services Rules in India were in line with
international practices and once the services are deemed as consumed outside India, there is
no scope to levy tax again on the same services in India merely for the reason that the
payment has been made from India.
the services are received and consumed by the representative offices/ branches outside India.
Therefore, per se M/s Intas have not received/ imported any service in India. Therefore, in
terms of Section 64 of Finance Act, 1994 when the services are not received/ provided/
consumed in India, Service tax cannot be levied.
*
*
In view of this, M/s Intas submit that demand of service tax on services where
applicable GST/ VAT is already charged by the service provider abroad and services
rendered outside India is not liable to be taxed in India. Therefore, demand raised under
Annexure-B of the show cause notice is liable to be set aside.
*
11.7
no service tax can be levied on the demand raised under Annexure B pertaining to Foreign
bank Charges . The demand of Rs.73,76,026/-/- as computed in the show cause notice as
Annexure-B pertains to various category of services which is inclusive of category of
Foreign Bank Charges. The taxable amount of Foreign Bank Charges is Rs. 1,22,554/ - paid
by M/s Intas to the representative offices. The demand on the amount reimbursed for foreign
bank charges cannot be made taxable as per the clarifications given by the Board vide
Circular No. 163/14/2012-S.T., dated 10-7-2012, wherein it is clarified by the Board that in
case any fee or conversion charges are levied for sending such money they are also not liable
to service tax as the person sending the money and the company conducting the remittance
are located outside India In terms of the Place of Provision of Services Rules such services
are deemed to be provided outside India and thus not liable to service tax. The said principle
of the Board which is specifically applicable for the period post July 2012 is also applicable
for the period pre 2012 as the institutes dealing with the said foreign bank charges are located
outside India, therefore analysis drawn by the Board would also stand correct for the period
pre 2012.
The Entire Exercise is Revenue Neutral
*
since the entire transaction is revenue neutral, the show cause notice is liable to be dropped
for this reason also. it is settled law that when the entire exercise is revenue neu tral, there is no
28
question of demand of any duty pertaining to the demand which is revenue neutral. In this regard
they placed reliance on the following judgments of the Hon’ble Supreme Court wherein it has been
consistently held that once the exercise is proved to be revenue neutral, there is no question of
sustaining the duty demand:






Amco Batteries Ltd. Vs CCE 2003 (153) ELT 7 (SC)
International Auto Ltd. Vs CCE
2005 (183) ELT 239 (SC)
CCE Vs Narayan Polyplast Ltd.
2005 (179) ELT 20 (SC)
CCE Vs Narmada Chematur Pharma 2005 (179) ELT 276 (SC)
CCE Vs. Textile Corporation 2008 (231) ELT 195 (SC)
CCE Vs. Jamshedpur Beverages 2007 (214) ELT 321 (SC)
CCE Vs. Coca Cola India (Pvt.) Ltd. 2007 (213) ELT 490 (SC)
*
Rule 3 of the Cenvat credit rules, 2004 provides that a provider of taxable services shall be
allowed to take credit of the service tax leviable under section 66 of the Finance Act. This might
have meant that credit is not available of service tax paid under section 66A. In order to avoid such
a meaning, department issued a clarification vide para 4.2.13 of letter dated F. No. B1/4/2006 dated
19.4.2006. The relevant part of the letter reads as follows:“4.2.13 The treatment of the recipient of service, as the deemed service provider
under section 66A is only for the purpose of charging service tax on taxable
services received from outside the country. Services provided from outside India
and received in India, therefore, not treated as taxable service provided by the
recipient for the purpose of CENVAT Credit Rules, 2004. However, where such
service is used as an input for providing any taxable output, the service tax paid on
such service can be taken as input credit.”
This view of the board has been reiterated by Commissioner of Central Excise & Serv ice
Tax, Jamshedpur vide Trade Notice No. 21/JAM/2008 (S. Tax), dated 6.8.2008 and by
Commissioner of Central Excise, Madurai vide Trade Notice No. 43/2008 (Service Tax No.
16/2008), dated 11.9.2008. Moreover, due to confusion in the country with respect t o this issue, the
legislature has introduced sub-rule (ixa) to Rule 3(1) of the Cenvat Credit Rules, 2004 specifying
that a manufacturer of final products or provider of output service is allowed to take credit of
service tax leviable under Section 66A of the Act. This has been introduced vide Finance Act, 2011
with effect from 18.04.2006. Therefore, in light of the above, M/s Intas can take the credit of the
service tax paid under section 66A. In the present case since credit of service tax is available to M/s
Intas itself the exercise will be revenue neutral in view of the Judgement of the larger bench of the
Hon’ble Tribunal in the case of Jay Yushin 2000 (119) ELT 718 (Tri-LB) .
11.8
Service tax, if at all, is incorrectly calculated by the Department
*
the amount paid by M/s Intas is inclusive of the amount of service tax payable. In the case of
excise duty also, it has been held that the amount received should be taken as cum -duty price
and the value should be derived there from, by excluding the duty alleged to be payable as
required under section 4(4)(d)(ii) of the Central Excise Act, 1944.In support of this they
relied on the Larger Bench decision in the case of Sri Chakra Tyres reported in 1999 (108)
ELT 361. The said decision of the Larger Bench has been affirmed by the Hon’ble Supreme
Court as the departmental appeal has been dismissed vide Order dated 26th Feb. 2002
reported in 2002 (142) ELT A279 (SC). M/s Intas also relied on the Apex Court judgment in
the case of CCE v. Maruti Udyog Limited reported in 2002 (49) RLT 1 (SC), wherein it has
been held that the deduction under section 4(4)(d)(ii) is allowable, even in situations where
no duty was paid at the time of removal. Thus, for service tax calculation, the amount paid by
the service receiver should be considered as cum tax payment and service tax should be
calculated accordingly. The same principle is accepted in Service tax as held by Hon’ble
Tribunal in case of Advantage Media Consultant 2008 (10) STR 449 (Tri.-Kol) confirmed by
Hon’ble Supreme Court as reported in 2009 (14) STR J49 (SC). M/s Intas also relies on the
Trade Notice No.20/2002 dated 23.5.2002 of Delhi-II Commissionerate. Reliance is also
placed on the following judgments in this regard:
 ITW India Ltd. v. CCE - 2009 [14] S.T.R. 826
 Rajmahal Hotel v. CCE 2006 (4) STR 370 (Tri-Del)
 Gem Star Enterprises (P) Ltd. v. CCE 2007 (7) STR 342 (Tri.-Bang.)
 Panther Detective Services v. CCE 2006 (4) STR 116 (Tri.-Del.)
29

CCE Vs. Advantage Media Consultant 2008 (10) STR 449 (Tri.-Kol) affirmed by
Hon’ble Supreme Court 2009 (14) STR J49 (SC)
11.9 Extended period is not invokable. The demand is time barred for the period prior to
April 2011
*
*
As per section 73(1) of the Act, a Show cause notice can be issued at any time within one
year from the relevant date. Proviso to section 73(1) of the Act provides that show cause
notice can be issued at any time within 5 years from the relevant date, if service tax was not
paid or levied by reason of fraud or collusion or willful mis-statement or suppression of facts
or contravention of any of the provisions of the Act or Rules with intent to evade payment of
service tax. Thus, the extended period of limitation is applicable only if any of the
ingredients specified above exist. The show cause notice is dated 23.10.2012 whereas the
time period covered for the purpose of demanding service tax is April, 2007 to June, 2012.
Thus, the demand is time barred for the period prior to April, 2011. The show cause notice
has sought to invoke the extended period of limitation inter alia on the ground that M/s Intas
had intentionally and wilfully suppressed the facts of receiving specified taxable services
with the intent to evade payment of service tax. The Audit was carried out by the Department
for the period 01.04.2008 to 31.03.2010 for which an Audit Report No. 98/2011-12 dated
27.01.2012 was issued upon M/s Intas .
Under the said Audit Report, the remittances were
reflected in all annual reports and reflected in the books of accounts. The Service tax Returns
and records were audited by the audit parties for the period up to 09-10 and no objection on
the present issues were raised and/or any adverse remarks were made till March,
2010.Whatever the particulars were asked at the time of audit was furnished and it i s for the
department to call for the records if they have any doubt. M/s Intas were under bonafide
belief that the remittances made as per annual reports are correct and therefore no tax was
paid by them. Therefore, any vouchers escaped can not be challenged and recovery can be
initiated. It is also pertinent to note that inspite the Audit carried out at that point of time, no
show cause notice was issued upon M/s Intas. Under such circumstances, the extended
period of limitation is not invokable and the amount paid by M/s Intas to the Department at
the time of investigation is liable to be refunded with interest especially for the period till
March 2010. In support of their contention they relied on decisions in case of CCE
v.
A.P.S.M Study Centre reported at 2011 (24) S.T.R. 717 (T).
Annexure A of the show cause notice computes demand of Rs.1,36,87,773/- on the value of
Rs.12,71,81,047/-for expenditure made in foreign currency towards various taxable services
and service tax not paid by M/s Intas under Reverse Charge Mechanish during the period
2007 to 2012-13 (upto June) M/s Intas submit the details of service tax and interest as per
Annexure A for the period 01.04.2007 to 31.03.2010 is produced herein below which was
already audited by the Department on which no demand against M/s Intas is sustainable,
hence the amount paid by M/s Intas needs to be refunded back..
From 01.04.2007 to 31.03.2010
Service Category
Assessable
Service
Interest
Total
Value
Tax
Banking & Financial Service
29,262,965 3,072,129 2,058,328 51,30,458
Business Auxiliary Service
55,251,685 6,181,168 4,180,103 10361271
Legal Consultancy Service
3,141,356
323,560
216,342
539901
Market Research Agency Services
11.431.132 1,204,021 808,116
2012137
Online Information & Data Base 1,595,630
168,180
113,592
281772
Retrieval Services
Technical Inspection & Certificate 2,646,869
282,020
194,576
476595
Services
Total (upto March 2010)
103,329,638 11,231,078 7,571,057 18802135
From 01.04.2010 to 30.06.2012
Service category
Assessable
value
Business Auxiliary Service
7,878,328
Information Technology & Software 1,062,000
Service
Service
tax
811,468
109,386
Interest
Total
262,041 1073509
19,851 129737
30
Legal Consultancy service
1,287,285 132,590
42,494 175084
Online Information & data Base 13,229,736 1,362,663 374,760 1737423
Retrieval Services
Technical Inspection & Certificate 394,061
40,588
21,124 61712
Services
Total (from 10-11 to June 2013)
23,851,410 2,456,695 720,270 3176965
The Amount calculated in the above drawn tables show that for the period upto March 2010,
the Service tax as demanded by the Department comes to Rs.11,231,078 along with interest
Rs.7,571,057/-. The same needs to be refunded back by the Department as the amount was
for the period in which no invocation of extended period of limitation can be made.
*
Annexure B of the show cause notice deals with the amount pertaining to expenditure
reimbursed out of Imprest Money by representative foreign offices and service tax not paid
thereon by M/s Intas during the Financial Years 2007-08 to 2012-13 (upto June). M/s Intas
submit the details of service tax and interest as per Annexure B for the period 01.04.2007 to
31.03.2010 is produced herein below which was already audited by the Department on which
no demand against M/s Intas is sustainable, hence the amount paid by M/s Intas needs to be
refunded back.
From 2007-08 to 2009-10 (March 2010)
Category of Service
Service Tax
Interest
Total
Telecommunication
24,98,041
Prof & Legal Fees
3,51,243
Business Pro Exp
1159425
Bank Charges
86,902
Total (upto March 2010)
40,95,612
23,75,044
6470656
From 01.04.2010 – June 2012
Category of Service
Telecommunication
Prof & Legal Fees
Business Pro Exp
Bank Charges
Total (upto March 2010)
*
*
Service Tax
1150309
1014694
1079485
35926
3280414
Interest
Total
865012
4135342
The Amount calculated in the above drawn tables show that for the period upto March 2010,
the Service tax as demanded by the Department comes to Rs.40,95,612 along with interest
Rs.23,75,044/-. The same needs to be refunded back by the Department as the amount was
for the period in which no invocation of extended period of limitation can be made.
Annexure C of the show cause notice deals with the expenditure made in foreign currency
towards local staff salary (Foreign) which was reimbursed out of the Imprest money by
representative foreign offices and service tax not paid by M/s Intas under the category of
Business Auxiliary Service under Reverse Charge Mechanism during the years 2007 -08 to
2012-13. M/s Intas submit the details of service tax and interest as per Annexure C for the
period 01.04.2007 to 31.03.2010 is produced herein below which was already audited by the
Department on which no demand against M/s Intas is sustainable, hence the amount paid by
M/s Intas needs to be refunded back.
From 2007-08 to March 2010
Assessable Value
Service tax Interest
Total
34,84,629
4,15,014
From April 2010 – June 2012
Assessable Value
Service tax Interest
Total
93,69,568
9,87,808
The Amount calculated in the above drawn tables show that for the period upto March 2010,
the Service tax as demanded by the Department comes to Rs.4,15,014. The same needs to be
refunded back by the Department as the amount was for the period in which no invocati on of
extended period of limitation can be made.
Thus, the total demand of service tax amounting to Rs.1,57,41,702/- along with the interest
raised in the show cause notice under the three categories divided into Annexure A, B and C
of the show cause notice, is liable to be dropped as the said demand arise from the period
31
prior to March 2010 which was already audited by the Department and no show cause notice
was issued to M/s Intas for the same.
11.11 No suppression of facts by M/s Intas
*
M/s Intas have never suppressed any fact relating to the activities carried on by them with an
intention to evade payment of service tax. M/s Intas were under the bona fide belief that
service tax on the said activities is not payable based on the reasons mentioned a bove. M/s
Intas have not committed any positive act to suppress information from the department with
the intent to evade payment of service tax. In this regard M/s Intas rely on the judgments:
a.
M/s Anand Nishikawa Co Ltd Vs Commissioner of Central Excise, Meerut reported at
2005-TIOL-118-SC-CX,
b.
Padmini Products Limited v CCE reported at 1989 (43) ELT 195 (SC)
c.
CCE v. Chemphar Drugs & Liniments 1989 (40) ELT 276 (SC
d.
Gopal Zarda Udyog v. CCE 2005 (188) ELT 251 (SC) and
e.
Lubri-Chem Industries Ltd. v. CCE 1994 (73) ELT 257 (SC)
*
any contravention by M/s Intas have been solely on account of their bona fide belief that the
transaction in question did not attract service tax under both the categories. Such bona fide
belief was based on the reasons stated above. The contravention, if any, was not with the
intention to wilfully evade payment of service tax. Reliance is placed on the judgment of the
Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company v CCE reported at
1995 (78) ELT 401 (SC) and CCE v. Punjab Laminates Ltd. 2006 (202) E.L.T. 578 (S.C.).
*
M/s Intas have already deposited the service tax liability on such services received from
abroad as mentioned above. From the above, it is clear that M/s Intas were under a bona fide
belief that no service tax is payable on the transaction in dispute and therefore, had not paid
service tax. Further, M/s Intas were under the bonafide belief that no tax is to be paid for the
reimbursement of expenses made to the representative offices as the services were consumed
by the said offices located abroad. Therefore, the show cause notice is liable to be dropped
on this ground also.
11.12 The Issue involves interpretation of law
*
the issues raised in the show cause notice involves interpretation of complex provisions of
the service tax law. Therefore, in such a situation, the invocation of extended period of
limitation is not justified. M/s Intas relied on the following judgments in support of the
contention that suppression cannot be alleged when the matter involves interpretation of legal
provisions:
 Ispat Industries Ltd. v. CCE 2006 (199) ELT 509 (Tri.-Mum)
 NIRC Ltd. v. CCE 2007 (209) ELT 22 (Tri.-Del.)
 Chemicals & Fibres of India Ltd. v. CCE 1988 (33) ELT 551 (Tri.)
 Homa Engineering Works V. Commissioner Of C. Ex., Mumbai – 2007 (7) STR 546
(Tri – Mum)
 Jaihind Projects Ltd. v. CCE, [2010] 25 STT 196 (Tri-Ahemdabad)
*
11.13
*
Further, the entire exercise being revenue neutral, suppression of facts cannot be alleged
against M/s Intas. All information asked for by the department and has never suppressed any
information. Based on the reasons given above, it is submitted that the allegation of the
department that M/s Intas have suppressed the facts about their activities from the
Department, with an intention to evade payment of service tax, is incorrect. Hence, the
extended period of limitation cannot be invoked in the present case and the demand is time
barred.
Interest is not chargeable and penalties under Section 76, 77 and 78 are not imposable
Since no tax is recoverable, as stated in the foregoing paragraphs, the question of recovery of
interest does not arise. Therefore, the proposal in the show cause notice to recover interest is
liable to be dropped. M/s Intas were under a bona fide belief that the transactions in question
are not liable to service tax for the reasons discussed in the foregoing paragraphs and no
service tax is payable. For imposing penalty, there should be an intention to evade payment
of tax, or there should be suppression or concealment. The penal provisions are only a tool to
safeguard against contravention of the rules. M/s Intas had no intention to evade payment of
32
service tax as mentioned in the grounds above. Therefore, no penalty is imposable on them.In
support of the above view, reliance is placed on the decision of the Hon'ble Supreme Court in
the case of Hindustan Steel Ltd. v The State of Orissa reported in AIR 1970 (SC) 253. The
above decision of the Apex Court, was followed by the Tribunal in the case o f Kellner
Pharmaceuticals Ltd. Vs CCE, reported in 1985 (20) ELT 80, and it was held that
proceedings under Rule 173Q are quasi-criminal in nature and as there was no intention on
the part of the Noticee to evade payment of duty the imposition of penalty cannot be
justified. The ratio of these decisions applies in all force to the present case. In the present
case, there was no intention to evade payment of tax. In view of the foregoing, no penalty
can be imposed on M/s Intas. M/s Intas have never suppressed any fact with an intention to
evade payment of service tax. Therefore, penalty under section 78 of the Act cannot be
imposed. Even if penalty is imposable proviso to Section 78 of the Finance Act, 1994 is
attracted. M/s Intas submit that since amounts have been stated in the balance sheet and
amount declared in the Statement of Accounts, penalty of fifty percent (50%) can only be
imposed in view of amended Section 78 of the Finance Act, 1994. For ease of convenience
relevant part of Section 78 of the Finance Act, 1994 is reproduced herein-below:
Provided that where true and complete details of the transactions are
available in the specified records, penalty shall be reduced to fifty per cent of
the service tax so not levied or paid or short-levied or short-paid or
erroneously refunded:
*
In the light of proviso to Section 78 of the Finance Act, 1994 it is submitted that the penalty
if at all is imposable, it must not be more than 50% of the service tax not paid.Penalty under
section 76 cannot be imposed in the present case as there is no short payment of tax. The
present issue involves interpretation of complex legal provisions. Therefore, imposition of
penalty is not warranted in the present case. M/s Intas submit that it is a settled law that
penalty cannot be imposed if the issue involves interpretation of provisions.
11.14 No penalty can be imposed under Section 77 of the Act
M/s Intas has not contravened any provision and rules of the Act, as it filed the details as per
its own assessment of its liability. The show cause notice does not mention the irregularity which
has been committed in filing the return. It is submitted that in the absence of any irregularity
mentioned, penalty cannot be imposed. It is further submitted that Section 77 does not provide
penalty for incorrect filing of ST-3 returns. Therefore, the penalty under Section 77 cannot be
imposed.
11.15 Section 80 will apply in the present case
*
there was sufficient cause for M/s Intas in entertaining doubt that they were not liable to pay
service tax, and therefore, under Section 80 of the act, the penalty proposed on M/s Intas must be
dropped. They placed reliance on the judgment of Infinity Credit v. CCE 2009 (16) STR 61 (Tri.
Delhi). Therefore, there was reasonable cause for failure, if any, on part of M/s Intas to pay service
tax and to file service tax returns in proper format. Hence, in terms of section 80 of the Act, penalty
cannot be imposed under section 76 and 78 of the Act. In this regard, they also placed reliance on
the following judgments:
 ETA Engineering Ltd. vs. CCE, Chennai, 2004 (174) E.L.T 19 (Tri-LB)
 Flyingman Air Courier Pvt. Ltd. vs. CCE 2004 (170) ELT 417 (Tri.- Del.)
 Star Neon Singh vs. CCE, Chandigarh, 2002 (141) ELT 770 (Tri. - Del)
 C.N. Nayak v. CCE- [2010] 21 STJ 236 (Tri-Bangalore)
11.16 Penalty Under Sections 76 & 78 Not Imposable Simultaneously
*
The Finance Act, 2008 added a proviso to Section 78 with effect from 10.05.08. The said
proviso provides that if penalty is payable under Section 78, the provisions of section 76 will not
apply. Furthermore, even for the period prior to 10.05.2008, penalty cannot be imposed under both
sections 76 and 78 of the Act. The Punjab & Haryana High Court in the case of CCE, Chandigarh
Vs M/s Cool Tech Corporation 2011-TIOL-23-HC-P&H-ST, has held that the penalty under
Sections 76 and 78 are mutually exclusive and cannot be imposed simultaneously. In the case of
CCE v. Silver Oaks Gardens Resort 2008 (9) STR 481 (Tri.-Delhi) and CCE v. Pannu Property
Dealers 2009 (14) STR 687, the tribunal held that:
33
“The adjudicating authority had imposed penalty under both the provisions,
namely Section 76 and Section 78. Section 78 dealt with aggravated form of
default wherein the guilty mind was involved. Under Section 78, penalty twice
the amount of Service tax evaded could be imposed, while the minimum
imposable was an amount equal to the Service tax evaded. Under Section 76,
amount of service tax evaded has been imposed by way of penalty. Both these
penalties imposed together appear somewhat harsh….
…..No separate penalty is warranted under Section 76 of the Act in
view of
the penalty imposed under Section 78.”
Furthermore, in the case of Remac Marketing (P) ltd. v. CCE 2009 (13) STR 658 (Tri.
Kolkata), the tribunal considered that it has been consistently viewed by the Tribunal that
there should not be double penalty and therefore, waived off the penalty under Section 78.
*
Without prejudice to the submissions that no penalty is imposable on M/s Intas , they
submitted that penalty cannot be imposed more than 50% of service tax in terms of the
amended provisions of section 78 of the Finance Act, 1994 as complete details as available in
the specified records. Hence, the interest and the penalties that are sought to be imposed in
the show cause notice are liable to be dropped.
12. SUBMISSION MADE BY M/S INTAS DURING THE COURSE OF
PERSONAL HEARING HELD ON 26.11.2013:
M/s Intas was represented by Shri Jigar Shah, Advocate and Shri Kandarp Dholakia, DGM,
M/s Intas. They reiterated the submissions made vide their reply received on 25.11.13. They also
gave case laws in their favour at the time of personal hearing and requested to drop the SCN. They
requested 15 days time to furnish further submissions in this regard.
13.
No additional submission have been made by M/s Intas
14.
DISCUSSION AND FINDINGS:
14.1 I have carefully gone through the impugned show cause notice issued by the Additional Director
General, DGCEI with relied upon documents, assessee’s written submissions and other evidences
produced by them and record of personal hearing in the matter. Before going into details of the case, I
briefly summarize the issue as follows:
14.2 The main allegation in the show cause notice is that M/s Intas had not paid service tax under the
provisions of Section 66A inserted with effect from 18.04.2006 and Taxation of Services (provided from
Outside India and Received in India) Rules, 2006 on various services received from overseas countries
for which the payment was made by them in foreign currency.
14.2.1 A summary of the proposed demand raised by the show cause notice can be summarized as under:
Sr.
No.
Particulars
01.
Services
received from
Service
providers
situated outside
India
Reimbursement 73,76,026/of expenses by
foreign
representatives
office
to
foreign based
service
providers
02.
Demand
proposed
(Rs.)
1,36,87,773
Annexure of Service tax Interest
show cause paid (Rs.)
paid (Rs.)
notice
Annexure-A 1,36,87,773
82,91,327
Amount not
paid (Rs.)
Annexure-B
Nil
73,76,026
32,29,972
Nil
34
03.
Reimbursement 14,02,822/Annexure-C
of expenses by
foreign
representatives
office towards
salary
and
other
employees
benefits
Total
2,24,66,621/-
14,02,822/-
5,88,604
Nil
2,24,66,621/- 1,21,09,903 Nil
14.2.2 It is evident from Annexure A, B and C to the show cause notice that M/s Intas had, made
expenditure in foreign currency to the tune of totally Rs. 20,72,71,437/- (Rs.12,71,81,047/- +
Rs.6,72,36,193/- + Rs.1,28,54,197/-) towards various taxable services provided by various service
providers situated outside India, which were either reimbursed directly to the service providers situated
outside India by M/s Intas or reimbursed by their representative Branch offices and employees deployed
overseas out of IMPREST money remitted in foreign currency by M/s. Intas, as discussed hereinabove,
which are included under clause (iii) of Rule 3 of the Taxation of Services (Provided from Outside India
and Received in India) Rules 2006 where the import criteria is based on the location of the recipient of
the service. The said taxable services are provided from outside India to M/s. Intas, who is a resident of
India. M/s Intas , as a service recipient, is, therefore, liable to pay Service Tax to the tune of totally
Rs.2,24,66,621/- (Rs.1,36,87,773/- + Rs.73,76,026/- + Rs.14,02,822/-) leviable on various taxable
services as discussed hereinabove, under Reverse Charge Mechanism in terms of Section 66A of the
Finance Act, 1994 read with clause (iii) of Rule 3 of the Taxation of Services (Provided from Outside
India and Received in India) Rules 2006. M/s Intas have during the course of investigation made the
payment of Rs. 2,24,66,621/- alongwith interest amounting to Rs. 1,21,09,903/-.
14.2.3
It is further evident from the Show Cause Notice that the expenditures in foreign currency, as
accounted by M/s Intas under various heads and its taxability under Sub Section 65(105) of the Finance
Act, 1994 and the same are taxable under Section 66A of the Finance Act,1994 read with Rule 3(iii) of
the Taxation of (Service provided and received in India) Rule 2006 and are classified by the investigating
officer as under:Classification of service under sub Section 65(105) classifiable under Rule
Sr. No.
Taxable Service Head
3(iii) of Taxation of (Service provided
and received in India) Rule 2006
1
Banking and Financial service
(zm)
2
Business Auxiliary Service
(zzb)
3
Information Technology Software Service
(zzzze)
4
Telecommunication Service
(zzzx)
5
Legal Consultancy Service
(zzzzm)
6
Market Research Agency Service
(y)
Online Infromation and Database Retrieval
7
Service
(zh)
8
Technical Inspection and certification Service
(zzi)
14.2.4 All the aforesaid services are classifiable under Rule 3(iii) of Taxation of (Service provided from
outside India and received in India) Rules, 2006 i.e services received by a recipient in India
15. It is thus evident from the above that the subject show cause notice proposes to tax the services
provided by foreign based services providers on the grounds that the said services were ultimately
provided to M/s Intas . Since, the foreign based services providers do not have offices in India, demand of
Service tax has been made on M/s Intas as per the provisions of Section 66 A of the Finance Act, 1994.
Thus, the basic issue to be decided in the present case are:
(i) Whether the activities for which service tax is demanded from M/s Intas were actually in the
nature of taxable services as contemplated under the Finance Act,1994 and whether M/s Intas
were liable to pay service tax on these services alleged to have been received by them from
foreign service providers.
35
(ii) Whether various activities as classified under various services had taken place in foreign
countries or not, in other words whether such services are received in India or otherwise.
16.
I have gone through the submission made by M/s Intas in their defence reply dated 25.11.2013 in
this regard and observed that while denying allegations contained in the show cause notice they have
stated that Ahmedabad Commissionerate had no jurisdiction to adjudicate the present show cause notice
as Commissioner of Service Tax, Ahmedabad have no jurisdiction to adjudicate the services rendered
outside India and merely because an assessee has registered premises under one Jurisdiction, it does not
suo motu give authority to the said Commissionerate to assume jurisdiction over services provided in
different parts of the country or even beyond the territory of India. Similarly, merely because the service
provider or service receiver has an office located within one Jurisdiction, it does not suo motu give
authority for the said Commissionerate to assume jurisdiction. Therefore, they have stated that the present
show cause notice is null and ab initio void.
16.1 In this regard I find that the contention of M/s Intas is not correct. M/s Intas have entered in to
foreign currency transactions as discussed in the show cause notice from their office located in
Ahmedabad; that it is their usual place of business establishment and the said transaction carried out with
regard to receipt of various service in India from overseas countries. Therefore charge of service tax as
contemplated under Section 66A of the Finance Act, 1994 falls on the service recipient i.e. at their
Ahmedabad office which is their business establishment; that the said services are classifiable under Rule
3(iii) of Taxation of (Service provided from outside India and received in India) Rules, 2006 and
accordingly I find that there is no dispute that M/s Intas is liable to pay service tax on the said service.
Accordingly, I hold that Commissioner, Service Tax in whose jurisdiction the office of M/s Intas is
located is the proper officer for issue of show cause notice and adjudication of the same.
17.
Further, it is their submission that alleged taxable service has been provided/performed by the
foreign service providers outside India. The said service is used and consumed by M/s Intas outside India.
Hence, no service tax is applicable on the said services provided/performed outside India. In this regard I
observe that Rule 3(iii) Taxation of (Service provided from outside India and received in India) Rules,
2006 does not talk about the place of consumption of service, hence their submission is not acceptable.I
observe in their aforesaid defence they have relied upon clarification issued by Central Board of Excise &
Customs vide Circular F. No.36/4/2001-CX dated 08.10.2001; Trade Notice No.5/98-ST of the Indore
Commissionerate dated 14.10.1998; CBEC Notification No. 14/2002-CE (NT) read with Notification No.
16/2007-ST, Letter No. A. 11013/47/2004-Ad. IV, dated 14-9-2004 and Trade Notice No. 1/2000Service Tax dated 30.6.2000 issued by Commissioner of Central Excise, Pune Trade Notice No. 85/99,
dated 27-8-1999, the Madurai Commissionerate. They also relied on the case CCE Vs Dhiren Chemicals
2002 (139) ELT 3 (SC); Carborandum Co. V/s CIT (1977) 108 ITR 335 (SC) etc.
17.1
In this regard, however I observe that all the aforesaid circulars and citations are pertaining to the
period prior to introduction of Taxation of (Service provided from outside India and received in India)
Rules, 2006 and amendment/insertion of section 66A of the Finance Act,1994 hence their reliance is not
acceptable.
18.
With regard to the Foreign Bank Charges, it is the submission of M/s Intas that the demand on
the amount reimbursed for foreign bank chages cannot be made taxable as per the clarification given by
the Board vide Circular No. 163/14/2012-S.T dated 10.7.2012. M/s Intas have further re-iterated that the
said principle of the Board which is specifically applicable for the period post July,2012 was also
applicable for the period pre 2012 and on this ground alone the demand for service tax on foreign bank
charges deserved to be set aside. In this regard, it is observed that Circular No. 163/14/2012-S.T dated
10.7.2012 was issued by CBEC considering the fact that in the negative list regime, ‘service’ has been
defined in clause (44) of section 65B of the Finance Act 1994, as amended, which excludes
transaction in money. Thus, as the amount of remittance comprises money, the activity does not
comprise a ‘service’ and thus not subjected to service tax. Whereas in the instant case service tax has
been demanded on Foreign bank charges covered under Rule 3 (iii) of the Taxation of Services (Provided
from Outside India and Received in India) Rules, 2006 for the period 2007-08 (clause (zm) of Section 65
(105) of the Finance Act, 1994). Also, as the said taxable service is provided by the person in a country
other than India and received by the said assessee in India, they fall under the definition of a “person
liable for paying the service tax” as per Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994. Thus, the
circular referred to by M/s Intas has no relevance to the present case.
19.
It was further argued by M/s Intas that the entire exercise is revenue neutral. Hence, above show
cause notice is liable to be dropped on this ground alone; that services received by M/s Intas are used in
36
relation to manufacture and clearance of final products up to the place of removal; that the same is
covered under “means” part of definition of “input service; that M/s Intas have correctly availed credit. In
this regard they have relied upon the following cases: Amco Batteries Ltd. Vs CCE 2003 (153) ELT 7
(SC), International Auto Ltd. Vs CCE 2005 (183) ELT 239 (SC), CCE Vs Narayan Polyplast Ltd.2005
(179) ELT 20 (SC),CCE Vs Narmada Chematur Pharma 2005 (179) ELT 276 (SC), CCE Vs. Textile
Corporation 2008 (231) ELT 195 (SC), CCE Vs. Jamshedpur Beverages 2007 (214) ELT 321 (SC), CCE
Vs. Coca Cola India (Pvt.) Ltd. 2007 (213) ELT 490 (SC). It is further submitted by M/s Intas, that the
Cenvat Credit Rules have also been retrospectively amended to provide for Cenvat Credit for tax paid
under section 66A. A new category “(ixa)” has been added under sub rule (1) of Rule 3 of Cenvat Credit
Rules w.e.f. 18.4.2006. Hence, the entire exercise would become revenue neutral. In support of the above
submission, they placed reliance upon decision of the Hon’ble Supreme Court in Jay Yushin 2000 (119)
ELT 718 (Tri-LB).
19.1 In this regard I observe that in the case on hand it is not the dispute with regard to availability of
Cenvat Credit under Rule 2(l) of the Cenvat Credit Rules,2004 instead the issue on hand is related to non
payment of service tax on the various service received by M/s Intas from outside India. Since the
adjudicating authority cannot travel beyond the scope of show cause notice, I am unable to accept their
contention in this regard.
19.2 In this regard I place reliance on the following decisions. The Hon’ble CESTAT Banglore in the
case of ABB Ltd. Vs CCE Banglore reported as 2010 (10) STR 433 (Tri - Bang.) wherein in it was
decided that;Import of services - Liability of recipient - Demand confirmed as recipient of services - Service
recipient not liable for period before 18-4-2006 as per High Court order in 2009 (13) S.T.R. 235
(Bom.) - Impugned period being August, 2002 to June, 2006, demand for period before 18-4-2006
not sustainable - Appellant cannot be held as not knowing express provisions contained in Section
66A of Finance Act, 1994 and Rule 2(1)(d)(iv) of Service Tax Rules, 1994 for period after 18-42006 - Plea of limitation on ground of revenue-neutrality due to Cenvat credit entitlement, not
acceptable - Tax not paid deliberately but Department aware of nature of transactions from
agreements and ST-3 returns filed - Invocation of larger period not sustainable - Demand set aside
- Sections 66A and 73 ibid - Rule 2(1)(d) ibid. [paras 1, 8]
1. The appellants M/s. ABB Ltd., Bangalore (ABB) received services classifiable under
various categories such as Consulting Engineer, Business Auxiliary Service,
Commissioning and Installation, Online Information and Database Access, Maintenance
or Repair Service and Management Consultancy Service from foreign companies. Such
services were also received by group companies of ABB located abroad. The impugned
order confirmed demand of Service tax and education cess totaling Rs. 1,49,65,179/(Rupees One crore forty nine lakh sixty five thousand one hundred and seventy nine only)
against the appellant and applicable interest for the delay in payment of the tax. Vide the
impugned order, equal amount of penalty was imposed on ABB under Section 78 of the
Finance Act ‘94 (the Act) and also penalty at the rate of 200/- per day under Section 76 of
the Act. The appellant paid an amount of Rs. 80,97,088/- towards the liability found which
the Commissioner appropriated vide the impugned order. The period of dispute is from
August, 2002 to June, 2006. The demand has been raised invoking longer period under
proviso to Section 73(1) of the Act. That the liability against ABB, is found in terms of
Section 68(2) of the Act read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 as
recipient of service is the common case of the parties.
8. We have examined the plea of limitation raised by ABB in respect of demand for the
period April, 2006 to June, 2006. The case law relating to revenue neutrality and
limitation dealt with in the judicial authorities cited are to the effect that demanding duty
or cenvat credit, as the case may be, resulted in a revenue neutral situation if the assessee
was entitled to equal amount of Cenvat credit or duty exemption of the same amount as
credit taken. There was no reason for the appellant to suppress (liability to excise duty) as
it was entitled to have facility of modvat scheme. Extended period of limitation under
proviso to Section 11A(1) of the Central Excise Act was not invocable. We note that this
ratio was examined by a three member bench of the Supreme Court in CCE, Mumbai v.
Mahindra & Mahindra Ltd. - 2005 (179) E.L.T. 21 (S.C.). The Apex Court held that the
observation that the appellant was entitled to get the benefit of modvat scheme, therefore,
there was no justifiable reason for appellant to suppress any fact which appeared in the
Supreme Court’s decision in Amco Batteries Ltd. v. CCE - 2003 (153) E.L.T. 7 (S.C.) had
to be read in the context of facts and circumstances noticed in earlier paragraphs, in
addition to assessee being entitled to benefit of Modvat credit. It was held that availability
37
of Modvat credit to an assessee by itself was not conclusive or decisive consideration ; it
may be one of the relevant considerations for deciding applicability of proviso to Section
11A (1) of Central Excise Act, 1944. We find that the above ratio applies equally to
invocation of larger period for demand of Service tax not paid under Section 73(1) of the
Act. Since we cannot hold that ABB’s liability to tax on the services it received from
foreign companies during the period April, 2006 to June, 2006 was not known to it in view
of the express provisions contained in Section 66A of the Act and Rule, 2(1)(d)(iv), the
plea of limitation on the ground of revenue neutrality advanced cannot be accepted. It has
to be held that ABB chose not to pay tax deliberately. However, since the department was
aware of the nature of the impugned transactions as early as in July, 2005 from the
agreements furnished and tax paid from the S.T. 3 returns periodically filed by ABB as an
assessee providing taxable services, we find the claim that show cause notice dated 5-122007 could not have validly invoked longer period of limitation has to be sustained.
9. In the circumstances we find the entire demand not sustainable and consequently the
demand of interest as well as the penalty imposed. Accordingly we set aside the impugned
order and allow the appeal filed by ABB.
19.3 In the aforesaid decisions the demand of service tax on Import of service was held by CESTAT
while allowing appeal that appellant cannot be held as not knowing express provisions contained in
Section 66A of Finance Act, 1994 and Rule 2(1)(d)(iv) of Service Tax Rules, 1994 for period after 18-42006 - Plea of limitation on ground of revenue-neutrality due to Cenvat credit entitlement, not acceptable
- Tax not paid deliberately but Department aware of nature of transactions from agreements and ST-3
returns filed - Invocation of larger period not sustainable - Demand set aside - Sections 66A and 73 ibid Rule 2(1)(d) ibid.
19.3.1 In the instant case M/s Intas was aware that service tax is liable on various services discussed
above, however, they conveniently interpreted the provisions of section 66A of the Finance Act,1994 and
rules made there under and have suppressed the taxable value as tabulated in earlier para and Annexure A
to this show cause notice. The observation made by Hon’ble CESTAT in the aforesaid decision in the
case of M/s ABB Ltd is rightly applicable in the case on hand.
19.4 In another case Mahanagar Gas Ltd vs CCE Thane –II, reported as 2011(24)STR 376 (TriMumbai) Hon’ble CESTAT while deciding similar issue related to section 66A of the Finance Act,1994,
, not considered revenue neutrality defended by the appellant. In light of aforesaid discussions, their case
can not be considered revenue neutral.
19.5 Further the availment of Cenvat credit is subjected to various provisions of Cenvat Credit
Rules,2004. In the instant case M/s Intas have been charged with suppression of material fact and present
demand is issued under Proviso to Section 73(1) of the Finance Act, 1994. Rule 9(1)(bb) of Cenvat Credit
Rules,2004 clearly prohibits availment of Cenvat credit on account of suppression of facts. Accordingly
their claim in this regard is rejected.
It was further argued by M/s Intas that the computation of demand is incorrect in as much
as the consideration which M/s Intas has paid was inclusive of the service tax payable. In the case
of excise duty also, it has been held that the amount received should be taken as cum-duty price
and the value should be derived there from, by excluding the duty alleged to be payable as
required under Section 4 (4) (d) (ii) of the Central Excise Act, 1944. In support of this
submission, M/s Intas rely on the Larger Bench decision in the case of Sri Chakra Tyres 1999
(108) ELT 361; CCE vs. Maruti Udyog Limited 2002 (49) RLT 1 (SC). Thus, for service tax
calculation, the amount paid by the service receiver should be considered as cum tax payment
and service tax should be calculated accordingly. The above view is also supported by Trade
Notice No.20/2002 dated 23.5.2002 of Delhi-II Commissionerate. The above circular was given
legal recognition with Explanation 2 which was added to Section 67 of the Finance Act, 1994
with effect from 10.09.2004.
19.6
19.6.1 In this regard I find that aforesaid citations are pertaining to Central Excise matters and
not relevant to service tax matters. In the case of M/s Shakti Motors reported at 2008(12) STR
710(Tri. Ahmd.) wherein, it has been observed as under:
“I am unable to agree with the advocate that the amount realized has to be treated as
cum-tax value in view of the provision of Section 67(2) of Finance Act, 1994, which is
reproduced below for ready reference:-
38
“Section 67(2). Where the gross amount charged by a service provider, for the service
provided or to be provided is inclusive of service tax payable, the value of such taxable
service shall be such amount as, with the addition of tax payable, is equal to the gross
amount charged”.
In terms of the above provision if the invoice does not specifically say that the gross
amount charged includes service tax, it cannot be treated as cum-service tax price.
Therefore, in the absence of any evidence to show that invoices had indeed been prepared
in this manner, cum-tax value benefit cannot be extended.”
I find that M/s Intas have not placed anything on record that the payment was inclusive of Service
tax. Accordingly, I find that claim made by the said assessee in this regard is not correct and hold that
benefit of Cum-Tax value is not allowable to the assessee.
20
M/s Intas have in their defence reply also submitted that salary paid to the employees by their
representative offices /branches are not liable to service tax as; that activities carried out by their
employees at their branch/ representative offices located at overseas are not liable to be classified
anywhere in the Finance Act,1994, hence such an amount does not attract service tax.
20.1 In this regard I observe that M/s Intas have wrongly arrived at the said interpretation. In this
regard I would like to peruse Section 66A (2) of the Finance Act, 1994 which is as under:66A(2)Where a person is carrying on a business through a permanent establishment in India and
through another permanent establishment in a country other than India, such permanent
establishments shall be treated as separate persons for the purposes of this section.
Explanation 1.— A person carrying on a business through a branch or agency in any country
shall be treated as having a business establishment in that country.
Explanation 2.—Usual place of residence, in relation to a body corporate, means the place where
it is incorporated or otherwise legally constituted.]
20.1.1 In light of the aforesaid section I conclude that the overseas branch is a separate entity for the
purpose of Section 66A hence the reimbursement/ or whatever payment made by M/s Intas to their
branches includes salary of branch employees. What the branch is carrying out is marketing and
promotion of their products on their behalf. Accordingly, the activities of branch itself has to be seen
which I find is classifiable under the category of Business Auxiliary Service and hence show cause
notice has correctly demanded service tax under the said category. Hence I am unable to accept their
contention in this regard.
21
It is the submission of M/s Intas that the extended period of limitation is not invokable in the
present case as there was no suppression of facts with intent to evade payment of service tax. Therefore,
demand beyond period of normal limitation i.e. 1 year is barred by limitation. M/s Intas have submitted
that they were under a bonafide belief that they are not liable to pay service tax; there can be no allegation
of suppression of facts in the present case; therefore, the demand is hit by time bar. They have also
argued to the fact that period of limitation is not invokable in their case as the department had carried out
the audit of their records upto Mar’10 and that the remittances were reflected in all the annual reports.
21.1 In this regard I observe that the taxable value of service on which service tax demanded have
never been declared in the ST-3 returns filed by M/s Intas from time to time with the department, nor the
said service tax has been paid till the initiation of Investigation by DGCEI. Under the circumstances I
find that there exists suppression of material facts. Further, in some of the cases they are paying service
tax under this Reverse Mechanism. However, under the Self Assessment System of Assessment the onus
of correct application of the provisions of Finance Act,1994 and rules made there under are lies with M/s
Intas registered for payment of service tax. Therefore, I find that M/s Intas have failed to discharge their
onus in this regard by mis declaring/suppressing taxable value to the extent discussed in the impugned
show cause notice. As regards their contention that period of limitation is not invokable in their case as
the department had carried out the audit of their records upto Mar’10, I find that audit is a selective
exercise and it does not mean that each and every aspect relating to taxation has undergone scrutiny by
the department or each and every material fact becomes known to the department. Accordingly, I
observe that demand of service is correctly issued under proviso to section 73(1) of the Finance Act,1994
and I am unable to accept their contention in this regard.
21.1.1 As discussed above the charge of suppression is sufficiently alleged in the show clause notice and
is accordingly proved as discussed above, I cannot allow the benefit under Section 73(3) of Finance Act,
39
1994, as the proviso to the said section clearly mentioned that noting contain in section 73(3) of the
Finance Act,1994 shall be applicable in the case of Suppression of material facts etc., and instead I find
that their case is governed under Section 73(4) of the Finance Act,1994. Accordingly I am un able to
accept their submission and citation made in this regard.
22
With regard to the submission made by M/s Intas for non imposition of penalties under various
provisions, I have gone through the submission and various citations made by M/s Intas . I find, that I
have discussed and rebutted all the defence and submission point by point in para supra and accordingly
I find that entire demand is liable to be confirmed and charge of suppression of material facts have been
established. I find that M/s Intas have not produced any reasonable cause for failure to pay service tax.
This does not merit invoking Section 80 of the Finance Act, 1994 for waiver of penalty. I have already
discussed the issue of classification and taxability in the foregoing paras. Therefore, I consider it
appropriate to hold the said assessee liable to penalty under Section 76, 77 and 78 of the Finance Act,
1994.
23
Further I observe that M/s Intas have not paid Service tax of Rs.2,24,66,621/- on the due date
prescribed under Section 68 and Rules made there under I find that M/s Intas is liable to penalty under
Section 76 of the Finance Act, 1994 as proposed in the show clause notice. However as the present
demand is liable to be confirmed under proviso to Section 73(1) of the Finance Act,1994, I restrict
penalty under section 76 up to 09.05.2008 as from 09.05.2008 onwards no simultaneous penalties under
Section 76 and 78 can be imposed.
24
With regard to penalty proposed under Section 77 of the Finance Act, 1994 for proposed violation
of the provisions of Sections 68 & 70 of Chapter V of the Finance Act, 1994 read with Rules 4 and 7 of
the Service Tax Rules, 1994 I observe that assessee had not discharged service tax of Rs.18,09,69,236/as required to be paid under section 68 Finance Act,1994 read with Rule 4 of Service tax Rules 1994 and
had not declared taxable value on which the said service tax is demanded in the periodical returns requied
to be filed under Section 70 of the Finance Act,1994 read with Rule 7 of Service Tax Rules,1994 I held
them for penalty under Section 77(2) as there is no specific penalties prescribed for such violation under
Section 77(1) of the Finance Act,1994.
25.
In light of aforesaid discussion I pass following order.
ORDER
i.
ii.
iii.
iv.
v.
I confirm the demand of Service Tax to the tune of totally Rs.2,24,66,621/- (Rs.1,36,87,773/- +
Rs.73,76,026/- + Rs.14,02,822/-) (Rupees Two Crore Twenty Four Lakh Sixty Six Thousand Six
Hundred and Twenty one only) leviable on Expenditure in Foreign Currency totally amounting to
Rs.20,72,71,810/- (Rs.12,71,81,048/- + Rs.6,72,36,565/- + Rs.1,28,54,197/-) incurred towards
various taxable services provided by the various service providers situated outside India during
the Financial Years 2007-08 to 2012-13 (up to June), under proviso to Section 73(1) of Chapter V
of the Finance Act, 1994, as detailed in Annexures ‘A’, ‘B’, and ‘C’ of SCN against M/s Intas
Pharmaceuticals Ltd.;
I order to appropriate an amount of Rs.2,24,66,621/- (Rupees Two Crore Twenty Four Lakh Sixty
Six Thousand Six Hundred and Twenty one only) voluntarily paid by them after initiation of
inquiry by DGCEI, as detailed in paras 10.1.1, 10.2.1 and 10.3.1 of the show cause notice against
evaded Service Tax as demanded and confirmed at S. No. (i) hereinabove;
I order that M/s Intas Pharmaceuticals Ltd., should pay the interest for delay in payment of
Service Tax which was not paid as mentioned at S. No. (i) hereinabove, under Section 75 of
Chapter V of the Finance Act, 1994;
I appropriate an amount of totally Rs.1,21,09,903/- (Rs. 82,91,327/- + Rs.32,29,972/- +
Rs.5,88,604/-) (Rupees One Crore Twenty One Lakh Nine Thousand Nine Hundred and three
only) voluntarily paid by them after initiation of inquiry by DGCEI as detailed in para No. 10.1.1,
10.2.1 and 10.3.1 in the show cause notice against interest recoverable from them as confirmed at
S. No. (iii) hereinabove;
I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon M/s Intas Pharmaceuticals
Ltd., per day or at the rate of 2% of the service tax amount per month, whichever is higher, under
the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay Service Tax
and Education Cess within the stipulated period as required under the provisions of Section 68(1)
of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1944, as amended. The
penalty under the Section 76 should be calculated upto 09.05.2008 in view of amendment under
Finance Act, 2008. As the actual amount of penalty could be depending on actual date of payment
40
vi.
vii.
of service tax, however, as per Section 76 of the Finance Act, 1994, penalty will be restricted to
the above confirmed amount of service tax liability.
I impose a penalty of Rs.10000/- [Rupees Ten thousand only] for failure to pay Service Tax by
due dates and not furnishing the information in respect of taxable services received from abroad
and taxable value thereof in prescribed periodical ST-3 returns and for contravention of the
provisions of Sections 68 & 70 of Chapter V of the Finance Act, 1994 read with Rules 4 and 7 of
the Service Tax Rules, 1994, should not be imposed upon them under Section 77 of Chapter V of
the Finance Act, 1994;
I impose a penalty of Rs. 2,24,66,621/- (Rupees Two Crore Twenty Four Lakh Sixty Six
Thousand Six Hundred and Twenty one only) on M/s Intas Pharmaceuticals Ltd. under Section
78 of Chapter V of the Finance Act, 1994. In the event of the said assessee opting to pay the
amount of service tax along with all other dues as confirmed and ordered to be recovered, within
thirty days from the date of communication of this order, the amount of penalty liable to be paid
by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the
benefit of reduced penalty shall be available only if the amount of penalty is also paid within the
period of thirty days from the communication of this order, otherwise full penalty shall be paid as
imposed in the above order;
( Tejasvini P. Kumar)
Commissioner, Service Tax,
Ahmedabad.
BY R.P.A.D.
F.NO.STC/4-56/O&A/DGCEI/12-13
Date :
.01.2014
To,
M/s Intas Pharmaceuticals Ltd.,
2nd Floor, Chinubhai Centre,
Ashram Road, Ahmedabad-380009
Copy to:
(1)
(2)
(3)
(4)
(5)
The Additional Director General, AZU,DGCEI, 1st Floor Prima Chembers, Mithakhali,
Ahmedabad for Information please.
The Chief Commissioner, Central Excise, Ahmedabad Zone, 7th Floor, Central Excise Bhavan,
Ahmedabad for information please.
The Deputy Commissioner of Service Tax, Division II, Ahmedabad, for information and
necessary action,
The Superintendent of Service Tax, A.R.I , Division II Ahmedabad for information.
Guard file.