TECH MAHINDRA LTD. Vs. COMMISSIONER OF C. EX.
LAWS(CE)-2015-1-144
CUSTOMS EXCISE AND GOLD(CONTROL) APPELLATE TRIBUNAL
Decided on January 08,2015

Tech Mahindra Ltd. Appellant
VERSUS
COMMISSIONER OF C. EX. Respondents


Referred Judgements :-

COMMISSIONER OF CENTRAL EXCISE,VISHAKHAPATNAM V. MEHTA & CO. [REFERRED TO]
V D M R M M R M MUTHIAH CHETTIAR VS. COMMISSIONER OF INCOME TAX MADRAS [REFERRED TO]


JUDGEMENT

P.R.CHANDRASEKHARAN, J. - (1.)THE appeal is directed against Order -in -Original No. 06/PIII/ST/COMMR/2 -12 -13, dated 4 -7 -2012 passed by the Commissioner of Central Excise, Pune -III Commissionerate. Vide the impugned order, the learned adjudicating authority has confirmed a service tax demand of Rs. 3,93,19,650/ - along with interest thereon under the provisions of Chapter V of the Finance Act, 1994 against the appellant M/s. Tech Mahindra Ltd. in respect of the services received by them from abroad for which payments were made by the appellant.
(2.)The authority has also imposed penalties of Rs. 5,000/ - and Rs. 3,93,19,650/ - under the provisions of Sections 77 and 78 of the Finance Act, 1994. Aggrieved of the same, the appellant is before us. The brief facts relating to the case are as follows:
2.1 The appellant entered into an agreement with M/s. MBT International Inc., USA on 3 -1 -2005 for development of their business of IT software, mainly in the telecom sector. As per the agreement, the foreign entity was required to carry out sales promotion and marketing activities on behalf of the appellant, perform administrative support functions such as order processing, customer credit review, customer invoicing, etc., discuss and negotiate business proposals and contracts with clients in USA, facilitate communication between the appellant and its clients or prospective clients on various matters and so on. For the services rendered, the appellant was required to remunerate MBT International Inc., in a sum equal to 4% of the service charges billed on the foreign client. The said agreement and the payments made thereon were not intimated to the department by the appellant. However, the matter came to light when the audit of the records was conducted by the department in July, 2010 and thereafter. During the course of the audit, it was noted that the appellant had made payments for the services received from abroad during the year 2005 -2006 and 2006 -2007.

2.2 The appellant was called upon to furnish the details of the payments made in this regard which was furnished by them vide letters dated 5 -1 -2011 and 7 -1 -2011. Consequently, a show cause notice dated 8 -4 -2011 was issued proposing to demand service tax amounting to Rs. 3,93,19,650/ - along with interest thereon under the provisions of Sections 73 and 75 of the Finance Act, 1994 and to impose penalties on the appellant under Sections 76 and 78 of the said Finance Act, 1994. The said notice was adjudicated vide the impugned order and the proposals in the show cause notice were confirmed. Aggrieved of the same the appellant is before us.

(3.)THE learned counsel for the appellant submits that the appellant was under the bona fide belief that they were not liable to service tax on the services received from abroad since the same was in relation to information technology services provided by them to their clients situated abroad. Since during the material period there was no service tax on 'Information Technology Services', they were under the bona fide belief that they were not required to pay service tax on the services received from abroad in respect of 'Business Auxiliary Services'. It is further contended that the Director General of Central Excise Intelligence investigated the transactions of the appellant in respect of various services received during the period from 19 -4 -2006 to 31 -3 -2008 and a show cause notice dated 10 -3 -2010 was issued to the appellant in respect of various services, namely, Commercial Training or Coaching Services, Manpower Recruitment or Supply Agency Services, Interior Decorator Services and Business Support Services. Thus, the department was aware of the receipt of services under the category of 'Business Auxiliary Services' also. However, the same was not included in the show cause notice dated 10 -3 -2010 and another show cause notice dated 8 -4 -2011 has been issued after a gap of more than a year. It is also contended that the fact of payment of consideration for the services rendered is included in the balance sheet for the corresponding years and these balance sheets had been submitted to the department. The show cause notice also records the fact that the supplementary notes to the financial statements to the annual report of 2005 -2006 and 2006 -2007 indicate the payments made in foreign currency to their foreign group companies, who acted as commission agents. The only reason taken by the department in the show cause notice is that the assessee had not reported these payments made in the ST -3 returns for the corresponding period. It is their contention that in the ST -3 returns there is no column or provision for indicating the payments or considerations for services received from abroad during the material period and, therefore, there was no requirement on the part of the appellant to submit this information to the department.
3.1 Reliance is placed on the decision of the Hon'ble Apex Court in the case of Muthiah Chettiar v. Commissioner of Income Tax - : (1969) 74 ITR 183 wherein it was held that if the returns do not provide for disclosure of information and the information is not provided, it cannot be held that the assessee has withheld material fact necessary for assessment and in such case, the extended period of time cannot be invoked. According to the counsel, the ratio of the above decision applies to the facts of the present case.

3.2 Lastly, it is submitted that there was lot of confusions about the liability to pay service tax on reverse charge basis under Section 66A of the Finance Act, 1994 and the position become clear only after the decision of the Hon'ble Bombay High Court in the case of Indian National Shipowners' Association on 11 -12 -2008 reported in : 2009 (13) S.T.R. 235 wherein it was held that the liability to pay service tax on reverse charge basis is effective only from 18 -4 -2006, after enactment of Section 66A and not prior to that date under the provisions Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. Therefore, there was sufficient reason for non -disclosure of information during the material period and hence, the adjudicating authority should have invoked the provisions of Section 80 and waived the penalties leviable under Sections 76, 77 and 78 of the Finance Act, 1994. Accordingly, the learned counsel pleads for setting aside the impugned demands and also the penalties imposed.

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