Department Should Not Have Invoked The Extended Time Period For Issuance Of Second Show Cause Notice Demanding Service Tax: CESTAT

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the second show cause notice should have been for a normal period of demand and the department should not have invoked the extended time period for demanding service tax.

The bench of C.L. Mahar (technical member) has observed that a show cause notice has been issued on March 20, 2009, demanding the duty for the period April 2007 to March 2008 by invoking a larger period of limitation under Section 73 (1) of the Finance Act, 1994. The first show cause notice was issued on March 17, 2008, invoking a period of five years.

The appellant/assessee is engaged in the business of manufacturing and exporting garments. The department initiated an inquiry and came to know that the appellant had appointed some agents in foreign countries for the promotion, marketing, and sale of their goods in foreign countries on payment of brokerage or commission.

The department formed the view that the appellant has been receiving service from foreign agents for which they have not discharged the service tax liability as per the provisions of the Finance Act, 1994.

The department contended that, with regard to the Business Auxiliary Service, the appellant should have paid service tax on the services received by him from persons based outside India.

The assessee contended that the adjudicating authority has dropped the demand for the period 01.07.2003 to 18.04.2006 on the ground that the provision of Section 66 A of the Finance Act, 1994, came into operation only on April 18, 2006. The appellant was not aware of the concept of reverse charge, which came into effect on April 18, 2006, and during the relevant period of time, there was a lot of confusion regarding the payment of service tax under the reverse charge mechanism.

The tribunal noted that the second show cause notice dated March 20, 2009 is beyond the normal period of limitation, and therefore, the matter is remanded back to the original adjudicating authority to re-adjudicate the matter in view of the above observation and confirm the service tax for the normal period of demand as provided under Section 73 (1) of the Finance Act, 1994.

Case Title: Messrs Aarvee Denims & Exports Ltd Versus C.S.T.-Service Tax - Ahmedabad

Case No.: Service Tax Appeal No. 10370 of 2014-SM

Date: 12.05.2023

Counsel For Appellant: Amal Dave

Counsel For Respondent: Bina D Jani

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