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

The Customs, Excise, and Service Tax Appellate Tribunal in the case Messrs Aarvee Denims & Exports Ltd Versus C.S.T.-Service Tax – Ahmedabad, wherein the Allahabad bench observed and has held that the second show cause notice should have been for a normal period of demand and in the case the department should not have invoked the extended time period for demanding service tax.

The bench headed by Technical Member, C.L. Mahar in the case observed that a show cause notice has been issued on 20.03.2009, wherein the court demand the duty for the period which is from April 2007 to March 2008 by invoking a period of limitation under Section 73 (1) of the Finance Act, 1994. Therefore, the court issued the first show cause notice was issued on 17.03.2008 wherein invoking a period of five years.

In the present case, the appellant or assessee is engaged in the business of manufacturing and exporting garments and an inquiry is initiated by the department 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.

Therefore, the department in the case 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 stated under the Finance Act, 1994.
It has also been contended by the department in the case that, with regard to the Business Auxiliary Service, the said appellant should have paid service tax on the services received by him from persons based outside India.

Therefore, it has also been contended by the assessee while 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 18.04.2002. Thus, in the case the appellant was not aware of the concept of reverse charge, which came into effect on 18.04.2006 and during the relevant period of time, there was a lot of confusion regarding the payment of service tax under the reverse charge mechanism.

Further, the Tribunal in the case noted that the second show cause notice dated 20.03.2009 being 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 as stated under Section 73 (1) of the Finance Act, 1994.