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Amway India Enterprises Pvt. Ltd. v.  C.C.E., New Delhi - (Customs, Excise and Service Tax Appellate Tribunal) (06 Feb 2017)

Suppression (intentional and deliberate) cannot exist when relevant fact forming basis of demand already within knowledge of department


Service Tax

Appellant is a wholly owned subsidiary of Amway Corporation, USA and is engaged in business of direct selling of products in different segments. Service Tax Department conducted audit of books of accounts in premises of Appellant. During course of audit, it was detected that, Appellant had not paid service tax on expenditure incurred in convertible foreign exchange on account of taxable services namely, "Intellectual Property Service' and 'Business Auxiliary Services' received from the associate company M/s. Amserve. Appellant agreed with audit objection and deposited Rs. 46,08,759/- and Rs. 1,60,68,000/- respectively. Further, audit team also observed that, Appellant had not paid service tax of Rs. 8,01,78,254/- under taxable category of 'Franchise Service' in respect of income earned by it during the period October' 2003 to March' 2007 under heads of accounts namely, 'Joining and Business Fee', 'Business Renewal Fee' and 'Back to Future Fee'. On basis of audit objection, Department issued Show Cause Notice. Service tax demand was confirmed along with interest under taxable category of 'Franchise Service' by invoking extended period of limitation under proviso to Section 73(1) of Finance Act, 1994. Besides, penalties were imposed. Feeling aggrieved with impugned order, Appellant has filed this appeal before the Tribunal.

Suppression (intentional and deliberate) can never be said to exist when material and relevant fact forming the basis of the demand were already within the knowledge of the department. Accordingly, the pre-conditions for applicability of the proviso to Section 73(1) of Act, cannot be said to be made and in such eventuality, the extended period of limitation cannot be invoked and the demand to be confined to the normal period of one year.

Consistent position of law with regard to applicability of the proviso to Section 73(1)/Section 11A  has been that suppression cannot be established where material facts were within the knowledge of the Revenue. Accordingly, where there is no suppression, the precondition for applicability of proviso to Section 73(1) cannot be said to be met and hence, extended period of limitation contemplated therein cannot be invoked. On contrary, where ingredients for invoking proviso to Section 73(1) are established or admitted and thus pre-conditions for applicability of such proviso stands satisfied, and only in such cases, period of 5 years is required to be computed from date when the evasion came to the knowledge of the Department. In case in hand, since modus operandi adopted by Appellant for selling its products were known to the Department and based on the information/documents furnished by the appellant in 2005, show cause proceedings were initiated by the Department on 12.03.2009, seeking confirmation of service tax demand under 'Franchise Service' for the period October' 2003 to March' 2007, Tribunal viewed that the proceedings are barred by limitation of time.

Section 67 lays down provisions dealing with valuation of taxable service. In this regard, 'gross amount charged' had been defined to include payments by cheque, credit cards, and other forms of payments by debit notes or credit notes. Definition of gross amount charged was amended w.e.f. 10th May, 2008 in order to provide that in case of transaction between 'associated enterprises', any amount debited or credited in the books of accounts of the person liable to pay service tax would also be included as 'gross amount charged'. Consequently, an amendment was also made to Rule 6 of the Service Tax Rules, 1994 whereby the explanation was inserted w.e.f. 10.05.2008, declaring that in case of transactions between associated enterprises, payment received for taxable service would include any amount debited or credited in the books of accounts liable to pay service tax.

Amount of Rs. 7,38,61,083/- and Rs. 23,24,00,000/-, reflected in books of accounts of Appellant as outstanding as on 10th May, 2008, were towards services received from abroad from the associated companies. Since on date of amendment of Section 67  and Rule 6, such amounts were reflected under outstanding receipts, Appellant is liable to pay service tax on such amount under reverse charge mechanism as per Section 66A . Therefore, service tax amounting to Rs. 46,08,759/- and Rs. 1,60,68,000/- paid by Appellant and appropriated in impugned order are in conformity with the service tax statute. Since, appellant had delayed in making such payment, interest amount thereon are required to be paid, since same is compensatory in character. Tribunal partly allowed the appeal and set aside impugned order to extent of confirmation of service tax demand of Rs. 8,01,68,254/- along with interest and imposition of penalties under 'Franchise Service'.


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