Service Tax Appeal No. 403 of 2012
(Arising out of OIA-CS/35-36/SRT-II/2012 dated 14/05/2012 passed by Commissioner of
Central Excise, Customs and Service Tax-SURAT-II)
Chiron Behring Veccines Private Limited
VERSUS
C.C.E. & S.T.-Surat-ii
APPEARANCE:
Shri Sanjeev Nair, Advocate for the Appellant
Shri G.Kirupanandan, Assistant Commissioner (AR) for the Respondent
CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON’BLE MEMBER (TECHNICAL), MR. RAJU
Final Order No. A/ 10211 /2023
DATE OF HEARING: 06.10.2022
DATE OF DECISION: 06.02.2023
RAMESH NAIR
The brief facts of the case are that the appellant have received
franchise service from CB GmbH for manufacture of rabies vaccine at its
plant located in Gujarat for manufacture and sale of rabipur vaccines the
appellant entered into a license agreement dated 01.06.1998 with Chiron
Behring GmbH & Company wherein the appellant would be granted an
exclusive and non transferrable license to manufacture rabipur. The
appellant would remit royalty @ 5% on the domestic sales to CB GmbH. The
appellant voluntarily applied for service tax registration as recipient of
service under the taxable category of franchise service on 28.04.2008. As
the license agreement was entered with the appellant Mumbai office and
payments for the said service were also made from Mumbai office, the
appellant registered itself with jurisdictional service tax authority of head
office which is Service tax Commissionerate Division – III Mumbai. The
appellant suo moto discharged the service tax liability from 16.06.2005
onwards on 07.05.2008.However the appellant was of the bona-fide belief
that the value of service on which service tax is computed should be taken
on net royalty amount remitted to CB GmbH after deducting TDS on gross
royalty as per Income Tax Act. Subsequently, an investigation was initiated
on 09.01.2009 by the preventive team of the Surat- II Commissionerate
wherein the appellant was requested to submit details of service tax
discharged under Reverse charge on franchise service received. The
appellant during the course of investigation paid the balance service tax of
- 17,17,373/- on the value of TDS deducted from royalty for the period
16.06.2005 to 28.02.2009 along with interest. Pursuant to aforesaid
investigation, show cause notice dated 12.11.2009 was issued alleging short
payment/non payment of service tax on gross royalty amount from
01.01.2005 to 15.06.2005 and also on TDS component an amount of Rs.
17,17,373/- for the period 16.06.2005 to 28.02.2009. The adjudicating
authority confirmed the demand vide order in original dated 19.05.2011.
Being aggrieved the appellant preferred an appeal before the Commissioner
(Appeals). The learned Commissioner (Appeals) vide order-in- appeal dated
14.05.2012 partly dropped the demand of service tax pertaining for the
period prior to 18.06.2006 i.e. 01.01.2005 to 17.04.2006 and upheld the
balanced demand of Rs.13,43,989/- for the period 18.06.2006 to
28.02.2009 on TDS component. Hence the present appeal.
Shri Sanjeev Nair, Learned Counsel appearing on behalf of the
appellant reiterates the grounds of appeal. He further submits that the show
cause notice and the impugned order is issued without authority and lacks
jurisdiction for the reason appellant have been paying the service tax under
the registration of their head office, Mumbai. Therefore, for any short
payment the show cause notice should have been issued by the
Jurisdictional Commissionerate of Mumbai office. He further submits that the
arrangement between CBV and CB GmbH does not qualify as franchise
service. In this regard he submits that the services rendered by CB GmbH
vide the agreement does not qualify as franchise service and hence not
taxable under service tax category of franchise service. The agreement
demonstrates that the same relates to grant of exclusive non transferrable
license to manufacture product in the licensed manufacturing territory and
there is no grant of right to representation in any manner whatsoever to
CBV as a Franchisee. CBV paid service tax on the royalty payments for the
period 16.06.2005 to 28.02.2009 under the bona fide mistake that the
services qualify as franchise service. Based on the agreement entered into
between the appellant and CBGMBH the service rendered thereof as
compared to the relevant provision of the taxable category of franchise
service, the services of grant of license to manufacture the product would
not be covered under the ambit of taxable services category of franchise
services. He further submits that there is no suppression of fact on the part
of the appellant as the issue on merit was under litigation that whether in
case of receipt of service from abroad, the recipient is liable to service tax.
Therefore, in such case extended period could not have been invoked. He
further submits that the appellant have paid the service tax much before the
issuance of show cause notice along with interest therefore, the extended
period was not invokable.
2.1 He further submits that since entire service tax amount and interest
paid prior to issue of show cause notice, no show cause notice should have
been issued in terms of section 73 (3) of Finance Act, 1994. Therefore, no
penalty can be imposed. He also submits that the benefit of Section 80 of
Finance Act, 1994 should be admissible to the appellant. In support of his
above submission he placed reliance on the following judgment:
Commissioner Vs. Ores India Pvt Ltd – 2008 (12) STR 513 (Tri.)
Metlex India Pvt. Ltd – 2004(165) ELT 129 (SC)
Bhagyalakshmi Poha Industries Vs. CCE , Bangalore – 2008 (231) ELT
627 (Tri.- Bang)
Singareni Colleries Co Ltd Vs. Collector Of C. Ex – 1988 (37) ELT 361
(CEGAT)
South India Carbonic Gas Industries Vs. CCE – 1994 (72) ELT 168
Steelcast Ltd Vs. Commissioner of C. Ex, Bhavnagar – 2009 (14) STR
129
Administrative Staff College of India Vs. C.C & C.E, Hyderabad –
2009 (14) STR 341 (tri. Bang.)
Diebold Systems (Pvt.) Ltd vs. Commissioner of Service tax, Chennai
– 2008 (9) STR 546
Onward e- Services Ltd Vs. Commissioner of Service Tax, Mumbai- II-
2019 (21) GSTL 167
Rinder Tools India Pvt Ltd – 2017 (48) STR 154 (Tri.- Mumbai)
CCE Nashik Vs. Vinay Bele & Associates – 2008 (9) STR 350 (Bom.)
JKD Popat vs. CCE, Nashik – 2008 (9) STR 54
MR Bhagat v. CCE Nashik- 2008 (10) STR 130
CCE Coimbatore Vs. T. Stanes and Co. – 2008 (12) STR 236
Shri G.Kirupanandan, Learned Assistant Commissioner (AR) reiterates
the finding of the impugned order.
We have carefully considered the submission made by both sides and
perused the records. Before going into the merit of the case that is the
jurisdiction issue and taxability, we find that the appellant have made a
submission about limitation and sought benefit of section 73 (3) and Section
80 of the Finance Act, 1994. As regard the limitation we find that the issue
about taxability on reverse charge basis in respect of service received from
foreign based service provider was not free from doubt as the issue was
finally decided by the Hon’ble Supreme court in a landmark judgment in the
case of Indian National Shipowners Association. Moreover the appellant have
paid the entire service tax even for the period prior to its levy i.e. before
18.04.2006 and the appellant have filed ST-3 returns wherein details of
payments have been declared. In this fact we are of the view that demand
for the extended period is not sustainable. We further find that the appellant
alternatively claimed the benefit of Section 73 (3) of finance Act, 1994 on
the ground that the entire service tax along with interest paid prior to show
cause notice. Considering this position we are of the view that the demand
for extended period is not sustainable hence the same is set aside. Demand
for the normal period if any, is sustained along with interest. However, in the
facts and circumstances of the case the penalties are not sustainable hence
the same is set aside. Since we have considered appellant’s submission on
the point of Section 73 (3) we are not going into other issue such as
jurisdiction and taxability.
Accordingly, the impugned order is modified to above extent. The appeal is
partly allowed.
(Pronounced in the open court on 06.02.2023 )
RAMESH NAIR
MEMBER (JUDICIAL)
RAJU
MEMBER (TECHNICAL)
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