By TIOL News Service

NEW DELHI, APR 06, 2015: A common order-in-original was passed by the Commissioner of Service Tax, Delhi confirming Service Tax demands of Rs.60.11Crores, Rs.47.25 crores and Rs. 2.29crores respectively with crores of penalty and interest.

Incidentally, when the matter came up in appeal before the CESTAT, the AR reiterated the grounds contained in the impugned order and added that the case may be remanded.

The Tribunal liberally extracted paragraphs from the order-in-original.

The reason- It is admittedly unusual to copiously and verbatim quote paragraphs after paragraphs from the adjudication order. However, it was felt necessary in the present case to do so to drive home the point that the adjudicating authority has been highly and conspicuously non-speaking, non-reasoned, arbitrary and cavalier while passing the impugned order. Non-application of mind (on the part of the adjudicating authority) is indeed writ bold and large across the impugned order.

The CESTAT, thereafter, gave its observations and finding on various components of the demand as below –

Travelling expenses component of foreign currency expenditure

++ The adjudicating authority's "analysis" in para-67 is nothing more than a verbatim reproduction of appellants' submission quoted earlier and no finding is recorded about the taxability. Yet the demand in respect of such expenses is confirmed.

++ Thus, in spite of noting that these expenses were on foreign trips of employees, the adjudicating authority states "but still no service tax has been paid by the party" without even mentioning for which taxable service. This is shoddy. In any case, the reimbursements made towards travelling expenses are not liable to service tax as there is no evidence that the same are in relation to any taxable service .

"Advertising and Marketing Expenses" in Foreign Currency

++ Paras 68, 69 and 70 are verbatim reproduction of the appellants' submissions, paras 71 and 76 are essentially quotes from CBEC circulars and paras 72, 73, 74, 75, 77 and 78 are the reproduction of legal provision. Thus the "analysis" is contained only in para79 which is anything but analysis and indeed to call it "analysis" is an embarrassment to that word itself.

++ In this regard we observe that the appellants claimed and submitted details showing that out of the expenses on advertising service, for payments made to various advertising agencies abroad, they have paid the service tax under reverse charge mechanism along with interest for the period 2006-07 to 2011-12. They had not paid service tax upto 2005-06 on such payments as the reverse charge mechanism came into effect with the introduction of Section 66A in the Finance Act, 1994 with effect from 18.04.2006. That the "reverse charge mechanism" did not have any legal basis prior to 18.04.2006 is no longer res integra and, therefore, idle parade of familiar judicial pronouncements in this regard (like Indian National ShipownersAssn Vs. Union of India) 2008-TIOL-633-HC-MUM-ST is avoidable.

++ They also asserted that they had not paid service tax on such foreign exchange expenses shown under this head which related to purchase of materials. In the absence of any evidence to the contrary, as the onus lies on the Department, it will have to be held that Revenue is not able to establish that any more service tax is leviable under this head than what has been discharged by the appellants along with interest .

"Marketing Support" (including Marketing Support, Advertising and Sales Promotion)

++ The adjudicating authority has not undertaken any analysis of the appellants' submissions and merely records a fiat that the appellants are liable to pay service tax in spite of taking note of the appellants' submissions that they did not provide such services and merely reimbursed a part of marketing expenses. On the other hand, the appellants have been able to show that these amounts were actually expenses at their hands, which is also evident from the various schedules of profit and loss account, where they have been booked as expenses. Obviously, therefore, these expenses cannot be relating to the services rendered by the appellants also because if the appellants had actually rendered any such service, it would have generated an income for them and not expenses.

"Services provided/rendered outside the country "

++ It is evident that paras 55 to 57 are totally irrelevant vis-a-vis the contents of para 54 and the appellants contentions regarding the component of impugned demand relating to "Service Provided" are not even adverted to, leave aloneanalysed and findings recorded thereon. Indeed, in view of the contents of the above-quoted para 54 and in the absence of any evidence to the contrary, the appellants' contentions in this regard are in no way untenable. In the case of Cox and Kings India Ltd. Vs. CST, Delhi - 2013-TIOL-1907-CESTAT-DEL CESTAT held to the effect that for services provided and consumed outside Indian territory, the consideration received is not liable to service tax.

"Income from lease of property"

++ Having recorded the appellants' submissions, the adjudicating authority in subsequent paras (60, 61, 62, 63 and 64) merely reproduced the legal definitions relating to "renting of immovable property service" "supply of tangible goods for use in India" and "Business Auxiliary Service" and thereafter simply moved on to the next component of demand namely "Income from Lease Vehicles" without even a whisper of any analysis and finding about the sustainability of this component of demand relating to what is called "Income from Lease of Property". This is nothing but a cavalier and careless attitude on full display. The appellants actually showed with reference to their profit and loss account that these were their expenses, which were incurred on leasing the immovable property for their use. Thus they were the recipient of the said service and therefore the question of they being liable to pay service tax is preposterous; it not being a case of import of service inviting reverse charge mechanism.

"Income from Lease of Vehicles"

++ After recording the submissions, the adjudicating authority does not take any trouble to record even an iota of finding thereon. Needless to say when the vehicles were taken on lease by the appellants, they were the recipient of service and therefore would not be liable to pay the impugned service tax; it not being a case of import of the said service inviting reverse charge mechanism.

Limitation:

++ It is pertinent to mention that in the impugned order hardly any such reasons had been "stated supra". Obviously the "analysis" regarding invocability of extended period is too cryptic and inadequate to arrive at a finding with regard thereto.

++ Seen in the light of the Supreme Court rulings in this regard, the adjudicating authority has obviously failed to meet even the minimum requirements necessary to sustain the invocability of the extended period.

Best judgement method

++ The said para 78 merely quotes Section 72 ibid and the adjudicating authority does not even hint as to how he arrived at the "best judgement" figures. As is evident from the wordings of Section 72 ibid, the "Best Judgement" assessment involves a quasi-judicial process expressly requiring that the person concerned should be given an opportunity of being heard. The adjudicating authority is completely non-speaking regarding the methodology/reasons/grounds based on which he arrived at the "best judgement" figures adopted by him for levy of service tax. Obviously, the adjudicating authority seems to equate "best judgement" with "arbitrary judgement" little realising that arbitrariness is an anathema in law . The adjudicating authority is not even sure whether Section 72 is invokable as is evident from the word "appears" appearing the first sentence of para 78 quoted above. Needless to say, such arbitrary "best judgement" assessment of value is not sustainable quasi-judicially. However, in view of the foregoing, quibbling over the so-called "best judgement" figures is at best of academic interest .

With such critical comments on the Order-in-Original, the adjudicating authority could not have come out unscathed.

The Bench concluded - Such orders adversely and severely impinge upon the public's trust in the public authorities and for that reason a public authority displaying such egregiously irresponsible conduct and that too while performing quasi-judicial functions deserves to the put to costs.

The order was set aside and the appeal was allowed.

The CESTAT also imposed costs of Rs.25,000/- on the adjudicating authority who passed the impugned order and the same is to be paid to the Prime Minister's National Relief Fund, within four weeks.

In passing : See 2014-TIOL-410-CESTAT-DEL & Can payment be ordered to PM's Relief Fund?

(See 2015-TIOL-613-CESTAT-DEL)