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NATION fTAX

G)T MA K

File NO.APPL-COMMOST/5/2019-GST - APL-CHD

CENTRAL GOODS & SERVICES TAX

COMMISSIONERA TE. CHANDIGARH,

C. R. BUILDING PLOT NO. 19 SECTOR 17-

CHANDIGARH, PH. 0172-2720240.

C No.App-COMMOST/OS/2019-GST -APPL-CHD Dated: Appeal No.116/A/ST/CHD/2017-18 ~ (\~ 3cP

c~r1--3'1 ~ p ORDER-IN-APPEAL

Order-in-Appeal No. : CHD-EXCUS-OOI-APP-I7-4 -19-20 Dated: (9!1\ 1(; Name of the Assistant Commissioner, COST Division, Baddi Appellant

Name of the Mis Ankur Drugs & Pharma Ltd. (Unit-II), Makhnu Respondent Majra, P.O. Bhud, Tehsil Baddi, Distt. Solan (H.P)

Order-in-Original 36/ST/ ADC(HBN)CHD-I12016-17 dated 28.03.2017 No. & date

Adjudicating Additional Commissioner, Central Excise & Service Authority Tax Commissionerate Chandigarh-I

Amount of service tax -

Amount of Penalty Rs. 9,41,923/- u/s 78

\ .Period of dispute 2007-08 to 2011-12 . - -

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~" The appeal has been filed by the Assistant Commissioner, COST DiYfs'ion, Baddi (hereinafter referred to as the 'appellant') against the Order-in­ Original No. 36/ST/ADC(HBN)CHD-I12016-17 dated 28.03.2017(hereinafter referred to as the 'impugned order') passed by the Additional Commissioner, Central Excise & Service Tax Commissionerate, Chandigarh-I (hereinafter referred to as the 'adjudicating authority') in the case of Mis Ankur Drugs & Pharma Ltd. (Unit-II), Makhnu Majra, P.O. Bhud, Tehsil Baddi, Distt. Solan (H.P) (hereinafter referred to as the respondent). I take up the appeal for decision.

File NO.APPL-COMMOST/5/2019-GST- APL-CHD

1.1 Briefly stated that the respondent is holding Central Excise Registration No. AACCA2062MXM002 for manufacture and sale of Pharmaceutical Products falling under Chapter 30 of the Central Excise Tariff Act, 1985 and availing area based exemption under Notification No. 49-50/2003-CE dated 10.06.2003, as amended. The respondent is also holding Service Tax Registration No. AACCA2062MST002 for providing taxable service under the category of "Goods Transport Agency" classified under Section 65(105)(zzp) of the Finance Act, 1994 (hereinafter referred to as the "Act"). The respondent is owning one more unit located in the state of Himachal Pradesh namely Mis Ankur Drugs & Pharma Ltd. (Unit-I) [formerly known as M/s Vaibhav Healthcare Pvt. Ltd.), Lodhimajra, Tehsil Baddi, Distt. Solan (H.P)], also engaged in the manufacture and sale of Pharmaceutical Products falling under Chapter 30 of the CET A and availing area based exemption under Notification No. 49-50/2003-CE dated 10.06.2003 as amended, and holding Service Tax Registration No. AACCA2062MST003 for providing taxable service under the category of "Goods Transport Agency". In addition, the respondent also has a third unit namely M/s Ankur Drugs & Pharma Ltd., Plot NO.3 & 4. Dabhel Indl. Co. Op. Society Ltd., Nani Damana, Daman registered with the department for the manufacture and sale of Pharmaceutical products as well as under the category of "Goods Transport Agency" service under service tax law.

1.2 During the course of audit of Daman unit by the internal audit team of Central Excise, Customs and Service Tax Commissionerate. Daman conducted in the month of August/September 2010, it was observed from their consol idated balance sheet for the financial year 2008-09 and 2009-10 that the respondent had received "Technical Knowhow" service classified under Section 65(105)(za) of the Act, valued at Rs.34,91,779/- and Rs.5,1 0,96,000/­ respectively from a foreign based service provider in their Unit-II located at

~ . akhnu Majra, P.O. Bhud, Tehsii Baddi, Distt. Solan (H.P) for which they had ,(~~~.:. ~~(;;rr~ady made payment in foreign currency amounting to Rs.34,91 ,779/- and Rs. tl 4,38,27,593/- towards receipt of the said service. Service tax on the services so 3, received was payable under the reverse charge mechanism, as envisaged under ~""'<Jo:'x' Section 66A of the Act read with Taxation of Services (Provided from Outside (I ~r In>dia and Received in India) Rules. 2006 (for brevity 'Taxation Rules') notified

under Notification No.11/2006-Service Tax dated 18.04.2006. The respondent had failed to pay the Service Tax of Rs. 49,45,825/- leviable under reverse charge on the "Technical Know-how" services received by them from abroad, in contravention of section 66 of the Act read with Taxation Rules. Subsequently, the said amount of service tax was paid vide challans dated 05.01.2011 & 24.10.2010 along with interest of Rs. 10,00,930/- vide Challan dated 31.03.2011.

File NO.APPL-COMMOST/5/2019-GST - APL-CHD

1.3 The fact of evasion of service tax by the respondent was conveyed to the jurisdictional Commissionerate by the Assistant Commissioner, Central Excise & Service Tax Division, North Daman vide letter dated 12.12.2012. Accordingly, enquiry was initiated by the jurisdictional Range office. The jurisdictional Range office vide letter dated 27.12.2012 requested the respondent to supply the relevant documents related to the issue.

1.4 On going through the respondent's Balance Sheet for the year 2007 - 08 it was observed that during the said financial year they have received Technical Know-how" service amounting to Rs.76,20,737/- from a foreign based service provider during the said financial year. However, the service tax amounting to Rs. 9,41,9231- on the said amount was discharged belatedly, vide Challan dated 14.05.2009 alongwith interest ofRs. 1,85,945 + Rs. 17,441/- under two separate challans, both dated 14.05.2009 and again paid an amount of Rs. 1,00,6101-+ Rs. 18,2901- + Rs. 9,1451- under three separate challans all dated 14.05.2009. In support of the same the respondent had produced a Chartered Accountant Certificate dated 25.03.2013.

1.5 Further, it was observed that during the period 2007-08 to 2011-12, the respondent was required to pay service tax amounting to Rs. 65,51,1861- (S.Tax. Rs. 63,60,375/- + Edn. Cess Rs. 1,27,2081- + SHE Cess Rs. 63,603/-) on the payment made in foreign currency towards receipt of taxable services of "Technical Knowhow" & "Legal Consultancy" services from abroad in terms of section 66A of the Act read with Taxation Rules discussed supra. Out of the above liability the respondent had paid/deposited Rs. 58,87,7491- (S.Tax Rs. 57,16,2611- + Edn. Cess Rs. 1,14,326/- + SHE Cess Rs. 57,165/-) alongwith interest of Rs.13,32,361 1- towards their liability of service tax.

_ 1.6 Further, perusal of consolidated Balance Sheets for the years 2007-08 to - - /" ,2011: 12 of the respondent also revealed that they had not reflected an amount J;' of Rs. 4,32,82,6301- paid towards inward/outward freight in their ST -3 Returns ~~ which resulted in short payment of service tax amounting to Rs. 11,66,0941 - ~;,;-~,,<-tS .. Tax - Rs. 11,32,130/- + Edn. Cess Rs. 22,643/- + SHE Cess Rs. 11,3211-)

'Y;J\Ql"~-declaring the total amount paid to various transporters during the vant period.

1.7 From above, it was alleged that respondent had deliberately suppressed the fact of receipt of "Technical knowhow service" and "Legal Consultancy service" as well as actual expenditure incurred on inwardl outward freight with the intention of evading payment of service tax and that that Service Tax amounting to Rs.77,17,2801 - was recoverable from them under Section 73(1) of the Act alongwith interest under Section 75 of the Act.

File NO.APPL-COMMOST/5/2019-GST- APL-CHD

1.8 Accordingly, demand show cause notice dated 22.04.2013(SCN) of Rs.77,17,280/- for the period 2007-08 to 2011-12 was issued to the respondent, which was adjudicated vide the impugned order by the adjudicating authority wherein demand of Rs.77,17,280/- was confirmed along-with interest under Section 73 & 75 of the Act respectively and amount of Rs.58,87,749/- already deposited towards their service tax liability and Rs.12,04,316/- towards interest was appropriated. Further, penalty of Rs.67,75,357/- was also imposed on the respondent under section 78 of the Act.

2. The impugned order was reviewed by the Commissioner, Central Excise Commissionerate, Chandigarh-I vide Review Order No. 18/ST/CHD/2017 dated 16.06.2017 to the extent that adjudicating authority has grossly erred in imposing penalty of Rs.67,75,357/- instead of Rs.77,17,280/- (i.e. equivalent to the confirmed demand of Rs.77,17,280/- ) under Section 78 the Act, which provides for imposition of penalty equal to the amount of service tax as determined under section 73(2) of the Act i.e. Rs. 77,17,280/- in the instant case. Accordingly, appellant (Department) filed the appeal against the imposition of lesser penalty of Rs. 9,41,923/- (Rs.77,17,280 - Rs.67,75,357) by the adjudicating authority.

3. The respondent on 25.04.2018 filed cross objections against the appeal of the department (appellant) as detailed under:-

3.1 That the adjudicating authority had not levied penalty on Rs 9,41,923/­ for the reason that the respondent had deposited the tax on their own prior to detection by the department.

3.2 That the provisions of Section 78 are not applicable as the demand of Rs.9,41 ,923/- was artificially raised/confirmed on the said service tax which had been deposited long back by the respondent.

if!!; ;; That as per the provisions of Section 73(3) of the Act, issuance of I '~f demand show cause notice in respect of Rs 9,41,923/- was illegal.

'-' ~~ <r~ ;.chA. The personal hearing in the case was fixed on 06.03.2019, 05.08.2019

<7t1 d·~14.1 0.20 19. However, the respondent did not attend the hearing on the said dates. As the respondent had already been granted three opportunities of personal hearing, therefore it appears that respondent had nothing more to add in their defence. Accordingly, I proceed to decide the case on the basis of facts on record.

File NO.APPL-COMMOST/5/2019-GST- APL-CHD

5. 1 have carefully gone through the facts of the case, impugned order, appeal, and the grounds of appeal as well as the submissions made by the respondent.

5.1 The adjudicating authority whi Ie confirming the demand of Rs.77,17,2801- against the respondent had imposed penalty of Rs.67,75,357/­ only, under Section 78 the Act on the ground as detailed in para 4.13 of the impugned order, the relevant portion of which is reproduced as under:-

"4.13 However, I observe that an amount ofRs.9,41,9231- had been deposited by the Noticee on their own, prior to the detection by the department. lfurther observe that where the! tux amount is paid by the assessee along with interest 011 its own or even on being detected by the central excise officer, 110 Show Cause Notice is warranted to be issued in respect of the same amount and no penalty is imposable in such cases. However, as the Show Cause Notice has been issued for the value which otherwise 'was 110t warranted, 110 penalty is imposable in respect of the said amount deposited late along with interest but prior to the detection 0/ the department. Hence. this amount would not be consideredfor the purpose of imposition ofpenalty. "

5.2 The impugned order was reviewed by the Commissioner, Central Excise Commissionerate, Chandigarh-I vide Review Order No. 18/ST/CHD/20 17 dated 16.06.2017 to the extent that adjudicating authority has grossly erred in imposing penalty ofRs.67,75,357/- instead ofRs.77,17,2801- (i.e. equivalent to the confirmed demand ofRs.77,17,2801- ) under Section 78 the Act.

5.3 The respondent on the other hand contended that adjudicating authority has correctly not imposed penalty on the payment of service tax of Rs.9,41,923/-, which they had deposited on their own much prior to the detection by the department and as such, the provisions of Section 78 are not applicable in respect of said payment of service tax.

5.4 In this regard, I find that Section 78 of the Act as amended by the Finance Act, 2015 reads as under:-

"SECTION 78. Penalty for failure to pay service tax for reasons offraud, etc. - :(J)' Where any service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, by reason of fraud or collusion or willful mis-

., ( statement or suppression of facts or contravention of any of the provisions of this ~~~~ Cbapter or of the rules made thereunder with the intent to evade payment of service

¢ 0 ~'tax,lthe person who has been served notice under the proviso to sub-section (!) of ..-!::. ~ctioll 73 shall, in addition to the service tax and interest specified in the notice, be

also liable to pay C/ penalty which shall be equal to hundred percent of the amount of such service tax. "

5.5 Further, Section 78B of the Act as inserted by the Finance Act, 2015 reads as under:-

File NO.APPL-COMMOST/5/2019-GST - APL-CHD

'. "SECTION 78B.Transitory provisions. - (1) Where, in any case,-

(a) service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded and no notice has been served under sub-section (1) of section 73 or under the proviso thereto, before the date on which the Finance Bill, 20J 5 receives the assent of the President; or

(b) service tax has not been Levied or paid or has been short-levied or short-paid or erroneously refunded and a notice has been served under sub-section (l) of section 73 or under the proviso thereto, but no order has been passed under sub-section (2) of section 73, before the date on which the Finance Bill, 2015 receives the assent of the President,

then, in respect of such cases, the provisions of section 76 or section 78, as the case may be, as amended by the Finance Act, 20J 5 shall be applicable. "

5.6 I find that Section 78 is applicable only where there is malafide intention to evade the payment of service tax. In the instant appeal, I find that the fact of evasion of service tax by the respondent was detected for the first time by the audit team of Central Excise, Customs and Service Tax Commissionerate, Daman in the month of August/September 2010 as is clearly evident from para 2 of the SCN dated 24.04.2013. The said evasion by the respondent was conveyed to the jurisdictional Commissionerate by the Assistant Commissioner, Central Excise & Service Tax Division, North Daman vide letter dated 12.12.2012 and accordingly enquiry against the respondent was initiated by the jurisdictional range office on 27.12.2012 as is evident from para 3 of the SCN. Further, it is also a fact on record that the respondent had deposited/paid service tax amounting to Rs. 9,41,923/- for the period 2007-08 alongwith interest on 14.05.2009 as is clearly evident from para 4 of the SCN, which clearly proves beyond doubt that service tax amounting to Rs. 9,41,923/- (for 2007-08) was deposited by the respondent on their own on 14.05.2009 i.e. much prior to the detection by the audit in August/September 2010. In that case, I find that the payment of service tax of Rs 9,41,923/ - alongwith interest on their own by the respondent much prior to the detection by the department, is certainly not a case of ma1afide intention to evade the payment of service tax and therefore S,£ct,Lon 78 of the Act is not applicable on the payment of service tax of Rs

~c ~ ·~923/-. As such, I fully agree with the findings of the adjudicating authority . tl\~ tor not imposing penalty of Rs 9,41,923/- under Section 78 of the Act as

1\ .., J detai led in para 5.1 above. \' n~ ..•. '(""'~ -

~%> (I. '~n' ;, Thus, I find that the appeal filed by the appellant is devoid of merit and

" ./ e to be rejected

File NO.APPL-COMMOST/5/2019-GST - APL-CHD

, :

Order

6. In view of the above, the appeal filed by the appellant is rejected and the impugned order is upheld. The appeal is disposed of, accordingly.

Digit:ally signed b SUMAN SALA Date:Tue Nov 19 1 :07:39 1ST 2019 Reason:Approve Iq 11 2A]q

(Dr. Sum n Hal'a') COMMISSIONER(AP ALS)

REGD.A.D. Mis Ankur Drugs & Pharma Ltd. (Unit-II), Makhnu Majra, P.O. Bhud, Tehsil Baddi, Distt. Solan (H.P) Copy to :- I. The Chief Commissioner (CZ), Central Goods & Service Tax,

Chandigarh. The Commissioner, Central Goods & Service Tax Commissionerate, Shimla The Asstt..Deputy Commissioner, Central Division-Shimla Guard file.

2.

3. Goods & Service Tax

superin2~pealS) 4.