2026-VIL-1689-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax – Reverse charge on services received from providers outside India – Rules 3, 4, 9 and 10 of Place of Provision of Services Rules, 2012 read with Section 68(2) of Finance Act, 1994 and Notification No. 30/2012-ST – Show cause notice was issued on scrutiny of ST-3 returns and audit, demanding service tax under reverse charge for the period October 2012 to June 2017 on foreign currency payments for fifteen categories of services, by applying Rule 3 of the POPS Rules - Appellant-assessee, engaged in the shipping business, had claimed deduction in the returns under Rules 4, 9 and 10, and furnished invoices, agreements and remittance advices for each category in reply to the notice - Adjudicating authority examined each of the fifteen services separately and dropped the demand - Revenue contended that the order was non-speaking, that documents were not verified and that the place of performance was not examined - Assessee contended that the notice was vague, that extended period was not invocable and that a similar earlier notice under the positive list regime had been set aside by the Tribunal in its own case and accepted by the Department - Whether the demand under reverse charge by applying Rule 3 of the POPS Rules is sustainable, and whether the extended period of limitation can be invoked - HELD - The show cause notice alleged that Rule 3 was applicable without assigning any reason as to why Rules 4, 9 and 10, claimed by the assessee in its returns, were not applicable. The show cause notice is the foundation on which the Department has to build its case, and allegations which are vague and lack details are not sustainable, as held by the Supreme Court in Brindavan Beverages. Since the notice was vague and the assessee filed all the evidence with its reply, it cannot be said that the adjudicating authority passed the order without examining the documents - The adjudicating authority examined all fifteen services separately and rightly held that the assessee was entitled to the deductions under Rules 4, 9 and 10. Verification of the place of performance is relevant only for Rule 4 and not for Rules 9 and 10, and the assessee had in any case furnished documents showing that the activity was performed outside India. The burden to prove taxability of the service and non-availability of the claim under Rules 4, 9 and 10 lies on the Revenue, which it failed to discharge - The notice was based on the ST-3 returns and audit, and all relevant documents were with the Revenue. The extended period of limitation cannot be invoked. A similar notice had earlier been issued on the same issue, and a subsequent notice cannot invoke the extended period as held in Nizam Sugar Factory - The order dropping the demand is upheld and the Revenue's appeal is dismissed - Service Tax – Demurrage charges paid to foreign ship owners on reverse charge basis – Transportation of goods by coastal shipping – Appellant-assessee hired ships on spot charter basis from overseas vendors and paid demurrage for delay in loading or unloading of cargo - Adjudicating authority treated the payments as consideration for transportation of goods by coastal shipping, which ceased to be covered by the negative list from June 2016, and confirmed the demand under reverse charge for the period June 2016 to March 2017 - Assessee contended that demurrage is an independent penal charge and not consideration for any service - Whether service tax is payable under reverse charge on demurrage charges - HELD - The invoices show that the charges were paid as demurrage. Demurrage charges are in the nature of penal charges and cannot form part of the services received by the assessee. Such penal charges are not for any service received, as held by the Tribunal in the assessee's own case and in Tiger Logistics, and as clarified by Board Circular No. 121/2/2010-ST dated 26.04.2010 in respect of detention charges. A distinction exists between consideration under the contract and compensation under the contract, which takes the form of liquidated damages that are not the purpose of the contract - Service tax is not payable on demurrage charges. The demand is set aside, no penalty is imposable, and the assessee's appeal is allowed with consequential relief
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