2015 (4) TMI 1037 - AT - Service Tax

Levy of penalty - Commission agent service - Reverse charge mechanism - Held that - There is no case of active concealment or contumacious conduct made out against the appellant. Further the transactions were recorded in the books of account maintained in ordinary course of business. The cogent explanation given by appellant was not found untrue. The Commissioner (Appeals) have confirmed penalty on assumption & presumptions, which are not tenable. In this view of the matter the penalty imposed under Section 78 is set aside - Decided in favour of assessee.

Summary

Issues:
1. Liability to pay service tax on commission paid to overseas agents.
2. Imposition of penalty under Section 78 of the Act.

Analysis:
1. The appellant, a manufacturer of diagnostic kits exporting 100% of its production, engaged overseas commission agents to procure orders. Due to an amendment in Section 66A of the Finance Act, the appellant became liable to pay service tax on such commissions on a reverse charge basis. The appellant, unaware of this liability, was informed during an audit in October 2010. Subsequently, the appellant deposited the service tax with interest for the period 2007-08 to 2010-11. The Revenue issued a show-cause notice proposing to adjudicate the demand, appropriate the deposited amounts, and impose penalties under Sections 76 and 78.

2. The show-cause notice was adjudicated, confirming the tax demand with interest and imposing a penalty under Section 78. The appellant, dissatisfied with the penalty amount, appealed to the Commissioner (Appeals). The Revenue also appealed for the correction of the penalty amount. The Commissioner (Appeals) allowed the Revenue's appeal, correcting the penalty amount, but dismissed the appellant's appeal, upholding the penalty imposition. The appellant then appealed to the Tribunal, challenging the penalty.

3. The appellant's counsel argued that there was no contumacious conduct as the appellant promptly paid the tax upon being informed, citing a Bombay High Court ruling and a Tribunal case supporting their position. The appellant contended that no show-cause notice was necessary under Section 73(3) of the Finance Act. The Tribunal noted that there was no active concealment or contumacious conduct by the appellant, and the transactions were recorded in the ordinary course of business. The Commissioner (Appeals) confirmed the penalty based on assumptions, which the Tribunal found untenable. Consequently, the penalty under Section 78 was set aside, and the appeal was allowed with any consequential relief.

4. In conclusion, the Tribunal's judgment revolved around the appellant's liability for service tax on overseas commission payments and the imposition of a penalty under Section 78. The Tribunal found in favor of the appellant, setting aside the penalty due to the lack of active concealment or contumacious conduct, and the proper recording of transactions in the business's books. The appellant's appeal was allowed, providing relief from the penalty.