2015 (3) TMI 1127 - AT - Service Tax

Liability to pay interest - non eligibility of assessee for Cenvat credit prior to the date of registration as Business Auxiliary Service - Held that - The assessee had applied for registration under Cable Operator service in the year 2005 and he was not liable to pay Service Tax for the Cable Operator service. Subsequently, the assessee had applied for change of classification of service rendered by them under Business Auxiliary Service and amended registration changing classification of service was made on 22-12-2006. In the meanwhile, they started discharging Service Tax by utilizing Cenvat credit and paid interest wherever there was liability. Interest liability has arisen because the original adjudicating authority took a stand that the assessee was not eligible for Cenvat credit prior to the date of registration as Business Auxiliary Service . The Commissioner (Appeals) has rightly held that the assessee is eligible for the Cenvat credit. Therefore interest liability does not arise.- Decided in favour of assessee. Penalty imposed under Sections 76, 77 & 78 of the Finance Act, 1994 - Commissioner (Appeals) set aside the penalty - Held that - The claim of the assessee that there was some confusion about the classification and they had entertained a bona fide belief that they are not liable to pay Service Tax and there is no intention to evade payment of Service Tax has merits. Therefore, invocation of Section 80 of the Finance Act, 1994, by the Commissioner (Appeals) is in order. - Decided in favour of assessee.

Summary

Issues: Liability to pay interest, Penalty under Sections 76, 77 & 78 of the Finance Act, 1994

Liability to pay interest:
The appeal was filed challenging the Commissioner (Appeals) order that the respondent is not liable to pay interest of Rs. 3,12,504. The Revenue argued that there was suppression of facts and misdeclaration with an intention to evade tax, making interest payment necessary. However, the Commissioner (Appeals) explained that the assessee was not liable for Service Tax under 'Cable Operator' service initially, but later changed the classification to 'Business Auxiliary Service' and started discharging Service Tax using Cenvat credit. The interest liability arose due to a dispute on Cenvat credit eligibility, which the Commissioner (Appeals) concluded in favor of the assessee, making interest payment unnecessary.

Penalty under Sections 76, 77 & 78 of the Finance Act, 1994:
Regarding the penalty, it was noted that there was confusion about the service classification, with an application made in 2005 for 'Cable Operator service' registration later changed to 'Business Auxiliary service'. The department took considerable time to change the classification, leading to a bona fide belief by the assessee that they were not liable to pay Service Tax. The Commissioner (Appeals) invoked Section 80 of the Finance Act, 1994, considering the circumstances and the lack of intention to evade tax. Consequently, the appeal filed by the Revenue was rejected as having no merit.

In conclusion, the judgment clarified the liability to pay interest based on the classification change and Cenvat credit eligibility, ultimately ruling in favor of the assessee. The penalty under Sections 76, 77 & 78 of the Finance Act, 1994, was not upheld due to the confusion surrounding the service classification and the genuine belief of the assessee regarding their tax obligations.