2016 (3) TMI 1103 - AT - Service Tax

Levy of penalty - waiver u/s 80 - service tax liability was discharged before issuance of SCN revere charge mechanism Held that - As regards interest, in the absence of any contest before the lower authorities on the interest liability the same cannot be contested before the higher judicial forum. Interest liability arises and correctly discharged by the appellant. As regards penalty, appellant having discharged the entire service tax liability and the interest thereof before issuance of the show cause notice which would mean that the provisions of Section 73(3) of the Finance Act, 1994 would apply in its full force, which mandates for non-issuance of show cause notice to the assessee once the service tax liability and the interest thereof is discharged penalty not imposed decided partly in favor of appellant.

Summary

Issues Involved:
Taxability of amount under banking and financial services, interest liability, penalties under Section 76 and 78 of Finance Act, 1994.

Analysis:

Issue 1: Taxability of amount under banking and financial services
The appeal was filed against an Order-in-Original passed by the Commissioner of Service Tax regarding the taxability of the amount paid by the appellant as service charges to foreign entities in connection with external commercial borrowings (ECB). The Revenue claimed that the services received were taxable under reverse charge mechanism post 18/04/2006. The appellant did not contest the service tax liability before the adjudicating authority. The Tribunal upheld the confirmation of service tax liability under banking and financial services under reverse charge mechanism for the amounts paid by the appellant.

Issue 2: Interest Liability
The appellant had discharged the service tax liability and interest before the issuance of the show cause notice. The Tribunal found that interest liability does arise on the appellant, in line with the majority decision in a previous case. The Tribunal differentiated this case from another case where interest liability was contested, emphasizing that in the present case, the appellant had already discharged the interest liability and did not contest it before the lower authorities. Therefore, the interest liability was correctly discharged by the appellant.

Issue 3: Penalties under Section 76 and 78 of Finance Act, 1994
Although the majority order confirmed the imposition of penalties under Section 76 and 78, the Tribunal considered the circumstances where the appellant had discharged the entire service tax liability and interest before the show cause notice. This action triggered the application of Section 73(3) of the Finance Act, 1994, which mandates non-issuance of a show cause notice once the service tax liability and interest are discharged. The Tribunal invoked Section 80 of the Finance Act, 1994, to set aside the penalties, considering the appellant's case for invoking the said provisions. Consequently, the penalties imposed under Section 76 and 78 were set aside.

In conclusion, the appeal was disposed of by upholding the service tax liability and interest thereof while setting aside the penalties imposed under Section 76 and 78 of the Finance Act, 1994.