2016 (1) TMI 1175 - AT - Service Tax

Imposition of penalty under Section 78 of the Finance Act, 1994 - levy of tax on commission to foreign agents - reverse charge mechanism - Held that - the appellant is liable to pay service tax under reverse charge mechanism, therefore, this situation is of revenue neutrality. As the appellant has paid Service Tax, in that circumstance, the penalty is not imposable on the appellant. I further hold that the appellant has not paid the interest for the intervening period, therefore, the appellant is directed to pay interest on Service Tax, if any, for the intervening period within 30 days failing which the appellant is liable to pay penalty under Section 78 of Finance Act, 1994 - appeal disposed off.

Summary

Issues involved: Appeal against imposition of penalty under Section 78 of the Finance Act, 1994 for non-payment of Service Tax under reverse charge mechanism.

Analysis:
1. Imposition of Penalty: The appellant, engaged in the manufacture and export of bulk drugs, failed to pay Service Tax under reverse charge mechanism, leading to the initiation of proceedings and imposition of penalty under Section 78. The appellant argued for waiver of penalty under Section 80, citing inadvertent mistake and reliance on a Tribunal decision. The AR supported the impugned order. The Tribunal noted the appellant's liability to pay Service Tax but acknowledged the payment made, leading to a situation of revenue neutrality. Consequently, the Tribunal held that the penalty was not imposable due to the payment of Service Tax. However, the appellant was directed to pay any outstanding interest within 30 days to avoid penalty under Section 78.

2. Legal Arguments: The appellant's counsel contended that the appellant, although liable for Service Tax under reverse charge mechanism, had inadvertently missed the payment, asserting entitlement to credit for the paid tax. In contrast, the AR reiterated the findings of the impugned order, emphasizing the non-payment of Service Tax by the appellant.

3. Tribunal's Decision: After hearing both parties and considering their submissions, the Tribunal concluded that the appellant's payment of Service Tax rendered the penalty inapplicable, given the principle of revenue neutrality. However, the Tribunal highlighted the appellant's failure to pay interest for the intervening period, mandating the payment of any outstanding interest within 30 days to avoid penalty under Section 78. The appeal was disposed of accordingly, with the Tribunal's decision dictating the payment of interest within the specified timeframe to prevent penalty imposition.

This detailed analysis of the judgment addresses the issues raised in the appeal against the penalty imposed under Section 78 of the Finance Act, 1994, providing a comprehensive overview of the legal arguments, Tribunal's decision, and the implications for the appellant.