2010 (7) TMI 294 - AT - Service Tax

Appellant entered into an agreement with M/s. Fascal Ltd., Ahmedabad to market their products as distributor - department has taken a view that the service provided by the appellants falls under the category of business auxiliary service - appellant obtained registration as a service tax assessee on 3-9-04 and paid the service tax in October 2004 for the period from July 2003 onwards - SCN issued on 3-3-05 - Held that - being a new service and that too in the name of business auxiliary service, it is quite possible that appellant was not aware of his liability - as soon as he came to know and even before investigation started he took the registration - appellant has been able to show reasonable cause for failure to obtain the registration and pay service tax - penalty set aside

Summary

Issues: Liability under business auxiliary services for service tax, payment of service tax, penalty under Sections 76, 77, and 78 of Finance Act, 1994, applicability of lenient view under Section 80 of Finance Act, 1994.

The judgment by the Appellate Tribunal CESTAT, Ahmedabad dealt with a case where the appellant entered into an agreement to market products as a distributor, which was later brought under the service tax net as business auxiliary services. The appellant obtained registration and paid the service tax, but interest was paid later. The department issued a show cause notice leading to the confirmation of demand of service tax with interest and penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

The advocate for the appellant argued that the appellant promptly obtained registration and paid the service tax upon becoming aware of the liability, requesting a lenient view under Section 80 of the Finance Act, 1994 due to lack of awareness regarding the new service tax. On the other hand, the Departmental Representative contended that the penalty under Section 78 was mandatory, emphasizing that the appellant paid the tax only after the investigation started. The advocate highlighted the appellant's prompt registration upon becoming aware of the liability as a mitigating factor.

Considering the arguments, the Tribunal acknowledged that the appellant, being a proprietorship concern, may not have been aware of the new service tax liability. The Tribunal found merit in the advocate's argument that the appellant's prompt registration upon becoming aware of the liability should be viewed favorably. Consequently, the Tribunal invoked the lenient view under Section 80 of the Finance Act, 1994, setting aside the penalties under Sections 76 and 78 but upholding the penalty under Section 77 for contravention of various provisions. The judgment highlighted the appellant's reasonable cause for the failure to obtain registration and pay service tax, leading to the appeal being allowed with certain penalties waived.