2010 (8) TMI 213 - AT - Service Tax

Penalty - Authorized service station - liability of service tax on the amounts received as an incentive from the banks as DSA/DSTs, PDI charges from Bajaj Auto and reimbursement for free services rendered to Bajaj Auto - appellants discharged liability before SCN - penalty imposed on the ground of non-payment of service tax and suppression/mis-declaration - Held that - Board had issued clarification vide circular No. 87/05/2006-S.T., dated 6-11-2006 with regard to liability of service tax, on free services given by the authorized dealers and charges reimbursed by the vehicle manufacturers and commission received by the auto dealers for introducing customers to seek finance/loans. In situations where Board issued a clarification that there was doubts and clarifies the doubts, persons who are liable to service tax cannot be held to be liable to suppression of facts and imposition of penalty. Hence, penalty imposed u/s 78 is waived. Since, penalty u/s 77 is imposed for violation of provisions and it does not require the department to prove suppression of facts or intention to evade duty - appeal is partially allowed by way of setting aside penalty imposed u/s 78 and upholding penalty imposed u/s 77 of Finance Act, 1994.

Summary

Issues:
- Liability of service tax on amounts received as incentives from banks
- Imposition of penalty under various sections of Finance Act, 1994
- Applicability of penalties under Sections 77 and 78
- Interpretation of Board's circular on service tax liability for free services and charges reimbursed by vehicle manufacturers

Analysis:

1. Liability of service tax on amounts received as incentives from banks:
The case involved an authorized service station that paid service tax on amounts received as incentives from banks, PDI charges from Bajaj Auto, and reimbursement for free services rendered to Bajaj Auto. Initially, the appellants paid the full service tax amount, but later faced penalties under various sections of the Finance Act, 1994. The issue revolved around whether the appellants were liable to pay service tax on these amounts.

2. Imposition of penalty under various sections of Finance Act, 1994:
The Commissioner upheld penalties under Section 78 of the Finance Act, 1994, citing non-payment of service tax due to suppression or misdeclaration. Additionally, a penalty of Rs. 1000 was imposed under Section 77 for violation of provisions. The key question was whether these penalties were justified given the circumstances of the case.

3. Applicability of penalties under Sections 77 and 78:
The advocate for the appellants argued that due to doubts regarding the liability of such services to service tax during the relevant period, and the subsequent clarification by the Board, penalties under Sections 77 and 78 should be set aside. The Department, however, contended that the appellants intentionally avoided paying service tax, justifying the penalties. The Tribunal had to determine the applicability of these penalties based on the facts and legal principles involved.

4. Interpretation of Board's circular on service tax liability for free services and charges reimbursed by vehicle manufacturers:
The Tribunal considered the Board's clarification on the liability of service tax for free services by authorized dealers, charges reimbursed by vehicle manufacturers, and commissions received by auto dealers. Referring to a previous decision and the Board's circular, the Tribunal concluded that when doubts were clarified by the Board, individuals liable to service tax could not be penalized for suppression of facts. Consequently, the Tribunal partially allowed the appeal by setting aside the penalty under Section 78 but upheld the penalty under Section 77, along with confirming the duty demand already paid by the appellants.

This detailed analysis highlights the key issues addressed in the judgment, focusing on the liability of service tax, imposition of penalties, interpretation of relevant circulars, and the Tribunal's decision regarding the penalties under Sections 77 and 78 of the Finance Act, 1994.