2011 (3) TMI 153 - AT - Service Tax

Penalty u/s 77 and 78 - The appellant were required to pay service tax as recipient of services in respect of commission paid to foreign agents effective from 18.04.06 - This they paid only on being pointed out by the department - They have paid the entire service tax before the issue of show cause notice and the interest involved before adjudication by the original authority - It is not in dispute that as recipient of services, the appellant-assessees were entitled to take credit of the service tax paid by them - Therefore, their plea that in the light of provisions of EXIM Policy, they were under bonafide belief that they were not liable to service tax has to be deserves to be accepted especially in the light of the eligibility of cenvat credit of entire service tax paid by them - Hence,no penalty needs to be sustained - The appeal of the department seeking enhancement of penalty is rejected.

Summary

Issues:
1. Penalty under Section 78 challenged by the appellant.
2. Reduction of penalty from Rs.3,14,842/- to 25% of the amount by the Commissioner (A).
3. Setting aside the penalty of Rs. 5,000/- under Section 77.

Analysis:
1. The appellant, a manufacturer of textile made-ups exporting goods, utilized overseas agents and paid commission. Upon being informed of service tax liability, they paid Rs. 3,14,842/- with interest. The original authority confirmed the tax demand, imposed penalties under Sections 76, 77, and 78. The Commissioner (A) set aside penalties under Sections 76 and 77, allowing a 25% concessional penalty under Section 78 if paid within 30 days. The appellant disputed the penalties, citing the EXIM Policy and claiming no intention to evade tax, as they were entitled to credit and refund due to exporting goods.

2. The appellant argued that they paid the tax promptly upon notification by the department, highlighting the EXIM Policy's exemption for services related to exported goods. They contended that no penalty should be imposed, as they had no intention to evade tax and were eligible for tax credit and refund. The department sought to enhance penalties citing a Supreme Court decision, but the liability to tax was not contested, only the penalties were in dispute.

3. The Tribunal found that the appellant, complying with tax obligations upon notification, was entitled to credit for the service tax paid. Considering their belief based on the EXIM Policy and eligibility for tax credit, the Tribunal held that no penalty should be imposed. Consequently, the department's appeal for penalty enhancement was rejected, and the appellant's appeal against the sustained penalty was allowed, setting it aside.

This judgment emphasizes the importance of compliance upon notification, the relevance of relevant policies in determining tax liabilities, and the eligibility for tax credits in mitigating penalties. The Tribunal's decision reflects a balanced approach considering the circumstances and the appellant's bona fide belief regarding tax obligations related to exported goods.