2011 (2) TMI 864 - AT - Service Tax

Penalty - Commission fee received from the bank - The authorized signatory of the respondent during investigation has submitted that the commission received by them was out of the fee collected for processing of the loan by the bank - They were under the impression that since service tax was payable on the whole amount of processing fee by the Bank no service tax was liable to be paid by them - The Commissioner (Appeals) taking note of the fact that the entire service tax stands paid before issue of show-cause notice upheld the demand without going into the limitation aspect - However taking the facts and circumstances of the case which involved receipt of portion of the processing fee by the respondent from the bank and the bank having paid the service tax on the entire amount he waived penalties imposed by the original authority under various Sections - Decided in favour of assessee.

Summary

Issues:
Department's appeal against Commissioner (Appeals) order confirming service tax demand and penalties under various Sections.

Analysis:
The case involved a respondent acting as a loan processor between a bank and borrowers, receiving a commission from the bank out of the processing fee collected from borrowers. The department contended that the respondent provided "Business Auxiliary Services" to the bank, triggering a service tax liability on the commission received. The respondent paid the service tax along with interest before a show-cause notice was issued in April 2007. The original authority confirmed a service tax demand of Rs.1,56,340/- and imposed penalties under Sections 75A, 76, 77 & 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld the service tax demand with interest but set aside the penalties under Section 80 of the Finance Act.

The department, in their appeal, argued that since the Commissioner (Appeals) upheld the demand under the extended period of limitation, setting aside the penalties was contradictory. However, the Tribunal noted that the respondent promptly paid the service tax upon being informed by the department, and the entire service tax was paid before the show-cause notice was issued. The Commissioner (Appeals) did not delve into the limitation aspect but considered the circumstances of the case, where the bank had already paid service tax on the entire processing fee. Therefore, the penalties imposed by the original authority were waived.

In the specific context of the case, the Tribunal agreed with the Commissioner (Appeals) that there was a reasonable cause for invoking the provisions of Section 80 to waive penalties. The Commissioner (Appeals) highlighted that the respondent's failure to pay service tax was due to a genuine misunderstanding regarding the taxable services involved. The respondent believed that the taxable event was limited to the transaction between the bank and borrowers, not realizing the separate taxable services provided. The Tribunal found no evidence of deliberate non-payment of service tax by the respondent, supporting the Commissioner (Appeals) findings.

Ultimately, the Tribunal found no merit in the department's appeal and rejected it, affirming the decision of the Commissioner (Appeals) to uphold the service tax demand but waive the penalties under various Sections of the Finance Act, 1994.