2011 (7) TMI 945 - AT - Service Tax

Demand - The allegation against the appellant is that during the period of dispute, they have not paid service tax on the amount received by them from a main commission agent Shri Rajiv Sanghi, for whom the Appellant were functioning as a sub-agent - appellant is manufacturer of Steel Ingots and is also providing the service of procuring orders for sale of other party s goods as a sub-agent of main agent Shri Rajiv Sanghi - It is not disputed that there is a circular issued by the Board according to which the sub-contractors do not require registration as service tax is to be paid by the main service provider - Appeal is allowed

Summary

Issues: Service tax liability of sub-agent, imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:

1. Service Tax Liability of Sub-Agent:
The appellant, a manufacturer of Steel Ingots, also provided services as a sub-agent to a main commission agent. The issue revolved around whether the appellant was liable to pay service tax on the amount received from the main agent. The appellant argued that they were under the impression that as per a Circular issued by the Board, sub-contractors were not required to pay service tax, and they paid the tax only after learning that the main agent had not paid. The Tribunal accepted the appellant's contention, noting that the Circular indeed stated that sub-contractors do not require registration for service tax as it is to be paid by the main service provider. The Tribunal found that the appellant's immediate payment of service tax upon discovering the main agent's non-payment indicated no intention to evade tax. Therefore, the Tribunal held that the appellant was not liable for service tax in this case.

2. Imposition of Penalty under Section 78:
The main issue in the appeal was the imposition of a penalty under Section 78 of the Finance Act, 1994. The appellant challenged the penalty, arguing that it was not justified as there was no intention to evade tax, and the amount in question was small compared to the Central Excise Duty paid by them. The appellant contended that Section 78 penalty is attracted only in cases of fraud, wilful misstatement, suppression of fact, or contravention of the Act with intent to evade duty. The Tribunal agreed with the appellant, finding that there was no wilful misstatement, suppression of fact, or contravention of the Act in this case. Therefore, the Tribunal set aside the penalty imposed under Section 78, ruling in favor of the appellant.

In conclusion, the Appellate Tribunal CESTAT, New Delhi, in this judgment, clarified the service tax liability of a sub-agent and addressed the imposition of a penalty under Section 78 of the Finance Act, 1994. The Tribunal found that the appellant was not liable for service tax as per the Circular and that no grounds for imposing a penalty existed due to the absence of fraudulent intent or contravention of the Act. The appeal was allowed in favor of the appellant, setting aside the penalty.