2011 (7) TMI 995 - AT - Service Tax

Extended period of limitation Penalty u/s 78 - Held that - in the case of Cosmic Dye Chemical (1994 - TMI - 43929 - SUPREME COURT OF INDIA - Central Excise) held that for invoking extended period under Section 11A(1) of Central Excises Act & Salt Act, 1944, the intention to evade the duty must be proved and for this purpose, the mis-statement or suppression of facts must be wilful and mere omission to provide some information or omitting to do something which the person is required to do would not be sufficient to invoke the provisions to Section 11 A(l). it cannot be said that non-payment of service tax was wilful or with intention to evade service tax. In view of this, merely on account of not obtaining service tax registration or non-payment of tax, it cannot be concluded that the same was with intention to evade the tax. - penalty set aside.

Summary

Issues:
- Taxability of services provided by commission agents for procuring export orders
- Liability of the appellants for service tax on services received from commission agents abroad
- Imposition of penalties under various sections of the Finance Act, 1994
- Interpretation of Section 78 regarding imposition of penalty for non-payment of service tax

Analysis:

Issue 1: Taxability of services provided by commission agents for procuring export orders
The appellants, as manufacturers of cotton yarn for export, engaged commission agents in various countries to procure export orders. The services of procuring orders provided by commission agents were deemed taxable as Business Auxiliary Services from July 1, 2003. Despite an initial exemption, these services became chargeable to service tax from July 9, 2004. The appellants did not pay service tax on the services received from commission agents abroad, leading to a show cause notice in April 2007 for recovery of service tax, interest, and imposition of penalties under various sections of the Finance Act, 1994.

Issue 2: Liability of the appellants for service tax on services received from commission agents abroad
The Joint Commissioner confirmed the service tax demand, interest, and penalties in an order-in-original in April 2008. The Commissioner (Appeals) later held that service tax was chargeable only from April 18, 2006, and upheld the penalty under Section 78 for the period from April 18, 2006, to October 31, 2006. The appellants contested this penalty in the present appeal, arguing that there was no intention to evade service tax and citing a Supreme Court judgment emphasizing the need to prove wilful misstatement or suppression of facts to invoke penalty provisions.

Issue 3: Imposition of penalties under various sections of the Finance Act, 1994
The appellants contended that they disclosed information about receiving services from commission agents abroad in their balance sheets, believing initially that no service tax was due. They argued that their subsequent payment of service tax upon departmental inquiry demonstrated no intent to evade tax. The Departmental Representative, however, argued that the appellants' failure to obtain service tax registration and non-payment of tax amounted to suppression of facts, justifying the penalty under Section 78.

Issue 4: Interpretation of Section 78 regarding imposition of penalty for non-payment of service tax
The Tribunal analyzed Section 78 of the Finance Act, 1994, which allows penalties for non-payment of service tax due to fraud, collusion, wilful misstatement, suppression of facts, or contravention of relevant provisions with intent to evade tax. Citing a Supreme Court judgment, the Tribunal emphasized the need to prove wilful misstatement or suppression of facts to invoke penalty provisions. In this case, the Tribunal found that the appellants' actions did not indicate wilful evasion of service tax, as they disclosed information promptly upon inquiry, obtained service tax registration, and paid a significant portion of the due tax. Therefore, the Tribunal held that the penalty under Section 78 was not justified and set it aside, allowing the appeal.

This detailed analysis of the judgment highlights the key issues, arguments presented by both sides, relevant legal provisions, and the Tribunal's reasoning leading to the final decision to set aside the penalty under Section 78 of the Finance Act, 1994.