2012 (6) TMI 554 - AT - Service Tax

Penalty under Section 78 - service tax liability on the commission received - Held that - Appellant could have entertained a bonafide belief that there is no liability for services rendered during the relevant period - invoking the discretion given under provisions of Section 80 the appellant has given a justifiable reason for setting aside the penalty imposed under Section 78 - in favour of assessee.

Summary

Issues:
Setting aside of penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appeal was filed against the order-in-appeal regarding the penalty imposed under Section 78 of the Finance Act, 1994. The appellant, a distributor of SIM cards, was alleged to have not discharged the service tax liability on the commission received from their principal. The lower authorities imposed penalties under Sections 76, 77, and 78. The first appellate authority upheld the penalty under Section 78 but set aside the penalties under Sections 76 and 77. The appellant contended that they had a bonafide belief that they were not liable to pay service tax on the commission received. The appellant cited judgments to support their belief. The departmental representative argued that the extended period under Section 73(4) applied in this case and questioned the bonafide belief of the appellant. The Tribunal considered these arguments.

The main issue was the penalty imposed under Section 78 of the Finance Act, 1994. The appellant had paid the service tax liability and interest before the show cause notice was issued. The Tribunal observed that the appellant's activity of purchasing and selling SIM cards involved receiving commission, which the Revenue claimed was liable for service tax. Recent judgments indicated that such activities could be considered as rendering services. The Tribunal noted that the appellant may have genuinely believed there was no liability for services during the relevant period. Consequently, the Tribunal extended the benefit of Section 80 of the Finance Act, 1994 to the appellant, setting aside the penalty under Section 78 based on the appellant's justifiable reasons. Thus, the Tribunal allowed the appeal against the imposition of the penalty under Section 78.

In conclusion, the Tribunal found in favor of the appellant, setting aside the penalty under Section 78 of the Finance Act, 1994, based on the appellant's bonafide belief and the nature of the activity in question. The Tribunal invoked its discretion under Section 80 to provide relief to the appellant.