2013 (12) TMI 627 - AT - Service Tax

Demand of service tax - Penalties under section 76, 77 & 78 - ST-3 returns not filed - Commissioner waived penalties - Held that - nature of law relating to import of service and also the fact that during the relevant time there was considerable confusion in the mind of exporters regarding their liability, orders of the lower authorities are proper and there is no need to interfere with the same - Decided against Revenue.

Summary

Issues:
- Service tax demand on services received from persons located abroad under section 66A of Finance Act, 1994.
- Applicability of penalties under sections 76, 77, and 78 of Finance Act, 1994.
- Validity of section 66A of Finance Act, 1994.

Analysis:
1. The case involved a manufacturer of cotton made-ups for exports who received services of agents located abroad and paid for those services. The revenue demanded service tax on these services under section 66A of the Finance Act, 1994. The adjudicating authority confirmed a service tax demand of Rs.16,91,239 for the period 18-04-06 to 31-12-08 but waived penalties under sections 76, 77, and 78 of the Act. The Revenue challenged the waiver of penalties, leading to appeals before the Commissioner (Appeals) and ultimately before the Tribunal.

2. The Revenue argued that the appellant willfully evaded payment of service tax by not registering, paying the tax due, or filing ST-3 returns despite the introduction of section 66A. They contended that penalties under section 78 were justified based on precedents like CCE Ludhiana Vs Silver Oak Gardens Resort and Dhandayuthapani Canteen Vs CCE Trichy. The Revenue sought imposition of penalties as proposed in the show cause notice.

3. In response, the Advocate for the respondent highlighted that exporters in Karur had filed a writ petition challenging the levy, leading to an interim stay against the issue of the show cause notice. The respondent argued that they paid the tax voluntarily before the matter was resolved and did not contest the tax liability thereafter. They raised doubts about the liability for service tax on activities carried out abroad and suggested that any tax paid could have been claimed as a refund under Cenvat Credit Rules 2004.

4. The Tribunal considered the legal clarity provided by the decision in Indian National Ship Owners Association Vs UOI regarding the validity of section 66A of the Finance Act, 1994. They also referred to a previous decision where penalties were waived in a similar situation. The Tribunal noted the confusion among exporters regarding their tax liability during the relevant period and the doubts surrounding the applicability of service tax on foreign activities.

5. After considering the submissions from both sides and the prevailing legal framework, the Tribunal upheld the orders of the lower authorities. They found no reason to interfere, given the circumstances of the case, the evolving nature of the law on imported services, and the confusion among exporters at the time. Consequently, the appeal filed by the Revenue was rejected, affirming the decision of the Commissioner (Appeals) to waive penalties under sections 76, 77, and 78 of the Finance Act, 1994.