2014 (1) TMI 1512 - AT - Service Tax

Intellectual property rights service - Service tax on Royalty amount not paid - Penalty u/s 76, 77 & 78 - Commissioner deleted penalty u/s 80 - Held that - It is seen that the original Adjudicating Authority has confirmed service tax demand by invoking extended period under proviso to Section 73 (1) on the basis of finding that the non-payment of the service tax was attributable to their intention to evade the tax. This finding of the Additional Commissioner has not been challenged by the appellant. Once such finding is given, there would be no scope for the conclusion that the appellant did not discharge the service tax liability due to bonafide reasons. Confirmation of service tax demand by invoking proviso to Section 73 (1) and waiver of penalty by invoking Section 80 do not go hand in hand - Decided against assessee.

Summary

Issues:
Service tax liability on royalty payments for technology use, imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994, applicability of Section 80 for waiving penalties, extended period under proviso to Section 73(1) for tax demand confirmation.

Analysis:
The appellant entered into a license agreement in 2001 for technology use, paying royalty on annual sales turnover. Service tax became applicable in 2004, but the appellant did not pay on royalty payments to a foreign collaborator. Two show cause notices were issued for service tax payment, interest, and penalties. The Additional Commissioner confirmed the tax demand using the extended period under proviso to Section 73(1) but did not impose penalties under Sections 76, 77, and 78, citing valid reasons for non-payment. However, the Jurisdictional Commissioner revised the order, imposing penalties under all three sections. The appellant appealed this decision.

The appellant argued that service tax was charged as a recipient of services from abroad, citing legal provisions introduced in 2006 and a Bombay High Court judgment. They contended that confusion existed regarding tax liability before 2006, and they paid the tax with interest, claiming Cenvat credit. The appellant believed there was no intent to evade tax, justifying the waiver of penalties under Section 80. The respondent argued that once the tax demand was confirmed under the extended period, penalties should not be waived under Section 80, as non-payment was deliberate.

The Tribunal noted that the Additional Commissioner's finding of intentional tax evasion was unchallenged by the appellant. Confirming the tax demand under the extended period and waiving penalties under Section 80 were incompatible. Therefore, the Tribunal upheld the imposition of penalties under Sections 76, 77, and 78, dismissing the appeal. The decision emphasized that deliberate non-payment precluded the invocation of bonafide reasons for non-compliance.

In conclusion, the Tribunal upheld the imposition of penalties under Sections 76, 77, and 78, as intentional tax evasion was found, precluding the appellant's claim of bonafide reasons for non-payment. The decision highlighted the incompatibility of confirming tax demands under the extended period and waiving penalties under Section 80, leading to the dismissal of the appeal.