2015 (5) TMI 211 - AT - Service Tax

Penalty u/s 76 for late deposit of service tax - penalty u/s 77 not submission of ST-3 return - reverse charge mechanism - situation of revenue neutrality - Held that - Appellant was required to pay service tax under reverse charge mechanism. After that they have paid the service tax in time, same was available to them as Cenvat credit. By not paying the service tax in time, appellant has already suffered interest and have not taken credit of the service tax paid. Therefore it is a situation of revenue neutrality. Penalty under section 76 is dropped. However, I consider that imposition of penalty under section 77 shows the non application of mind by the authorities below. As under section 77 penalty cannot be imposed for non-filing of SRT 3 return. In these circumstances, penalty under section 77 is also, set aside. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 76 imposed
Penalty under section 77 imposed
Service tax liability under reverse charge mechanism
Imposition of penalties contested

Analysis:

The appellant appealed against an order imposing penalties under sections 76 and 77, amounting to &8377; 1526 and &8377; 3,12,200 respectively, despite a service tax demand of only &8377; 1,526. The case involved the appellant's failure to pay service tax under reverse charge mechanism due to lack of awareness. The appellant, engaged in manufacturing bulk drugs, had taken membership of PDA located outside, triggering the service tax liability. The appellant did not contest the service tax liability but challenged the penalties as excessive.

The appellant's counsel argued that the penalties under sections 76 and 77 were unwarranted as the service tax payment delay was unintentional, and the appellant could have availed Cenvat credit if timely paid. The counsel contended that penalty under section 76 was unreasonably high and not applicable for non-filing of ST 3 return, while section 77 did not authorize penalty for non-registration under the category.

On the contrary, the AR supported the penalties citing the appellant's failure to pay service tax on time, justifying the imposition of penalties under sections 76 and 77. After hearing both parties, the Tribunal considered the submissions and found that the appellant's delay in paying service tax resulted in interest payment without availing credit, leading to a revenue-neutral situation. Consequently, the penalty under section 76 was waived. Regarding the penalty under section 77, the Tribunal noted the authorities' oversight as penalties cannot be imposed for non-filing of ST 3 return.

In conclusion, the Tribunal allowed the appeal by overturning the penalties imposed on the appellant, emphasizing the revenue-neutral aspect of the case and the incorrect application of penalties under sections 76 and 77. The judgment highlighted the importance of considering specific provisions before penalizing non-compliance in tax matters.