2015 (8) TMI 107 - AT - Service Tax

Penalty u/s 76 & 78 - Waiver of penalty u/s 80 - GTA Services - service tax on royalty - Revenue neutrality - Held tat - it may not be possible for the appellant to claim revenue-neutrality in this case since the final products manufactured by the appellants are exempt and even though there is liability to pay service tax on GTA services as a receiver of services, after 01.04.2008, for outward transportation there is no such liability. Imposition of penalty under both the Sections 76 & 78 of Finance Act 1994 is not proper and there are decisions taking a view that even prior to the amendment providing for no imposition of penalty under Section 76 of Finance Act when penalty has been imposed under Section 78, penalty under both the Sections need not be imposed. Therefore penalty under Section 76 in my opinion can be waived in this case - However, penalty u/s 78 is reduced - Decided partly in favour of assessee.

Issues:
1. Liability of service tax and interest payment.
2. Waiver of penalty under Section 80 of Finance Act 1994.
3. Dispute regarding payment of service tax on technical know-how fee.
4. Imposition of penalties under Sections 76, 77, and 78 of Finance Act 1994.

Analysis:

1. The appellant acknowledged the liability of service tax and interest but sought waiver of penalties under Section 80 of the Finance Act 1994. The appellant argued that there was a reasonable cause for not paying service tax on royalty services due to uncertainty until a specific court decision clarified the issue. The appellant contended that they paid the tax with interest before any show-cause notice was issued, indicating no intention to evade payment. The appellant highlighted the ongoing dispute with the department regarding the technical know-how fee, emphasizing that the department was aware of the agreements in question, thus suppressing any relevant information could not be alleged.

2. The respondent argued that penalties were rightly imposed as the appellant delayed tax payment for three years after a certain date, implying clarity on the tax liability post that date. The respondent differentiated the case in question from previous legal precedents, asserting that the circumstances did not warrant penalty waivers as claimed by the appellant.

3. The presiding member considered both arguments and acknowledged the lack of revenue-neutrality for the appellant due to exempt final products. Referring to legal precedents, the member noted that confusion about tax liability was a crucial factor in deciding penalty waivers, which was not evident in the present case. The member cited specific cases where penalties were waived due to genuine doubts about tax liability, emphasizing the need for a similar level of uncertainty to justify penalty waivers.

4. Ultimately, the member concluded that penalties under Sections 76 and 78 of the Finance Act 1994 were not entirely justified. While waiving the penalty under Section 76 due to the absence of confusion regarding tax liability, the member reduced the penalty under Section 78 to the amount of service tax payable. Additionally, a nominal penalty under Section 77 was upheld as reasonable. The final decision favored the appellant by reducing the overall penalty amount and clarifying the penalty structure under different sections of the Finance Act.

This detailed analysis of the judgment showcases the legal arguments presented by both parties, the relevant legal precedents considered, and the final decision reached by the presiding member regarding the imposition and reduction of penalties under different sections of the Finance Act 1994.

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