2015 (9) TMI 634 - AT - Service Tax

Imposition of penalty - Payment of commission to foreign service provider - Liability under Reverse Charge mechanism - Bonafide belief - Held that - Under Reverse Charge Mechanism the services receiver located in India who has received the services from the service provider located outside India is required to pay service tax under Reverse Charge Mechanism. Therefore, the contention of the bonafide belief is not sustainable. - appellant has paid the entire amount of service tax, in fact excess amount of service tax within a period of one month of the issuance of show cause notice. Therefore, penalty is required to be reduced to 25% of the Service tax confirmed against the appellant. - Decided partly in favour of assessee.

Summary

Issues:
1. Appeal against setting aside penalties imposed on the appellant.
2. Dispute regarding payment of service tax under Reverse Charge Mechanism.
3. Applicability of Section 80 of the Finance Act.
4. Reduction of penalties under sections 77 and 78.

Analysis:
1. The appellant appealed against penalties imposed on them for not paying service tax on commissions/service charges paid to a foreign service provider. The penalties were imposed under various sections of the Finance Act, which were challenged before the Ld. Commissioner (A). The Commissioner dropped some penalties and reduced others, leading the appellant to appeal further.

2. The appellant argued that there was a dispute regarding the payment of service tax under Reverse Charge Mechanism during the relevant period. They claimed to have been under a bonafide belief that they were not required to pay service tax, citing a High Court judgment. The appellant requested the benefit of Section 80 of the Act or a reduction in penalties based on the amount of service tax already paid.

3. The opposing party contended that after a specific date, service tax was indeed payable under the Reverse Charge Mechanism. They argued that the appellant's belief was not sustainable in light of the clear amendment in the Finance Act. The opposing party supported the penalties imposed by the lower authorities and emphasized the requirement to file Service Tax returns.

4. The tribunal considered the arguments and facts presented. It noted that the service tax liability under Reverse Charge Mechanism was clear from a certain date, making the appellant's bonafide belief unsustainable. However, since the appellant had paid the entire service tax amount promptly after receiving the show cause notice, the tribunal decided to reduce the penalty to 25% of the confirmed service tax amount. The penalty under section 77 was upheld, and the appeal was disposed of accordingly.