2015 (10) TMI 114 - AT - Service Tax

Penalty u/s 78 - Business Auxiliary Service - Receipt of comission - Bonafide belief - Held that - In this case, most (about 92%) of the impugned demand of service tax alongwith interest was deposited voluntarily by 5.4.2006 and the remaining (about 8% of the impugned demand) was deposited alongwith interest just before receipt of show cause notice. Such voluntary deposit itself gives credence to the contention of the appellant that it was under bonafide belief that the commission received from M/s.Maruti Finance Ltd. was not liable to service tax. - Even the CBEC acknowledged that there has been certain doubts regarding service tax liability on commission from banks/non banking financial institutions and issued a clarificatory circular No.87/05/2006-ST dated 6.11.2006. In these circumstances, we are of the view that the appellant has made out a good case to get benefit under section 80 - penalty set aside - Decided in favour of assessee.

Summary

Issues involved:
- Appeal against Order-in-Appeal confirming service tax demand, interest, and penalty under section 78 of Finance Act.
- Contention regarding tax liability on commission received from Maruti Finance Ltd.
- Allegation of suppression of facts and evasion of service tax.
- Consideration of voluntary deposit, bonafide belief, and clarificatory circular issued by CBEC.
- Application of penalty under section 78 of Finance Act.

Analysis:
1. The appeal was filed against the Order-in-Appeal confirming a service tax demand, interest, and penalty under section 78 of the Finance Act. The appellant, an authorized dealer of Maruti Udyog Ltd., received commission from banks and Maruti Finance Ltd. The primary adjudication order confirmed the service tax demand for the period July 2004 to March 2006, along with interest and penalty. The appellant contended that there was confusion regarding the taxability of the commission received from Maruti Finance Ltd., as it believed it was not liable to pay service tax on that amount.

2. The appellant argued that it paid service tax on commissions received from banks but did not pay on the commission from Maruti Finance Ltd. until later, based on the belief that it was not taxable. The Department alleged suppression of facts and evasion of service tax, invoking penalty under section 78 of the Finance Act. However, the appellant maintained that there was no wilful misstatement or suppression of facts, supported by a clarificatory circular issued by the CBEC in November 2006, which created confusion regarding the taxability of such commissions.

3. The Tribunal considered both sides' contentions and observed that the appellant had voluntarily deposited a significant portion of the demanded amount before the show cause notice was received, indicating a bonafide belief in non-taxability. The appellant's consistent payment of service tax on commissions from banks also supported its contention of a genuine misunderstanding regarding the tax liability on the commission from Maruti Finance Ltd. The Tribunal noted that the appellant rectified the remaining payment with interest before the show cause notice, further strengthening its case.

4. In light of the circumstances and the clarificatory circular issued by the CBEC, the Tribunal found merit in the appellant's argument and decided to set aside the penalty under section 78 of the Finance Act. The Tribunal referenced a similar case where the penalty was overturned by the CESTAT and subsequently upheld by the Allahabad High Court, reinforcing the decision to grant relief to the appellant in this matter.