2015 (12) TMI 491 - AT - Service Tax

Levy of penalty for late payment of service tax - bonafide mistake - Tax on arranger fees - Imposition of penalty - Held that - Appellants having come to know about their liability to pay service tax as the recipient of the service, immediately paid the entire amount of service tax along with education cess amounting to ₹ 67,62,355/-. We also find that the appellant have remitted the interest amount of ₹ 5,73,225/- on 25.11.2008, for delayed payment of service tax. They have filed challan for proof of payment of interest. The appellant assessee on being informed about their liability to pay service tax have readily accepted and discharged their liability in full, which is not in dispute. Having regard to the facts and circumstances of this case, which show that the appellants were eligible for cenvat credit on the service tax paid on the reverse charge mechanism, we find that there is bonafide reason for invoking sec. 80. Further, we also find that this is a case where the appellants have been able to show reasonable cause for delayed payment under bonafide belief as to taxability of service and in view of the revenue neutral situation, we find that the penalties imposed on the appellants cannot be sustained and has to be set aside. In the result, the amount paid towards service tax and interest thereon and appropriated is sustained and penalties imposed on the appellants are set aside. - Decided partly in favour of assessee.

Summary

Issues:
1. Liability of service tax on arranger fee paid for ECB loans.
2. Imposition of penalties under Section 76, 77 & 78 of the Finance Act, 1994.

Issue 1: Liability of service tax on arranger fee paid for ECB loans

The case involved an appeal against an order by the adjudicating authority regarding the liability of service tax on arranger fees paid for External Commercial Borrowings (ECB) by a company. The company availed ECB loans and paid fees to ICICI Bank Ltd., Bangalore and Singapore Branch for processing and arranging the loans. The appellant believed that the service tax liability on the arranger fee was payable by the bank. However, upon realizing their liability as the recipient of the service, the appellant paid the entire service tax amount, including education cess. The appellants argued that they were entitled to take the entire tax as Cenvat credit, leading to a situation of revenue neutrality. They cited relevant case laws to support their position. The Revenue contended that the appellants contravened the provisions of the Finance Act and Service Tax Rules, making them liable for penalties. The Tribunal found that the appellants promptly paid the service tax upon becoming aware of their liability, also remitting interest for delayed payment. Considering the bonafide belief of the appellants regarding taxability and the revenue-neutral situation, the Tribunal invoked Section 80 and set aside the penalties imposed, sustaining the payment of service tax and interest.

Issue 2: Imposition of penalties under Section 76, 77 & 78 of the Finance Act, 1994

The Revenue argued that the appellants' actions contravened the Finance Act and Service Tax Rules, making them liable for penalties under Section 76, 77, and 78. It was highlighted that the appellants delayed the payment of service tax, which would have gone unnoticed without the investigation by officers, potentially resulting in revenue loss for the Government. The adjudicating authority confirmed the demand for service tax, appropriated the amount, and imposed penalties. However, the Tribunal, after hearing both sides and examining the facts, found that the appellants promptly paid the service tax upon realizing their liability. The Tribunal noted that the appellants had reasonable cause for the delayed payment due to a bonafide belief regarding the taxability of the service and the revenue-neutral situation. Consequently, the penalties imposed on the appellants were set aside, and the appeal was partially allowed, sustaining the payment of service tax and interest while overturning the penalties.

This judgment by the Appellate Tribunal CESTAT Chennai addressed the issues of service tax liability on arranger fees for ECB loans and the imposition of penalties under the Finance Act, 1994. The Tribunal considered the bonafide belief of the appellants, their prompt payment upon realizing the liability, and the revenue-neutral nature of the situation in setting aside the penalties while upholding the payment of service tax and interest.