2017 (7) TMI 1297 - AT - Service Tax

Enhancement of penalty u/s 78 of FA - denial of eligibility for exemption as export of services - supply of vessels to customers located overseas during the period from 1st July 2012 to 30th September 2014 for a tenor of less than 30 days - HELD THAT - Respondent is a public sector undertaking and have promptly discharged tax liability of over ₹ 2 crores along with interest. The show cause notice is bereft of any evidence of misrepresentation or suppression of facts. The levy of tax was determined ultimately on an interpretation to which the respondent forbore to raise any significant objection. It is moot whether there was any requirement under law to proceed with issue of show cause notice. Having issued show cause notice, the proceedings having culminated and penalty imposed under section 78 to the extent of 15% of the tax dues, which survives only on account of non-challenge on the part of the respondent. The appeal of Revenue for imposition of full penalty fails to sustain - appeal dismissed.

Issues:
1. Enhancement of penalty on the respondent for denial of exemption as 'export of services' on supply of vessels to customers located overseas.
2. Interpretation of provisions of section 78 of Finance Act, 1994 regarding imposition of penalty.
3. Allegation by Revenue regarding incorrect imposition of penalty.
4. Consideration of evidence of misrepresentation or suppression of facts in the show cause notice.
5. Assessment of the requirement to proceed with the issue of show cause notice.
6. Determination of penalty under section 78 of Finance Act, 1994.

Analysis:
1. The appeal was filed by the Revenue against the order-in-appeal dated 26th July 2016 of the Commissioner of Central Excise & Service Tax, Large Taxpayer Unit, Mumbai, concerning the enhancement of penalty on the respondent due to the denial of eligibility for exemption as 'export of services' on the supply of vessels to overseas customers between 1st July 2012 and 30th September 2014 for a period of less than 30 days. The respondent had discharged the tax liability and interest before the issuance of the show cause notice for the penalty under section 78 of the Finance Act, 1994.

2. The Revenue contended that the penalty should not have been restricted to 25% of the evaded tax as the respondent did not deposit the penalty within the stipulated time, as per the provisions of section 78 of the Finance Act, 1994. The respondent, on the other hand, had filed cross-objections.

3. During the proceedings, both the Learned Authorised Representative for Revenue and the Learned Counsel for the respondent-assessee were heard.

4. The show cause notice proposed the imposition of penalty under section 78 of the Finance Act, 1994, without evidence of misrepresentation or suppression of facts by the respondent, who promptly discharged the tax liability and interest. The tribunal noted that the tax levy was determined based on an interpretation that the respondent did not challenge significantly. The tribunal questioned the necessity of issuing the show cause notice in the absence of any legal requirement to do so.

5. Considering that the penalty was imposed under section 78 to the extent of 15% of the tax dues, which remained uncontested by the respondent, the tribunal concluded that the appeal by the Revenue for the imposition of a full penalty could not be sustained. Therefore, the appeal was dismissed, and the cross-objection was disposed of accordingly.

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