2018 (11) TMI 1807 - AT - Service Tax

Imposition of Penalty u/s 78 of FA - non-payment of service tax - commission paid to foreign service providers for External Commercial Borrowings - Reverse charge mechanism - agency commission/fee paid to foreign service providers - HELD THAT - In the case of M/S BHARAT FORGE LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE PUNE-III 2016 (1) TMI 260 - CESTAT MUMBAI in similar set of facts service tax liability arising out of External Commercial Borrowings are involved the Tribunal observed that the appellant had no intention to avoid payment of service tax which would have been available to them as Cenvat credit and non payment would not result in any financial benefit waiving penalty. The appellant deserves relief in the payment of penalty - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to Order-in-Original imposing penalty under Section 78 of the Finance Act, 1994 for non-payment of service tax on agency commission to foreign service providers for External Commercial Borrowings.

Analysis:
The appellant, a manufacturer of ductile iron pipes, availed services of foreign-based service providers for External Commercial Borrowings, leading to a dispute with the Revenue regarding the liability to pay service tax on agency fees. The Revenue contended that these services fell under Banking and other financial services, making them subject to service tax. The Department initiated an enquiry into the agency commission/fee paid to foreign service providers, resulting in the appellant paying the service tax and interest before the show-cause notice was issued. The Adjudicating Authority, while acknowledging the tax payment, imposed a penalty equal to the service tax under Section 78 of the Finance Act, 1994, which was contested in the appeal.

The appellant did not dispute the service tax liability but sought the setting aside of the penalty. The appellant's counsel cited various precedents to support this argument, emphasizing that the penalty should be waived based on the prompt payment of service tax before the issuance of the show-cause notice, as seen in similar cases like Bharat Forge Ltd. The Tribunal's observation in the Bharat Forge Ltd. case highlighted the appellant's genuine belief in non-liability for service tax, the timely payment of interest, and the availability of Cenvat credit, leading to the waiver of penalty under Section 80 of the Finance Act.

After examining the case laws presented by the appellant's counsel and considering the similarities with the Bharat Forge Ltd. case, the Tribunal concluded that the appellant's case warranted relief from the penalty under Section 80 of the Finance Act, 1994. Consequently, the penalty imposed under Section 78 was set aside, and the appeal was allowed.