2008 (11) TMI 14 - AT - Service Tax

Appellants were doing the repair job as authorized service centre of M/s. SIEL - Appellants were getting a fixed amount of Rs.35,000/- per month plus some reimbursement of certain other expenses from SIEL for free repairs done under warranty period on behalf of the manufacturer i.e. SIEL bona fide belief of non-liability to pay service tax tax along with interest paid immediately on pointed out by dept. commission rightly invoked section 80 to reduce penalty

Summary

Issues:
- Service tax liability on repair services provided under warranty period
- Imposition of penalties under Sections 76 and 78 of the Finance Act

Analysis:

1. Service tax liability on repair services provided under warranty period:
The case involved M/s. Dixon Electronics providing repair services for electronic appliances under warranty for M/s. Samsung India Electronics Ltd. The Department discovered that Dixon Electronics did not pay service tax on the fixed monthly amount and reimbursements received from Samsung India Electronics Ltd. The dispute centered around whether service tax was applicable to this amount. The Appellant argued that they believed in good faith that since the amount was not from customers directly, no service tax was due. They cited relevant judgments to support their position. The Departmental Representative contended that service tax was indeed payable on the total amount received, regardless of the source. The Tribunal noted that Dixon Electronics promptly paid the service tax with interest upon being informed by the Department. Considering the circumstances and the bona fide belief of Dixon Electronics, the Tribunal found merit in their argument. It invoked Section 80 of the Finance Act, which the Commissioner (Appeals) had not accepted, and ruled in favor of Dixon Electronics, setting aside the impugned order.

2. Imposition of penalties under Sections 76 and 78 of the Finance Act:
The Department had imposed penalties under Sections 76 and 78 of the Finance Act on Dixon Electronics for non-payment of service tax. The penalties included a daily penalty under Section 76 and a lump sum penalty under Section 78. Dixon Electronics contested the penalties, emphasizing their genuine belief in the non-applicability of service tax to the specific amount received from Samsung India Electronics Ltd. The Departmental Representative argued that even though the service tax was paid before the show cause notice, penalties should still apply. The Tribunal referred to a relevant judgment and noted that there is no automatic waiver of penalties even if tax is paid before the issuance of a show cause notice. However, in this case, considering the circumstances and Dixon Electronics' prompt payment upon notification, the Tribunal decided in favor of Dixon Electronics and dismissed the Revenue's appeal while allowing Dixon Electronics' appeal.

In conclusion, the Tribunal ruled in favor of M/s. Dixon Electronics, setting aside the penalties imposed and dismissing the Revenue's appeal, based on the genuine belief held by Dixon Electronics regarding the service tax liability on the repair services provided under warranty period.