2016 (3) TMI 852 - AT - Service Tax

Imposition of penalties under Section 78 & 77(1a) and 77(2) of the Finance Act, 1994 - Taxable services of Erection, Commissioning or Installation service received from outside India - No intention of assessee for non-payment of service tax as when pointed out that there was liability on them to pay service tax for the above services, they immediately made the payment along with interest - Held that - the provisions of Section 73(3) of the Finance Act, 1994 say that when the liability of tax has been paid by an assessee before service of notice on him under Section 73(1) and when the said assessee has informed the department of such payment in writing, the Department was not to serve any notice under Section 73(1). However it is right that Section 73(4) also makes it clear that wherever there has been such non-payment by reason of fraud, or collusion or willful misstatement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, an assessee cannot take the benefit of provisions of Section 73(3) of Finance Act 1994. But the Department has completely failed to prove the same. Also it was entitled to take CENVAT credit for payment of service tax, therefore, the intention to evade payment of service tax do not arise and the penalties imposed are set aside. - Decided in favour of assessee

Summary

Issues:
- Liability to pay service tax for services received from outside India
- Applicability of penalty provisions under Sections 76, 77, and 78 of the Finance Act 1994
- Interpretation of Section 73(3) and Section 73(4) of the Finance Act 1994
- Claim of bona fide belief and reasonable cause for non-payment of service tax

Analysis:
1. Liability to pay service tax for services received from outside India:
The case involved a show-cause notice issued by the Revenue to the appellant for not paying service tax on taxable services received from a Chinese company. The appellant, a paper mill company, had paid US dollar 6500 for services related to "Erection, Commissioning or Installation." The Revenue demanded service tax of &8377; 30,810 along with penalties. The Assistant Commissioner confirmed the demand, and the Commissioner (Appeals) upheld most of the decision. The appellant argued that they believed the customs duty paid on the total contracted price, including the US dollar 6500, covered the service tax liability.

2. Applicability of penalty provisions under Sections 76, 77, and 78:
The penalties imposed under Sections 76, 77(1a), and 77(2) of the Finance Act 1994 were contested by the appellant. The Tribunal considered the circumstances and found that there was no intention to evade payment of service tax. The appellant promptly paid the tax and interest upon realizing the liability. The Tribunal set aside the penalties, emphasizing that the appellant had a reasonable cause for the initial failure to pay the service tax.

3. Interpretation of Section 73(3) and Section 73(4) of the Finance Act 1994:
The appellant relied on Section 73(3) of the Finance Act, which deals with the situation where an assessee pays the tax liability before receiving a notice. The Tribunal noted that while Section 73(4) restricts this benefit in cases of fraud or willful misstatement, the Revenue failed to establish any such intent on the part of the appellant. The Tribunal also highlighted that the appellant was entitled to take cenvat credit for the service tax paid.

4. Claim of bona fide belief and reasonable cause for non-payment of service tax:
The appellant argued that they had a bona fide belief that the customs duty payment covered the service tax liability. They cited relevant case laws and circulars to support their position. The Tribunal acknowledged the confusion surrounding the levy of service tax but noted that the appellant acted promptly upon clarification from the Department. The Tribunal found that the appellant had a reasonable cause for the initial non-payment of service tax and, therefore, set aside the penalties imposed.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the penalties under Sections 76, 77(1a), and 77(2) of the Finance Act 1994. The judgment emphasized the absence of any intent to evade payment of service tax and the appellant's prompt action upon clarification, highlighting the reasonable cause for the initial non-payment.