2016 (7) TMI 471 - AT - Service Tax

Levy of penalty u/s 78 - waiver u/s 80 - admitted liability of service tax as paid with interest invoking extended period of limitation - In the instant case, entire services have been provided outside India and not received in India. So the recipient was under the impression that there were no liabilities to pay - Held that - When the department officials are aware of the activities of the Respondent herein, the allegation of suppression is baseless. - department has failed to make out a case justifying the imposition of penalty under section 78. Apart from the above rulings, factually also there is no suppression of facts on the part of the Respondent herein. - Penalyt was rightly waived by the Commissioner (Appeal) - Decided against the revenue.

Summary

Issues:
Levy of service tax on brokerage paid to a foreign firm for sale of carbon credits; Appeal against penalty imposed under Section 78; Dispute regarding imposition of penalty under Section 78; Interpretation of extended period for demand confirmation; Applicability of case law in setting aside penalties.

Analysis:
1. The department appealed against the order that set aside the penalty under Section 78 imposed on the respondent for receiving services from foreign firms without an office in India under Business Auxiliary Services. The respondent, though aware of statutory obligations, paid the service tax only after an internal audit highlighted the liability. The Commissioner (Appeals) set aside the penalty, leading to the department's appeal. The respondent disputed the penalty but not the demand confirmation under the extended period of limitation. The department argued for the penalty based on mandatory provisions, citing case law and the Apex Court's judgment.

2. The respondent's counsel reiterated the Commissioner's findings and submitted citations supporting their case. They argued that services provided outside India and not received in India do not attract tax liability. The respondent's belief that no liabilities existed due to the services being outside India was highlighted. The counsel contested the applicability of Section 73(4) raised by the department. The respondent's position was to uphold the order and reject the department's appeal.

3. The main issue revolved around the levy of service tax on brokerage paid to a foreign firm for carbon credits sale. The department alleged the respondent appealed only against the penalty under Section 78, not the demand confirmation under the extended period. The respondent contended that the extended period was not applicable in their case and penalty under Section 78 required mis-declaration and suppression of facts. The Tribunal found the respondent's actions aligned with a previous case, emphasizing that the department failed to justify the penalty imposition.

4. The Tribunal referenced the Atwood Oceanics case, emphasizing that the respondent paid the tax to avoid litigation, not due to suppression. The issue was interpretative, and the department's argument against following precedent lacked merit. The Tribunal highlighted the interpretative nature of the issue and the lack of suppression when services were rendered outside India. The department's failure to establish grounds for penalty under Section 78 led to the dismissal of the appeal.

In conclusion, the Tribunal dismissed the department's appeal, emphasizing the lack of justification for imposing the penalty under Section 78. The judgment underscored the interpretative nature of the issue and the absence of suppression of facts by the respondent. The decision aligned with precedent and highlighted the importance of understanding the law's objectives in tax matters.