2016 (7) TMI 637 - AT - Service Tax

Levy of penalty u/s 77 & 78 of the Finance Act, 1994 - validity of invocation of Section 80 by learned Commissioner (Appeals) for setting aside penalties while confirming the demand of service tax on import of services under reverse charge - Held that - It is only with introduction of Section 66A of the Finance Act, 1994 there was clarity and the judicial decisions as stated supra brought in clarity only from 2009 onwards. It cannot therefore be stated that there was a malafide intention on the Respondent s part. The contention of the respondent that there was no malafide as it is a revenue-neutral situation should not be lost sight of. This is a case where the tax paid by the Respondent is eligible for credit for themselves. It is, therefore, very clear that when the situation is revenue-neutral, the aspect of malafide fails. - No penalty - Decided against the revenue.

Summary

Issues:
Imposition of penalties under Section 77 & 78 of the Finance Act, 1994.

Analysis:
1. Background: The case involves a dispute regarding the imposition of penalties on the respondent under Section 77 & 78 of the Finance Act, 1994. The respondent, a manufacturer of Footwear, had paid Sales Commission to overseas commercial concerns for various services. The issue arose when the department noticed non-payment of service tax on the commission paid to overseas agents.

2. Contentions of Appellant (Revenue): The Revenue contended that the penalties imposed on the respondent should not have been set aside by the Commissioner (Appeals). They argued that the respondent failed to prove their bonafides for not paying service tax in time. The appellant highlighted that the respondent registered with the department only in 2009, despite the tax liability coming into effect in 2006. The appellant sought restoration of the penalties under Section 77 & 78.

3. Contentions of Respondent: The respondent argued that they had discharged their entire tax liability before receiving the show cause notice, citing reasonable cause due to pending tax disputes. They emphasized the concept of revenue-neutrality and relied on various case laws to support their argument. The respondent also contested the quantum of penalty imposed under Section 77, stating it should not exceed a certain limit.

4. Judgment: The Tribunal carefully considered both sides' submissions and perused the records. It noted that there was no dispute regarding the tax liability, which the respondent had already paid along with interest. The Tribunal found the penalty imposed on the respondent unsustainable, as the delay in tax payment was unintentional due to uncertainties regarding tax applicability under reverse charge. The Tribunal also acknowledged the revenue-neutrality aspect and cited precedents to support its decision.

5. Conclusion: The Tribunal dismissed the Department's appeal, negating the challenge to set aside the penalties under Section 78. It upheld the Commissioner (Appeals)'s decision to invoke Section 80 of the Finance Act, 1994, considering the reasonable cause shown by the respondent. The Tribunal deemed the penalty under Section 77 unsustainable and supported the invocation of Section 80. The appeal was disposed of accordingly.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive overview of the arguments presented by both parties and the Tribunal's decision based on the facts and legal provisions cited in the case.