2016 (11) TMI 282 - AT - Service Tax

Imposition of penalty u/s 78 - receipt of commission for arranging supply of refractories to the clients - business auxiliary service - Held that - The determination of tax liability was a consequence of routine scrutiny of service tax returns followed by summons of the balance sheet of the appellant. From this it can be inferred that there was no attempt at subterfuge or suppression. Moreover, the promptitude with which the determined tax liability was deposited along with interest reinforces the inference. Though the first appellate authority has pointed out to the lack of any evidence of non-collection of tax from their customers, we cannot accept that assertion to be tenable. It is a matter of record that the non-payment of tax was discovered upon scrutiny of balance sheet; there is no earthly reason to presume that the tax component of the transaction was suppressed when the transaction itself is recorded in the financials. Indeed, there is no allegation of any failure to remit. In these circumstances, we find no reason not to accept the submission that the tax-liability should be computed on cum-tax basis - the commission received shall be subject to cum-tax method of computation of taxable value - penalty u/s 78 set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of penalty by the original authority upheld by the Commissioner of Central Excise (Appeals) - whether warranted under section 73 of Finance Act, 1994.

Analysis:
The appellant, M/s Chaney & Co, was involved in the provision of 'erection, installation and commissioning service' and 'maintenance and repair service.' The case against the appellant revolved around the receipt of commission for arranging the supply of refractories to clients between 2005-06 and 2008-09. The service tax, due as a provider of 'business auxiliary service,' was not discharged, resulting in the original authority confirming a tax amount and imposing penalties under sections 76 and 78 of the Finance Act, 1994.

The first appellate authority modified the order by quashing the penalty under section 76. The appellant argued that they were unaware of the tax liability for the said activity and had paid the amount in full along with interest upon being informed by the service tax authority. They contended that the proceedings were not justified under section 73 of the Finance Act, 1994.

During the proceedings, it was noted that the determination of tax liability arose from routine scrutiny of service tax returns and examination of the appellant's balance sheet. There was no evidence of subterfuge or suppression, as the tax liability was promptly deposited along with interest upon discovery. The lack of evidence regarding non-collection of tax from customers was not deemed tenable, considering the transaction was recorded in the financials and there was no allegation of failure to remit. The appellant's argument for tax liability computation on a 'cum-tax' basis was accepted.

The appellant cited various decisions to support their claim that the proceedings leading to the appeal were not contemplated by the law. The Tribunal's decision in Commissioner of Central Excise, Kanpur v. Pradeep Enterprises was particularly highlighted. Ultimately, the Tribunal held that the commission received should be subject to the 'cum-tax' method of taxable value computation. The proceedings were deemed unwarranted, leading to the setting aside of the penalty under section 78.