2016 (12) TMI 930 - AT - Service Tax

Waiver of penalty u/s 80 - Banking and Financial services received from the banks located outside India in relation to External Commercial Borrowings (ECB) - Held that - The appellant has paid the entire liability of service tax along with interest before the receipt of Show Cause Notice though in this regard a small amount of ₹ 24,732/- along with interest was paid by the appellant on 14.09.2010, for which the reason cited is the different rates of service tax as taken into account for calculation of tax liability for certain period. Further, the Department has not given any evidence that there were any mala fides regarding non-payment of service tax on the part of the appellant. The appellant also cites the provisions of Section 80 of the Finance Act, 1994 stating that there was reasonable cause for non-payment of service tax in the matter. The facts of the present case are similar to the Tribunal s decision in the case of Bharat Forge Ltd. Vs. CCE, Pune 2016 (1) TMI 260 - CESTAT MUMBAI , wherein it was held that The prompt payment of service tax even before the issue of show cause notice shows the genuineness of the appellant. It is a case of bonafide belief of the appellant that service tax was not payable. Even the interest was paid soon after the passing of the adjudication order. Most importantly, it is seen that whatever tax is paid by the appellant is available to them as Cenvat credit. In such a situation, being a big company, we are of the view that the appellant had no intention to avoid payment of service tax which would have been available to them as Cenvat credit and non payment would not result in any financial benefit. The appellant has given the plea of revenue neutrality also saying that no mens rea or mala fide on their part, therefore no penalty is imposable on them. The penalty imposed under Section 78 of the Act is hereby set aside. The impugned order is modified to the above extent - decided partly in favor of assessee.

Summary

Issues: Liability of service tax on External Commercial Borrowings (ECB) received from foreign banks under the category of Banking and Financial services.

Analysis:
1. The appellant appealed against the Order-in-Appeal sustaining the Order-in-Original confirming a service tax demand under the category of Banking and Financial services related to ECB loans from foreign banks. An equal penalty was imposed under Section 78 of the Finance Act, 1994, along with an additional penalty under Section 77 of the Act.

2. The appellant contended that they believed the liability of paying service tax on ECB loans rested with the Indian branches of the foreign banks. Upon realizing their mistake, they paid the entire service tax along with interest before receiving the Show Cause Notice. They argued that since all figures related to ECB loans were reflected in their balance sheet, the extended period for invoking penalty should not apply to them.

3. The Departmental Representative reiterated the lower authorities' findings, while the appellant relied on various case laws to support their claim, including Bharat Forge Ltd. Vs. CCE, Pune and CCE Vs. Textile Corporation Marathwada Ltd.

4. The Tribunal considered the submissions, case laws, and evidence provided by both parties. The appellant had paid the entire service tax liability along with interest before the Show Cause Notice, with a small additional payment due to different tax rates for a certain period. No evidence of mala fides regarding non-payment of service tax was presented by the Department.

5. The appellant invoked Section 80 of the Finance Act, 1994, claiming reasonable cause for non-payment of service tax. They cited a Tribunal decision in Bharat Forge Ltd. Vs. CCE, Pune, where a waiver of penalty was granted due to the appellant's prompt payment of service tax, lack of intention to avoid payment, and availability of Cenvat credit.

6. The appellant argued for revenue neutrality, stating no mens rea or mala fide on their part, and referenced the CESTAT decision in Jain Irrigation System Ltd. Vs. CCE, Nasik. Relying on the precedents set in Bharat Forge Ltd. and Jain Irrigation System Ltd. cases, the Tribunal set aside the penalty imposed under Section 78 of the Act, modifying the impugned order accordingly.

7. In conclusion, the Tribunal allowed the appeal, waiving the penalty under Section 78 of the Act based on the appellant's prompt payment, lack of intention to avoid tax payment, and the availability of Cenvat credit, in line with the principles established in previous Tribunal decisions.