2017 (1) TMI 432 - AT - Service Tax

Imposition of penalty - reverse charge mechanism - business auxiliary services - Held that - during the period in question, taxability under Reverse Charge Mechanism was being disputed at higher judicial fora and finally settled by the judgment of Hon ble High Court of Bombay in the case of Indian National Shipowners Association - appellant could have entertained a bonafide belief that Service Tax liability may not arise. This is a fit case for invoking the provisions of Section 80 of the Finance Act, 1994 for setting aside the penalty imposed - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is required to discharge the Service Tax liability for the period 19.04.2006 to 31.05.2010 in respect of the payment made to a service provider situated in a country other than India.

Analysis:
The Appellate Tribunal CESTAT, Mumbai heard an appeal against the Order-in-Appeal passed by the Commissioner of Central Excise & Customs. The appellant had received services for "Business Promotion & Marketing" from a foreign service provider and made payments, which were found to be liable to Service Tax under the "Reverse Charge Mechanism" for "Business Auxiliary Services." The lower authorities confirmed the demand for Service Tax with interest and imposed a penalty under Section 78 of the Finance Act, 1994.

Upon reviewing the appeal, the Tribunal noted that the appellant contested mainly the penalty imposed by the lower authorities. The Tribunal upheld the demand for Service Tax liability and interest under "Business Auxiliary Services" as the appellant had indeed made payments to service providers for promotional activities. However, considering the ongoing dispute regarding taxability under the "Reverse Charge Mechanism," the Tribunal found that the appellant could have genuinely believed that Service Tax liability might not arise. Therefore, invoking Section 80 of the Finance Act, 1994, the Tribunal set aside the penalty imposed by the lower authorities.

In conclusion, the Tribunal confirmed the demand for Service Tax with interest but allowed the appeal by setting aside the penalty. The judgment highlighted the importance of considering the bonafide belief of the appellant in cases where taxability is disputed at higher judicial fora, ultimately providing relief to the appellant in this matter.