2017 (2) TMI 208 - AT - Service Tax

Imposition of penalties u/s 76, 77 and 78 of the Finance Act - the appellant has discharged the entire service tax liability for the period 18.04.2006 to 31.07.2010 along with interest thereof during the course of investigation itself - whether imposition of penalty justified? - Held that - appellant has already paid entire tax liability along with interest hence the provisions of Section 73(3) of the FA, 1994 gets attracted in this case - SCN for penalties should not have been issued. The appellant could have availed the CENVAT credit of the service tax paid under reverse charge mechanism, which would mean that there may be no intention on the part of the appellant not to discharge the service tax liability on the amount paid as royalty and technical know-how fees. Revenue neutrality is a defence that could be claimed for non-imposition of penalty. The authorities need not have issued any SCN u/s 73(i) of the FA, 1994 to the appellant for imposition of penalties - penalties set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Discharge of service tax liability on services received from abroad, imposition of penalties under Section 76, 77, and 78 of the Finance Act, 1994.

Analysis:

Discharge of Service Tax Liability:
The appellant received technical know-how and paid fees to their parent organization and sister concern, including royalty. The adjudicating authority demanded service tax liability for the period 01.01.2005 to 18.04.2006 and 18.04.2006 to 31.07.2010 under Intellectual Property Service. The appellant had already paid the tax liability for the latter period along with interest. The Tribunal upheld this part of the order as the appellant did not contest the tax liability and interest. The penalties were the main contention.

Penalties Imposed:
The penalties under Section 76, 77, and 78 were imposed by the adjudicating authority based on the alleged suppression of facts regarding payments to the parent organization and sister concern. The appellant argued that they had discharged the service tax liability and were contesting only the penalties. The Tribunal found that the adjudicating authority misunderstood the law. The appellant was a recipient of services under the reverse charge mechanism, and there was no provision to declare such receipt until Section 66A of the Finance Act, 1994 was enacted. The Tribunal held that the penalties were not justified as the appellant had paid the tax liability in good faith and the situation was revenue neutral.

Legal Precedents and Conclusion:
The Tribunal referred to various judgments and highlighted the revenue neutrality aspect. Citing the case of Jain Irrigation Systems Ltd., the Tribunal emphasized that the penalties were not warranted due to the revenue neutral nature of the situation. The Tribunal set aside the penalties imposed under Section 77 and 78 of the Finance Act, 1994. The impugned order was partially set aside, and the appeal was allowed with consequential relief.

This detailed analysis of the judgment outlines the issues of service tax liability discharge and penalties imposed, along with the Tribunal's reasoning and legal precedents considered in reaching the decision.