2017 (3) TMI 1456 - AT - Service Tax

Penalty - reverse charge - For the purpose of raising capital, appellant have received the services of non-resident institutions i.e. a person who has established a business or has a fixed establishment in a country other than India - The period in dispute is 18.04.2006 to 30.11.2007 - Held that - recipient in India became liable to service tax for the service received from abroad only from 18.04.2006, after the enactment of Section 66A - this was the first time, since 18.04.2006, that the services provided by the appellant was brought under the service tax net. This was the initial period and first year, hence, the appellant was not aware of the provisions. However, soon after knowing about the liability, the tax was paid along with interest - Moreover, the appellant is an Agency of the government under Article 12 of the Constitution and no individual interest is involved. When it is so, there is no justification for levy of penalty - reliance placed in the case of INDIAN NATIONAL SHIPOWNERS ASSOCIATION Versus UNION OF INDIA 2008 (12) TMI 41 - BOMBAY HIGH COURT - appeal allowed - decided in favor of assessee.

Summary

Issues:
Levy of penalty under Section 77 and 78 of the Finance Act, 1994 for non-payment of service tax by M/s. Indian Railway Finance Corporation Limited (M/s. IRFC) to non-resident financial organizations from 18.04.2006 to 30.11.2007.

Analysis:

Issue 1: Levy of Penalty under Section 77 and 78 of the Finance Act, 1994
The appellant, M/s. IRFC, borrowed money from non-resident financial institutions without registering with the service tax authority or paying service tax on the services received. The department demanded service tax, interest, and imposed penalties under Section 77 and 78. The appellant contended that they had paid the service tax along with interest, and the dispute was solely regarding the imposition of penalties. The appellant argued that there was confusion during the initial period when service tax was levied on their services, but they promptly paid the tax upon realizing their liability. Citing precedent, the appellant sought the penalties to be set aside. The Revenue justified the penalties, emphasizing the legal obligation to pay tax, interest, and penalties. The Tribunal noted that the appellant became liable for service tax only from 18.04.2006, after the enactment of Section 66A, which empowered the levy of service tax on recipients of taxable services from abroad. Considering the circumstances, the Tribunal found that this was the first time the services were brought under the service tax net, and the appellant, being an agency of the government, promptly paid the tax upon awareness. Consequently, the Tribunal set aside the penalty, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal filed by the appellant, M/s. IRFC, based on the understanding that the appellant promptly paid the service tax upon becoming aware of their liability, and considering their status as a government agency, the penalty under Section 77 and 78 of the Finance Act, 1994 was set aside.