2017 (5) TMI 340 - AT - Service Tax

Penalty - failure to discharge the service tax liability under the reverse charge mechanism - C&F Agents service - case of appellant is that since the law was very nascent at that time and tax liability under reverse charge mechanism was improperly appreciated by them hence they did not discharge tax liability in time but subsequently they discharged the tax liability - the interest liability is discharged by the appellant, although belatedly. Held that - during the relevant period there was confusion as to who has to discharge the service tax liability under the reverse charge mechanism - there is no intention to evade tax as they being Government of Maharashtra undertaking, accordingly we hold that this is a fit case for invoking the provisions of Section 80 of the FA, 1994 for setting aside the penalties imposed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant, a Government of Maharashtra undertaking, is liable to be penalized under sections 75A, 76, 77, and 78 of the Finance Act, 1994 for not discharging service tax liability.

Analysis:
The appeal before the Appellate Tribunal CESTAT Mumbai challenged an Order-in-Original passed by the Commissioner of Central Excise, Thane I, regarding service tax liability of the appellant for the period between 16/07/1997 to 31/12/2001. The appellant, a C&F Agent, contended that due to the nascent state of the law at the time, they did not promptly discharge the tax liability under the reverse charge mechanism. The adjudicating authority demanded interest and imposed penalties under sections 76, 77, and 78 after the appellant contested the show cause notice. The appellant argued that being a Government of Maharashtra undertaking, they had no intention to evade tax, and they rectified the tax liability before the order-in-original was passed. The bench adjourned the matter to confirm if the interest liability was discharged, which was later confirmed by the appellant.

The main issue for consideration was whether the appellant, as a Government undertaking, should be penalized for non-discharge of service tax liability. The appellant consistently claimed a bona fide belief that they were not liable to pay tax and emphasized their status as a Government entity. The Tribunal noted the confusion during the relevant period regarding the party responsible for discharging service tax liability under the reverse charge mechanism. The Tribunal referred to relevant cases and found merit in the appellant's argument that there was no intention to evade tax, especially considering the retrospective amendment placing tax liability on the service recipient. Consequently, the Tribunal invoked Section 80 of the Finance Act, 1994, to set aside the penalties imposed by the adjudicating authority, ruling in favor of the appellant.

In conclusion, the Appellate Tribunal CESTAT Mumbai allowed the appeal to the extent that it contested the imposition of penalties by the adjudicating authority. The Tribunal held that the appellant, as a Government undertaking, had a justifiable reason for not discharging the tax liability promptly and set aside the penalties under Section 80 of the Finance Act, 1994.