2017 (5) TMI 1090 - AT - Service Tax

Penalty - Commission without extending cum tax price - reverse charge mechanism - Held that - Once the amount which has been ascertained and informed by the departmental officer to an assessee and paid by the assessee before issuance of SCN the provision of Section 73(3) of FA 1994 gets attracted in situation like this - Provision of Section 73(3) categorically mandates that no SCN be issued to any assessee under sub section (1) in respect of amount so paid - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Payment of service tax under reverse charge mechanism for services rendered by a foreign service provider; Discharge of service tax liability based on audit objection; Show cause notice issued for demanding and confirming service tax amount; Calculation of tax demand including entire amount paid as commission; Challenge of penalty imposed under section 78 of Finance Act, 1994.

Analysis:
The appeal before the Appellate Tribunal CESTAT Hyderabad revolved around the payment of service tax under the reverse charge mechanism for services provided by a foreign service provider to the appellant during a specific period. The appellant had paid the service tax liability and interest based on an audit objection raised by the audit team. Subsequently, a show cause notice was issued proposing to demand and confirm the service tax amount paid by the appellant. The dispute mainly centered on the calculation of the tax demand, where the department included the entire amount paid as commission without extending cum-tax benefit. The appellant's contention in the appeal was primarily focused on challenging the penalty imposed under section 78 of the Finance Act, 1994.

Upon considering the submissions from both parties, the Tribunal noted that the appellant had indeed paid the service tax amount along with interest before the show cause notice was issued. This payment was made based on an ascertainment of the tax liability by the appellant and informed to the departmental officer. The Tribunal referred to Section 73(3) of the Finance Act, 1994, which prohibits the issuance of a show cause notice in situations where the tax amount has already been paid by the assessee before the notice is served. The Tribunal's decision was supported by a previous judgment of the Hon'ble High Court of Karnataka, emphasizing the preclusion of a show cause notice when the assessee acknowledges and pays the entire service tax due with interest before the notice is issued.

In light of the above legal provisions and precedents, the Tribunal upheld the appellant's argument and set aside the penalty imposed under section 78 of the Finance Act, 1994. The appeal was allowed to the extent that it challenged the penalty imposed by the adjudicating authority and the first appellate authority. The impugned order was modified accordingly, and the appeal was disposed of in favor of the appellant.

Overall, the Tribunal's decision was based on the statutory provisions and legal principles governing the payment of service tax under reverse charge mechanism, emphasizing the importance of prior payment to preclude the issuance of a show cause notice. The judgment highlighted the significance of compliance with tax liabilities and the consequences of such compliance on subsequent enforcement actions.