2017 (6) TMI 221 - AT - Service Tax

Penalties - valuation - Commission Agent Service - bargain discounts given to the dealers - includibility - Held that - Commission Agent Service was incorporated in Business Auxiliary Service from 01.07.2003 and remained exempted from 01.07.2003 to 08.07.2004. Considering the fact that the exemption from service tax had just been removed on the commission agent service in July, 2004 and the appellants were paying income tax on the basis of net commission fee after deducting bargain discounts, plea of bonafide belief appears to be convincing. Their bonafides are also strengthened by the fact they paid entire short levy much before the issuance of show cause notice. In the absence of evidence or basis of suppression on the part of the appellant in the revision order and there being no such finding in the Order-in-Original imposition of penalty on the appellant is not justified - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Imposition of penalties under Section 77 and Section 78 of the Finance Act, 1994 in a case involving Business Auxiliary Services provided by the appellants.

Analysis:
The case involved the appellants providing Business Auxiliary Services by selling sugar on behalf of another company, which was considered a taxable service under the Finance Act, 1994. The appellants received commission but failed to register with the Service Tax Department or pay the required Service Tax. A show cause notice was issued demanding the unpaid tax along with interest and proposing penalty. The adjudicating authority confirmed the tax demand but did not impose penalties due to the appellant's belief that no tax was payable. However, on revision, the Commissioner imposed penalties under Section 77 and Section 78, leading to the appellant's appeal.

The main contention in the appeal was against the imposed penalties. The appellant argued that they believed the bargain discounts given to dealers were not part of the assessable value for tax purposes, citing a lack of evidence for suppression of facts. They highlighted the introduction of service tax on the commission agent service in 2004 and their compliance with income tax regulations. The appellant relied on a decision by the Punjab & Haryana High Court in a similar case to support their argument.

Upon review, the tribunal found that the penalties imposed lacked justification. The basis for the penalty under Section 77 was not provided, and the finding of suppression under Section 78 lacked evidence. Considering the recent removal of the service tax exemption on commission agent services and the appellant's prompt payment of the short levy, their bonafide belief was deemed reasonable. The tribunal referenced a previous judgment by the Punjab & Haryana High Court to support its decision.

Ultimately, the tribunal concluded that the penalties imposed by the Commissioner were not justified due to the absence of evidence or basis for suppression by the appellant. Citing the previous court judgment, the tribunal set aside the penalties under Section 77 and Section 78. Consequently, the appellant's appeal was allowed, and the revision order was deemed unsustainable.