2017 (7) TMI 297 - AT - Service Tax

Penalties u/s 76, 77 and 78 of FA - classification of services - business support service - development of supply of content services - Held that - It is apparent that the Finance Act itself recognizes that it is possible for a service to be classified in more than one classification and in such case the more specific classification is to be preferred. Thus merely because a service is more specifically classifiable in one entry does not mean it cannot be classified in any other entry less specifically. Thus the entire premise of the impugned order that since a new service describes a service specifically it cannot be classified in any other service cannot be sustained. Moreover the impugned order does not specifically deal with the possibility of classification of the service provided under Business Support Services(BSS) during the period 01/05/2006 to 30/05/2007 and Development & Supply of content services (DSCS) during the period 01/06/2007 to 15/05/2008. The impugned order also does not give any reasons for treating the service under consideration similar to the service referred in the letter issued by CBEC to Controller of Certifying Authorities to the effect that issuance on digital signature certified by the certifying authorities does not fall under the specified taxable services. As the impugned service is not a speaking order, the matter is remanded for fresh adjudication - appeal allowed by way of remand.

Issues Involved:
1. Classification of services provided by the respondent.
2. Justification for dropping penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Treatment of services provided by the respondent as similar to digital signature services.
4. Revenue neutrality and extended period of limitation.
5. Non-imposition of penalties and the application of Mens rea.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Respondent:
The Revenue filed an appeal against the dropping of penalties and the classification of services provided by the respondent, M/s. Adweb Technologies. The respondent was engaged in procuring and providing SSL, CS, and WS certificate services. The Revenue issued a show-cause notice demanding service tax under three different heads for three different periods: Business Support Services (BSS) from 01/05/2006 to 30/05/2007, Development & Supply of Content Services (DSCS) from 01/06/2007 to 15/05/2008, and Information Technology Software Services (ITSS) from 16/05/2008 onward. The Commissioner confirmed the demand only for the period subsequent to 16/05/2008 under ITSS and dropped the entire demand for the prior period. The Revenue argued that the Commissioner failed to classify the services under BSS or DSCS for the respective periods.

2. Justification for Dropping Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The Revenue contended that the Commissioner did not impose any penalties under Sections 76, 77, and 78 of the Finance Act, 1994, despite the respondent paying the service tax liability with interest before the issuance of the show-cause notice. The Revenue argued that the benefit of bonafide was wrongly extended to the respondent, as held in the case of Machino Montel (I) Ltd. The Revenue also cited the case of Dharmendra Textile Processors, asserting that Mens rea need not be established for imposing penalties.

3. Treatment of Services Provided by the Respondent as Similar to Digital Signature Services:
The Commissioner relied on a letter issued by CBEC to the Controller of Certifying Authorities, stating that the issuance of digital signature certificates by certifying authorities does not fall under taxable services. The Revenue argued that the services provided by the respondent were different from digital signature certificate services and should not be treated similarly. The Commissioner accepted the respondent's assertion without providing reasons, making the impugned order not a speaking order.

4. Revenue Neutrality and Extended Period of Limitation:
The respondent argued that even if tax was demanded on the imported certificates, they would be entitled to Cenvat credit, resulting in a revenue-neutral situation. The respondent cited several decisions, including Kitplay Industries Ltd., Jay Yuhshin Ltd., and Jain Irrigation Systems Ltd., to support this assertion. The respondent also argued that the extended period of limitation could not be invoked due to revenue neutrality.

5. Non-imposition of Penalties and the Application of Mens rea:
The Revenue argued that there was no confusion about the recovery of tax on a reverse charge basis, as clarified in 2006. Therefore, the failure to pay service tax on a reverse charge basis indicated a lack of bonafide, warranting the imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Conclusion:
The Tribunal found that the impugned order was not a speaking order and failed to address the classification of services under BSS and DSCS for the respective periods. The Tribunal also noted that the Finance Act recognizes the possibility of a service being classifiable under more than one classification, and the more specific classification should be preferred. The Tribunal set aside the impugned order and remanded the matter for fresh adjudication.

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