2017 (7) TMI 603 - HC - Service Tax

Levy of Penalty - bonafide belief - reverse charge - lead arrangers - Despite the fact that the assessee had already paid the requisite service tax, the Revenue issued a Show Cause Notice dated 27.12.2007 (SCN). Via the said SCN, the Revenue proposed, to not only appropriate the service tax, which included the educational cess already deposited by the assessee, but also called upon the assessee to show cause as to why interest ought not to be levied under Section 75 of the Finance Act, coupled with penalties under Section 76 for failure to pay service tax and under Section 78 for suppressing the factum of receipt of taxable services from a non-resident service provider. Held that - upon a bare perusal of Section 80 (i), it opens with the non-obstante clause. Accordingly, it terms of the said Section an assessee can plead for waiver of imposition of penalties levied under Sections 76, 77 and 78 of the Act, if it is able to demonstrate that a reasonable cause obtained for non-payment of service tax. The assessee had paid service tax on a reverse charge mechanism basis, as soon as it received a communication dated 15.03.2007. The assessee did not wait for issuance of the SCN. Not only did the assessee pay the service tax, but it also paid interest, albeit, after the demand was confirmed. The assessee, it appears, therefore, verily believed that since, arrangement fee had been paid to ICICI Bank, which is an entity incorporated in India, it is that entity which would be required to pay service tax. The assessee continued to hold this belief and, as a matter of fact took a specific ground, in that behalf, even in the appeal filed with the Tribunal - merely because service tax was paid prior to SCN, therefore, penalty ought to be waived. What is required to be looked at is, the cumulative set of facts obtaining in each case, and then, assessing as to whether non-payment of service tax was a conscious and/or deliberate act of wrong doing and/or deception. Our sense of the matter is that, it was not, and, therefore, the conclusion reached by the Tribunal, in our view, is correct. Since, it is a civil obligation emanating from a statutory offence, imposition of penalty would follow, if, once it is established that the non-payment of tax was a result of a conscious and/or deliberate act of deception or wrong doing. Tribunal has rightly, invoked the provisions of Section 80 of the Finance Act. - Appeal dismissed - decided in favor of assessee.

Summary

Issues Involved:
1. Deletion of mandatory penalty imposed on the assessee by the Tribunal.
2. Eligibility of the assessee for CENVAT credit on service tax paid under the reverse charge mechanism.
3. Application of Section 80 of the Finance Act by the Tribunal.

Issue-wise Detailed Analysis:

1. Deletion of Mandatory Penalty Imposed on the Assessee by the Tribunal:

The Tribunal's decision to set aside the penalties imposed under Sections 76, 77, and 78 of the Finance Act was challenged by the Revenue. The Revenue contended that the assessee failed to show "reasonable cause" for non-payment of service tax and that penalties should be imposed mandatorily once an infraction of the Act is established. The Tribunal, however, found that the assessee had a bona fide belief that service tax was not payable by the recipient on the arrangement fee paid to ICICI Bank’s Singapore branch. The Tribunal noted that the assessee paid the service tax promptly upon realizing the liability and also paid the interest for delayed payment. The Tribunal invoked Section 80 of the Finance Act, which allows for waiver of penalties if the assessee proves "reasonable cause" for the failure. The High Court upheld the Tribunal’s decision, emphasizing that penalties under Section 78 require a finding of deliberate wrongdoing or deception, which was not established in this case.

2. Eligibility of the Assessee for CENVAT Credit on Service Tax Paid Under the Reverse Charge Mechanism:

The Tribunal concluded that the assessee was eligible for CENVAT credit on the service tax paid under the reverse charge mechanism. The Revenue did not challenge the credit claimed by the assessee in any appropriate proceeding. The High Court noted that the Tribunal’s finding on this matter was not disputed by the Revenue during the hearing. Consequently, the question of the assessee’s eligibility for CENVAT credit was rendered redundant.

3. Application of Section 80 of the Finance Act by the Tribunal:

The High Court framed an additional question of law to examine the Tribunal’s application of Section 80 of the Finance Act. Section 80 allows for waiver of penalties if the assessee proves "reasonable cause" for the failure to comply with the provisions of the Act. The Tribunal found that the assessee had a bona fide reason for the delayed payment of service tax and that the situation was revenue-neutral since the assessee was eligible for CENVAT credit on the service tax paid. The High Court agreed with the Tribunal’s application of Section 80, noting that the absence of a finding of deliberate wrongdoing or deception justified the waiver of penalties. The High Court emphasized that the cumulative facts and circumstances of the case supported the Tribunal’s conclusion.

Conclusion:

The High Court dismissed the Revenue’s appeal, upholding the Tribunal’s decision to set aside the penalties imposed on the assessee. The High Court affirmed the Tribunal’s findings regarding the assessee’s eligibility for CENVAT credit and the application of Section 80 of the Finance Act. The High Court concluded that the Tribunal correctly invoked Section 80, given the facts and circumstances of the case, and found no deliberate wrongdoing or deception by the assessee.