2017 (8) TMI 399 - AT - Service Tax

Penalty - fees paid for arranging/obtaining ECG loans - payment of tax with interest on being pointed out - Held that - the appellant has paid the service tax demand along with interest prior to issuance of the show cause notice and also find that there is no sufficient allegations in the show cause notice for suppression of facts with intent to evade payment of service tax. It is an admitted fact that the very issue of taxability in respect of commission paid to foreign banks had been in confusion, which was laid to rest only after the judgment of the Hon ble High Court of Bombay in the case of Indian National Shipowners Association on 11.12.2008 2008 (12) TMI 41 - BOMBAY HIGH COURT . There has been sufficient cause for the appellant in his failure to discharge tax liability and as such the beneficent provisions of section 80 could be very well invoked in this case so as to waive the penalties imposed under section 76 and 78 of the Finance Act - apeal allowed - decided in favor of appellant.

Issues:
1. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994 for non-payment of service tax on fees paid to foreign financial institutions.
2. Contesting the penalties imposed by the authorities.
3. Applicability of reverse charge mechanism for service tax on services rendered by foreign agents.
4. Interpretation of legal provisions regarding tax liability on commission paid to foreign banks.
5. Invocation of Section 80 for waiver of penalties.

Analysis:
1. The case involved the imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994 due to non-payment of service tax on fees paid to foreign financial institutions for arranging commercial loans. The appellant had not discharged service tax on these fees, leading to a show cause notice demanding service tax, interest, and penalties. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals), resulting in the appeal.

2. During the hearing, the appellant contested only the penalties imposed, not disputing the service tax or interest. The appellant argued that the service tax for services by foreign agents became taxable under reverse charge mechanism after the introduction of Section 66A in the Finance Act, 1994. The appellant emphasized that they had paid the entire service tax demand and contested the penalties, citing lack of deliberate suppression or willful misstatement of facts.

3. The appellant's counsel highlighted the confusion regarding the liability to pay service tax under the reverse charge mechanism before the introduction of Section 66A. The appellant had paid the service tax demand before the show cause notice was issued, invoking Section 73(3) to argue against the imposition of penalties. The Tribunal acknowledged the confusion in taxability issues and found reasonable cause for the appellant's failure to discharge tax liability, invoking Section 80 to waive penalties under sections 76 and 78 of the Finance Act.

4. The Tribunal noted that the appellant had paid the service tax demand along with interest before the show cause notice and found insufficient allegations of suppression of facts to evade tax payment. The confusion regarding taxability of commission paid to foreign banks was resolved by a judgment of the Hon'ble High Court, which supported the appellant's position. Consequently, the Tribunal partially allowed the appeal, waiving penalties under sections 76 and 78 but not interfering with the service tax demand, interest, and penalty under section 77 of the Finance Act.

5. In conclusion, the Tribunal partially allowed the appeal, invoking Section 80 to waive penalties under sections 76 and 78 of the Finance Act due to the appellant's reasonable cause for non-payment of service tax. The decision was based on the confusion surrounding tax liability issues and the appellant's cooperation in paying the service tax demand along with interest before the show cause notice was issued.

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