2017 (8) TMI 834 - AT - Service Tax

Penalty u/s 76 and 78 - Section 73(3) of the Finance Act, 1994 - Reverse Charge Mechanism - fees/facility agent fees to Mandatory Lead Arrangers - the appellant availed of External Commercial Borrowings (ECB) from non-resident lenders through Mandated Lead Arrangers (MLAs) - Held that - there is no dispute on the fact that the issue involved in the present case is of interpretation of service tax law regarding the taxability of the service in the hands of the recipient if it is provided from outside India. In this situation, there was bona fide belief of the appellant for non-payment of service tax in time. It is also fact that the appellant paid the service tax along with interest before issuance of show cause notice and informed to the department. In these circumstances, the appellant case is squarely covered by Section 73(3) of the FA, 1994 - there is no mala fide intention or suppression of fact on the part of the appellant. The case is squarely covered by Section 73(3) of the Act, accordingly the appellant should not have been issued any SCN, consequently no penalty either should have been proposed or imposed in such SCN - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
- Appellant availed External Commercial Borrowings (ECB) and paid arrangement fees/facility agent fees to Mandatory Lead Arrangers.
- Service tax demand raised on arrangement fees under reverse charge basis.
- Appeal for waiver of penalties under Section 76 & 78 of the Finance Act, 1994.

Analysis:

Issue 1: Applicability of Service Tax on ECB arrangement fees
The appellant availed External Commercial Borrowings (ECB) and paid arrangement fees to Mandatory Lead Arrangers. The department raised service tax demand on these arrangement fees under reverse charge basis. The issue was whether the appellant was liable to pay service tax on these fees. The appellant contended that the issue was highly debatable and contentious, citing various judgments and the Circular issued by CBEC. The Hon'ble Bombay High Court and Supreme Court had conclusively decided the taxability of such services on a reverse charge basis. The appellant had paid the service tax and interest before the show cause notice, indicating a bona fide belief. The Tribunal found that the issue was of interpretation of service tax law and the appellant's case was covered by Section 73(3) of the Finance Act, 1994.

Issue 2: Waiver of Penalties under Section 76 & 78
The appellant sought waiver of penalties imposed under Section 76 & 78 of the Finance Act, 1994. The appellant argued that there was no mala fide intention to evade service tax, and being a law-abiding company, they paid the tax before the show cause notice. The appellant, a Public Sector Undertaking, emphasized that there was no individual interest involved in avoiding payment of government dues. The Assistant Commissioner for the Revenue contended that the penalties were rightly imposed, as the appellant should have known about the tax liability. However, the Tribunal found that the appellant's payment of service tax along with interest before any notice and their belief in non-payment due to uncertainty indicated a lack of mala fide intent. The Tribunal held that penalties under Section 76 & 78 were not proper and set them aside.

In conclusion, the Tribunal allowed the appeal to the extent of setting aside the penalties under Section 76 & 78. The judgment highlighted the importance of bona fide belief, timely payment of taxes, and the applicability of relevant legal provisions in determining the liability and penalties related to service tax on External Commercial Borrowings arrangement fees.