2017 (9) TMI 1319 - AT - Service Tax

Penalty u/s 78 - services imported from outside India - Reverse charge mechanism - Held that - the appellant had conveniently forgotten to either pay the Service Tax or to bring the fact of receiving service from outside India to the knowledge of the department until investigation was carried out against them - the appellant submitted all the documents with the statement of the amount received from outside India in response to the letter received from the department. There is no material available on record of suppression of fact with intent to evade payment of tax or fraud or collusion etc. to invoke the penal provisions under Section 78 of the Finance Act 1994 - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of mandatory penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appellant, engaged in the manufacture of Graphite and Carbon Electrodes, availed services from non-resident companies, leading to a Show Cause Notice proposing Service Tax demand under Reverse Charge Mechanism. The Adjudicating Authority confirmed the demand, along with interest and penalty. The First Appellate Authority rejected the appeal, prompting the appellant to file the present appeal against the penalty under Section 78.

The appellant contended that they believed no Service Tax was due on services from outside India, supported by a letter from the Office of the DGCEI seeking payment details. The appellant argued that they had paid Service Tax on services imported before 18.04.2006, even though not taxable, citing a Supreme Court decision. The appellant's counsel submitted written arguments, relying on relevant legal provisions, Circulars, Notifications, and case laws to support the claim that Cenvat Credit availability made the issue revenue neutral, referencing a Tribunal decision.

The Revenue representative reiterated the lower authorities' findings. The Tribunal heard both sides and examined the appeal records. The appellant had submitted a statement detailing payments to foreign entities for services during a specific period, showing compliance with the department's request. The Commissioner(Appeals) noted the appellant's timely submission of documents upon the department's inquiry, finding no evidence of intent to evade taxes or fraud to warrant penalty under Section 78.

Consequently, the Tribunal set aside the penalty imposed under Section 78 of the Finance Act, 1994, allowing the appellant's appeal. The judgment was pronounced and dictated in open court by Shri P.K. Choudhary, Member(Judicial).