2017 (9) TMI 1322 - AT - Service Tax

Penalty u/s 77 and 78 - GTA service - reverse charge mechanism - amount of tax with interest paid before issuance of notice - Held that - the appellants were entertaining a bona fide belief and no malafide can be attributed to them as the receipt of GTA services were duly reflected in their statutory records and law on the issue was also clear. As such, this is a fit case for granting relief under section 80 of the FA, 1994 - Further, the provisions of section 73 (1A) also is to be made applicable - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues: Challenge to imposition of penalty under sections 77 and 78 of the Finance Act, 1994.

Analysis:

The judgment deals with the challenge against the imposition of penalty under sections 77 and 78 of the Finance Act, 1994. The demand for the period from October 2009 to March 2014 was confirmed against the appellants in relation to GTA services received on a reverse charge basis. The appellants had already deposited the demanded amount along with interest even before the issuance of the show-cause notice. While the appellants did not contest the confirmation of tax and interest, they argued that the payment of service tax on a reverse charge basis during the relevant period was a subject of litigation with unclear legal provisions. They contended that being a small manufacturer and exporter, they were unaware of the legal requirements and promptly paid the service tax upon becoming aware of their liability. The appellants claimed that the payment of interest was penal in nature and thus, there was no justification for further penalty imposition under sections 77 and 78 of the Finance Act, 1994. They sought protection under section 80 of the Finance Act, 1994, emphasizing that the receipt of services was duly recorded in their statutory records, indicating no malafide intent. The appellants argued that the show-cause notice should not have been issued as they had already deposited the amount before its issuance, citing the provisions of section 73(1A) of the Finance Act, 1994, and referred to precedent decisions of the Tribunal on the issue.

The Tribunal, after considering the arguments, confirmed the demand and interest while setting aside the penalty imposed under sections 77 and 78. The Tribunal found that the appellants had a genuine belief, and no malafide intention could be attributed to them, given that the receipt of GTA services was properly recorded in their statutory records and the legal position was clear. Consequently, the Tribunal granted relief under section 80 of the Finance Act, 1994, and applied the provisions of section 73(1A) along with a circular issued by the Board, stating that proceedings should have been deemed concluded upon the deposit of the disputed amount along with interest. The Tribunal also referenced a previous decision of the Tribunal in a similar case to support its decision. Thus, the Tribunal disposed of the appeal by confirming the demand and interest but setting aside the penalty under sections 77 and 78.