2017 (9) TMI 1439 - AT - Service Tax

Reverse charge mechanism - availing the services of Foreign Commission Agent to locate the buyers - penalty - Held that - The payment of service tax on reverse charge basis during the relevant period was under cloud and the matter was not clear from doubts. Inasmuch as, the appellants have reflected the receipts of said services in their records, required to be maintained under law, it has to be held that there was no malafide on their part - extending the benefit of section 80 of the Finance Act, 1994, the penalty imposed is set aside - decided in favor of appellant.

Summary

Issues:

1. Liability to pay service tax on reverse charge basis for services availed.
2. Dispute regarding the payment of service tax in relation to services provided by Foreign Commission Agent.
3. Challenge against the penalty imposed on the appellants.

Issue 1: Liability to pay service tax on reverse charge basis for services availed

The appellants, engaged in manufacturing and exporting ready-made garments, were availing services of a Foreign Commission Agent. They were required to discharge their service tax liability on a reverse charge basis for such services. The appellants claimed they were unaware of this requirement initially but later paid a certain amount of service tax upon being informed by the Revenue. Subsequently, a show-cause notice was issued raising a demand for additional service tax, which the appellants contested during adjudication.

Issue 2: Dispute regarding the payment of service tax in relation to services provided by Foreign Commission Agent

During the adjudication process, the appellants contended that the service tax related to the services of the Foreign Commission Agent was already paid by them. They argued that they were also availing services from an Indian Commission Agent who had discharged their service tax liability, hence, they should not be held responsible for the service tax in relation to the Indian Commission Agent. However, the authority below did not address this specific plea raised by the appellants, leading to a lack of clarity on whether the services were obtained from the Indian Commission Agent.

Issue 3: Challenge against the penalty imposed on the appellants

The appellants, through their advocate, argued that they had a bona fide belief that the services from Foreign Commission Agents were not taxable in their hands. They maintained records of all services received, indicating no malafide intent on their part. The advocate contended that the issue of payment of service tax on a reverse charge basis was not free from doubt during the relevant period. The Tribunal agreed with this argument, noting that the payment of service tax during that period was uncertain, and since the appellants had maintained proper records, the penalty imposed on them was set aside under Section 80 of the Finance Act, 1994.

In conclusion, the Tribunal confirmed the service tax amount already paid by the appellants, remanded the balance for verification regarding services from Indian Commission Agents, and set aside the penalty imposed on the appellants due to the genuine belief and proper record-keeping maintained by them.