2009 (5) TMI 76 - AT - Service Tax

Import of Services Charge of service tax section 66A held that - In the case of Indian National Shipowners Association (2009 -TMI - 32013 - HIGH COURT OF BOMBAY), certain provisions of rule 2(1) of the Service Tax Rules, 1994 were struck down. The show-cause notice in the present case sought to appropriate the prior payment made by the assessee towards the demand of service tax under the above provisions. The Hon ble High Court found that the authority for levy of service tax from recipient in India in respect of taxable services received from abroad was vested in the Central Government for the first time on 18-4-2006 under section 66A of the Finance Act, 1994. Therefore, the pre-existing rule which authorized the Government to levy service tax in the said manner was struck down - the authority to levy service tax from an Indian recipient of taxable service from abroad was conferred for the first time on the Central Government, without retrospective effect, under section 66A of the Finance Act, 1994 on 18-4-2006.

Summary

Issues:
Adjudication of service tax demand, imposition of penalties, applicability of penalty on voluntary tax payment, authority to levy service tax from recipient in India for services received from abroad, legality of penalty imposition.

Analysis:
1. The original authority confirmed a service tax demand against the assessee for intellectual property services received from a foreign company, leading to penalties under sections 76, 77, and 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld this order, prompting the assessee to appeal. The main contention was the imposition of penalties despite the service tax with interest being paid before the show-cause notice was issued.

2. The appellant argued that no penalty should apply as the tax was voluntarily paid before the enactment of section 66A of the Finance Act, 1994, which authorized the levy of service tax on services received from abroad. Citing precedents and the Bombay High Court's decision, the appellant claimed that no penalty should be imposed on a taxpayer who paid the duty before a show-cause notice.

3. The department contended that the appellant never denied the tax liability and paid it voluntarily, making them liable for mandatory penalties. Referring to relevant case laws, including a Supreme Court judgment, the department argued that penalties were applicable even if the tax was paid before the show-cause notice.

4. The Tribunal analyzed the legal basis of the case, considering the striking down of certain provisions of the Service Tax Rules, 1994 by the Bombay High Court. It was established that the authority to levy service tax on services received from abroad was vested in the Central Government under section 66A from 18-4-2006. As the tax paid by the appellant was not legally payable, the penalties under sections 76, 77, and 78 were deemed inapplicable. The Tribunal emphasized the importance of the High Court's judgment in invalidating the legal source of the service tax demand.

5. Consequently, the Tribunal set aside all penalties imposed on the appellant, ruling in favor of the appellant in the appeal.