2018 (1) TMI 962 - AT - Service Tax

Penalty u/s 76, 77 and 78 of FA - Commission paid to foreign commission agents - reverse charge mechanism - Held that - during relevant period law was not clear and was subject matter of litigation before various courts. It is only with a declaration of law by the Hon ble Bombay High Court decision in the case of Indian National Shipowners Association Vs. Union of India 2008 (12) TMI 41 - BOMBAY HIGH COURT , that the levy on reverse charge basis was upheld w.e.f. 18.04.2006 - The appellant have already paid the said duty alongwith interest. As such there is no justification for imposition to penalty upon them - appeal alllowed.

Summary

Issues involved:
Imposition of penalty under sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:
The appellant, engaged in manufacturing footwear, utilized the services of Foreign Commission Agents for obtaining orders from foreign countries, leading to service tax liability on a reverse charge basis. The demands were raised for the period 01.04.2004 to 31.03.2007. The Commissioner noted that duty liability would apply from 18.04.2006, following the introduction of section 66A, and in line with a decision by the Hon’ble Bombay High Court in a previous case. The adjudicating authority imposed penalties under the relevant sections of the Finance Act.

The challenge in the appeal focused solely on the imposition of penalties. The appellant's advocate argued that due to the lack of clarity in the law during the relevant period, no malafide intent could be attributed to the appellant for not paying the service tax. It was contended that since the duty and interest had been paid before the show cause notice, there was no necessity for the notice as per section 73 of the Finance Act. Reference was made to judgments by the Karnataka High Court and the Hon’ble Allahabad High Court to support this argument.

The Revenue's representative supported the penalties imposed by the lower authorities, emphasizing that the appellant, being expected to be aware of the law, should have paid the service tax during the relevant period.

Upon considering the arguments, the Tribunal noted that the law was unclear during the relevant period and subject to litigation in various courts. The clarity on the levy of reverse charge basis came with a decision by the Hon’ble Bombay High Court. Since the appellant had already paid the duty and interest, the Tribunal found no justification for imposing penalties and set them aside. The Tribunal directed the lower authority to recalculate the correct amount of duty and interest for the period in question. The appeal was disposed of accordingly.