2018 (1) TMI 1272 - AT - Service Tax

Penalty u/s 78 - tax paid before issuance of SCN - suppression of facts - Held that - it is brought out that respondents have paid the service tax before issue of SCN - also, it is recorded by the Commissioner (Appeals) that the services would not attract levy of tax. In such circumstances, the respondents cannot be held guilty of suppression of facts so as to impose penalty u/s 78 - appeal dismissed.

Summary

Issues:
1. Imposition of penalties under sections 77 and 78 of the Act.
2. Applicability of section 80 to set aside penalties.
3. Liability to pay service tax on royalty charges received for intellectual property services.
4. Payment of interest for belated payment of service tax.
5. Interpretation of section 73(3) of the Act regarding benefit eligibility.

Imposition of Penalties:
The respondent, engaged in manufacturing food products, obtained trademark registration for the Aachi brand and received royalty charges from another company for using the brand name. The respondent also rented out properties and collected rent. Upon audit, it was discovered that royalty charges were liable to service tax under intellectual property services. The respondent paid the demand but not the interest for belated payment, leading to a show cause notice and subsequent penalties under sections 77 and 78. The Commissioner (Appeals) set aside the penalties, stating that the permanent transfer of intellectual property rights does not attract service tax. As the respondent paid the service tax before the notice and the services were found not taxable, the penalties were deemed unwarranted.

Applicability of Section 80:
The Revenue argued that the Commissioner (Appeals) erred in invoking section 80 to set aside the penalties. The respondent's counsel contended that the penalties were correctly waived under section 80, emphasizing that the sub-clause introduced for waiving penalties within a specific period did not apply to the case. The Commissioner's observation on the application of section 80 was crucial in determining the penalty issue, leading to the dismissal of the appeal.

Liability for Service Tax on Royalty Charges:
The Commissioner (Appeals) noted that the respondent had mistakenly charged and collected service tax on activities not subject to tax. The respondent paid the service tax before the show cause notice was issued, indicating no suppression of facts to warrant penalties under section 78. The Commissioner found no grounds to interfere with the impugned order, as the services did not attract tax liability, ultimately dismissing the appeal.

Payment of Interest for Belated Payment:
The respondent paid the service tax before the notice and also paid interest later. The Commissioner's decision was influenced by the fact that the services did not fall under taxable categories, leading to the conclusion that penalties were not justified under section 78.

Interpretation of Section 73(3) Benefit Eligibility:
The Commissioner noted that the respondent paid the service tax before the show cause notice and that the services were not taxable. The respondent's compliance with payment requirements and lack of suppression of facts led to the dismissal of the appeal. The interpretation of section 73(3) was crucial in determining the eligibility for penalty waiver, which was granted in this case due to the circumstances surrounding the payment of service tax.