2018 (2) TMI 77 - AT - Service Tax

Penalties - Business Auxiliary Services - services as a Commission Agent - department was of view that the commission paid to foreign agent is liable to levy of service tax under reverse charge mechanism - Held that - issue whether assesse is liable to pay service tax under reverse charge mechanism on the commission paid to foreign agents was under much dispute during the relevant period. Section 66A was introduced with effect from 18.04.2006 and the Hon ble Bombay High Court in the case of Union of India Vs. Indian National Ship Owners Association 2010 (12) TMI 12 - Supreme Court of India observed that assesse is not liable to pay service tax prior to introduction of Section 66A. During the relevant period there was much confusion as to the levy of service tax on commission paid to foreign agent. Being an interpretational issue, the penalties imposed, except that of Section 77 are unwarranted, and requires to be set aside - appeal allowed in part.

Summary

Issues: Liability of service tax on commission paid to overseas agents; Imposition of penalties

Liability of Service Tax on Commission Paid to Overseas Agents:
The case involved M/s. Vellore Shoe Fabrik, manufacturers and exporters of "Leather Shoe Uppers," who were paying commission to agents for exported goods. The dispute centered around whether the services as a Commission Agent were liable to service tax under the category of 'Business Auxiliary Service' as per section 65(19) of the Finance Act, 1994, for the period from July 2006 to March 2007. The department contended that the commission paid to foreign agents was subject to service tax under the reverse charge mechanism. The Tribunal analyzed the relevant definitions and rules, concluding that the liability of service tax on the commission paid to overseas agents rested with M/s. VSF, the service recipient. The demand for service tax, interest, and penalties imposed by the original authority and upheld by the Commissioner (Appeals) were upheld, except for certain penalties. The Tribunal clarified that the liability for service tax on commission paid to overseas agents was on M/s. VSF, and upheld the demand for service tax and interest.

Imposition of Penalties:
The Tribunal considered the period of dispute (7/2006 to 3/2007) post the introduction of Section 66A and the relevant judicial precedents. It noted that there was confusion regarding the levy of service tax on commission paid to foreign agents during the relevant period. Referring to the judgments in the cases of Union of India Vs. Indian National Ship Owners Association and Indian National Ship Owners Association Vs. Union of India, the Tribunal highlighted that the issue was interpretational. Consequently, the Tribunal concluded that most of the penalties imposed, except for those under Section 77, were unwarranted due to the confusion prevailing at that time. Therefore, the Tribunal set aside the penalties, maintaining the demand for service tax and interest. The appeal was partly allowed with the penalties, except those under Section 77, being set aside. The Tribunal emphasized that the confusion surrounding the levy of service tax on commission paid to foreign agents during the relevant period warranted the setting aside of penalties, except for those under Section 77.