2018 (2) TMI 832 - AT - Service Tax

Penalty - CENVAT credit - sister units - case of appellant is that inasmuch as, they were sharing their services with their own sister Unit, they were under a bonafide impression that they are entitled to the entire service tax so paid, even though, a part of the tax was being collected from their sister Unit - Held that - in the absence of any specific allegations and evidence to show that the appellant was availing the credit with malafide intention, their plea of bonafide needs acceptance. Inasmuch as, both the Units were belonging to the same appellant, there could be a belief on their part that the service tax paid by them in respect of the entire services is available to the appellant as credit. As soon as the same was pointed out by Revenue, the appellant deposited the same alongwith interest - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Demand of service tax from sister units for common services
2. Applicability of penalty under section 78 of the Finance Act, 1994
3. Interpretation of sections 73(3) and 73(4) of the Finance Act, 1994

Issue 1: Demand of service tax from sister units for common services

The appellant, engaged in various services, shared common services with sister units, leading to a demand for service tax amount collected from the sister units. The appellant availed full credit on the services instead of their portion of service tax credit. A show-cause notice was issued proposing to demand the service tax amount for the period from 2005-06 to 2009-10. The impugned order confirmed the service tax demand under the extended proviso to section 73(1) of the Finance Act, 1994, and imposed a penalty equal to the service tax demand under section 78 of the Act.

Issue 2: Applicability of penalty under section 78 of the Finance Act, 1994

The appellant contended that the penalty imposed under section 78 was not justified, arguing that no notice should have been issued to them as per section 73 of the Act. The Commissioner (Appeals) dismissed the appeal, noting that the appellant paid the disputed service tax and interest only after being pointed out by the departmental audit officers. The appellant's plea against the penalty was based on the belief that they were entitled to the entire service tax paid, even though a part was collected from their sister unit. The Commissioner set aside the penalty, accepting the appellant's contention of bonafide belief and lack of malafide intention.

Issue 3: Interpretation of sections 73(3) and 73(4) of the Finance Act, 1994

The appellant argued that no notice should have been issued to them under section 73(3) since they had paid the tax and interest in full. However, section 73(4) states exceptions where the provisions of sub-section (3) do not apply, including cases involving fraud, collusion, willful mis-statement, suppression of facts, or contravention of the Act with intent to evade payment of service tax. The Tribunal found clear grounds for suppression of facts with a malafide intent to evade tax, as the issues came to light through a special audit and investigation. The Tribunal held that the appellant, being a large-scale unit, could not plead ignorance of the law, and upheld the imposition of penalty under section 78.

This judgment highlights the importance of compliance with tax laws, the implications of sharing common services among related entities, and the interpretation of penalty provisions under the Finance Act, 1994.