2018 (2) TMI 839 - AT - Service Tax

Banking and other Financial Services - Consulting Engineering Services - reverse charge mechanism - Section 66A of the Finance Act, 1994 - Held that - It is a fact that the interpretation of applicability of reverse charge as per the Service Tax Rules, 1994 and thereafter Section 66A of the Act was subject matter of substantial litigation. Since in the present case full tax amount stands discharged we note that the circumstances of imposing penalty is not justifiable. This is a fit case for invoking provisions of Section 80 for waiver of penalty on reasonable cost for non-payment of tax. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Imposition of penalty under Section 78 for tax liability under banking services.
2. Tax liability under reverse charge basis for Banking and other Financial Services (BoFS) and Consulting Engineering Services.
3. Validity of penalty imposition and limitation issues raised by the respondent.

Analysis:
1. The Revenue appealed against the order of the Commissioner of Service Tax, seeking to confirm Service Tax liabilities under Banking and other Financial Services (BoFS) and Consulting Engineering Services for a specific period. The Original Authority confirmed the tax liability but did not impose penalties on the tax liability for banking services, only imposing a penalty equivalent to the tax liability under Consulting Engineering Service.

2. The Revenue argued that penalties should have been imposed under Section 78 for tax liabilities under banking services as well, given the clear finding regarding the existence of grounds for invoking an extended period of demand. The Revenue contended that since penalties were imposed for one service and there was a clear finding of suppression, penalties should have been imposed on the other service as well.

3. The respondent contested the appeal, stating that the entire demand was on a reverse charge basis. The issue had been contentious and litigated in various forums until the Hon'ble Bombay High Court and later the Supreme Court clarified that Service Tax liability on import of services would arise only from a certain date. The respondent argued that there was no malafide intent on their part regarding the tax liability on reverse charge basis, especially since they had paid the full Service Tax liability on both services upon being informed by the Revenue. The respondent raised issues regarding the penalty imposition and limitation in their cross-appeal.

4. After hearing both sides and examining the appeal records, it was noted that the tax liability on the respondent was indeed on a reverse charge basis. The interpretation of reverse charge applicability had been subject to substantial litigation until clarified by the courts and the Board. Since the full tax amount had been paid by the respondent and considering the circumstances, imposing a penalty was deemed unjustifiable. It was concluded that invoking Section 80 for waiver of penalty on reasonable grounds for non-payment of tax was appropriate in this case. The respondent's counsel had specifically contested the penalty during submissions.

5. Consequently, the appeal filed by the Revenue was found to lack merit, and the penalty imposed on consulting engineering services was deemed waivable under Section 80. The cross objection filed by the respondent was allowed in this regard. The appeal and cross objection were disposed of accordingly.