2018 (4) TMI 1184 - AT - Service Tax

Penalty u/s 78 - appellant reversed the credit and deposited the service tax alongwith interest on the imported services under reverse charge mechanism and service tax along with interest on the expenses reimbursed from the subsidiary and intimated the same to the department and requested not to initiate any penal action - invocation of section 73 (3) of FA - Held that - as the appellant has immediately paid the amount of service tax alongwith interest and the same intimated to the department and prayed not to take any coercive action. It shows that there was no positive act of suppression on the part of the appellant. In this case, from the facts it is to be ascertained whether there was any intention to evade payment of service tax by the appellant or not. As it is admitted position that in this case the service tax is to be paid under reverse charge mechanism, this is a situation of revenue neutrality. For the reimbursement of expenses recovered from the subsidiary, service tax is not payable. To allege suppression with intent to evade payment of service tax, there should be positive act on the part of the assesse with intent to evade payment of service tax - The Revenue has not given any positive evidence to evade payment of service tax. This is a situation of revenue neutrality and the service tax is not payable on reimbursement of expenses - penalty not imposable u/s 78 when the proceedings come to an end in section 73(3) of the Finance Act/ 1994. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Imposition of penalty under Section 78 of the Finance Act, 1994.
2. Allegation of suppression of facts with intent to evade payment of service tax.
3. Applicability of revenue neutrality in the context of service tax payment.
4. Taxability of reimbursement of expenses from a subsidiary without markup.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 78 of the Finance Act, 1994:
The appellant contested the penalty imposed under Section 78, arguing that they paid the service tax along with interest promptly upon being pointed out by the department. They claimed that as per Section 73(3), the proceedings should end upon payment of tax and interest. The appellant cited several judgments to support their claim that there was no deliberate act of suppression to evade tax, thus the penalty should not be imposed.

2. Allegation of Suppression of Facts with Intent to Evade Payment of Service Tax:
The appellant argued that there was no suppression of facts or intent to evade tax, as all transactions were disclosed in publicly available balance sheets. They contended that the taxability of the reimbursement of expenses was in doubt and had been settled by the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd., which held that such reimbursements were not taxable. The department, however, alleged suppression of facts to invoke the extended period of limitation under Section 73(1) of the Finance Act.

3. Applicability of Revenue Neutrality in the Context of Service Tax Payment:
The appellant argued that the situation was revenue neutral as the service tax paid under the reverse charge mechanism was available as input service credit to them. They cited the Tribunal's decision in Calderys India Refractories Ltd., where it was observed that if the service tax paid is available as credit, it constitutes a revenue-neutral situation, negating the intent to evade tax.

4. Taxability of Reimbursement of Expenses from a Subsidiary without Markup:
The appellant claimed that the reimbursement of expenses from their subsidiary without markup was non-taxable, as per the Delhi High Court's ruling in Intercontinental Consultants & Technocrats Pvt. Ltd. The Tribunal agreed, stating that the expenses incurred by the appellant for its subsidiary could not be considered as amounts charged for services provided, thus were not taxable.

Tribunal's Findings:
The Tribunal found that the appellant had paid the service tax and interest promptly upon being pointed out and had disclosed all transactions in their balance sheets, indicating no intent to suppress facts. The Tribunal also noted that the reimbursement of expenses was not taxable and the situation was revenue neutral. Consequently, the Tribunal held that there was no positive act of suppression with intent to evade payment of service tax, and thus, the penalty under Section 78 was not imposable. The appeal was allowed, and the impugned order imposing the penalty was set aside.

Conclusion:
The Tribunal concluded that the penalty under Section 78 of the Finance Act, 1994, was not justified as there was no deliberate act of suppression with intent to evade payment of service tax. The appellant's prompt payment of tax and interest, along with the revenue-neutral situation and non-taxability of the reimbursed expenses, led to the setting aside of the penalty. The appeal was allowed in favor of the appellant.

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