2018 (4) TMI 1236 - AT - Service Tax

Penalty u/s 77 and 78 - Reverse Charge Mechanism - foreign commission agent service - Held that - Admittedly, the reverse charge tax liability on the appellant will arise only w.e.f. 18.4.2006. However, dispute with reference to applicability of tax liability on reverse charge mechanism was highly contentious - it is not tenable to invoke ingredients of Section 73 (1) proviso to demand service tax for extended period and also to confirm penalties on the appellants. Appellant shall be liable to service tax for the normal period with applicable interest - extended period and penalty set aside - appeal allowed in part.

Summary

Issues:
1. Tax liability under reverse charge basis for foreign commission agent service.
2. Applicability of penalties.
3. Interpretation of Section 73 (1) proviso for demanding service tax for an extended period.

Analysis:
1. The appeal challenged an order confirming tax liability under reverse charge basis for foreign commission agent service availed by the appellant. The impugned order upheld the service tax liability from the introduction of a new section 66A under the Act. However, the Tribunal noted that the liability would arise only from 18.4.2006 based on legal precedents set by the Hon'ble Bombay High Court and affirmed by the Supreme Court. The Board's subsequent clarification also supported this interpretation. Consequently, the Tribunal held that invoking Section 73 (1) proviso for demanding service tax for an extended period was not tenable. The appellant was deemed liable for service tax for the normal period with applicable interest, and the demand for the extended period was set aside.

2. The appellant contested the demand primarily on the grounds of limitation and imposition of penalties. The Tribunal considered the contentious nature of the issue regarding the applicability of tax liability on reverse charge mechanism. Given the legal interpretations provided by the higher courts and the subsequent clarification by the Board, the Tribunal found that penalties under Section 78 and Section 77 could not be confirmed on the appellant. Therefore, the penalties were set aside along with the demand for the extended period.

3. In conclusion, the Tribunal partially allowed the appeal, providing consequential relief as per the law. The decision highlighted the importance of legal interpretations in tax matters and the significance of following established precedents and clarifications issued by the appropriate authorities. The judgment emphasized the need for clarity and consistency in applying tax laws to avoid unnecessary disputes and penalties for the taxpayers.