2018 (6) TMI 788 - AT - Service Tax

Banking and Financial Services - Failure to pay Service Tax - fees paid to the overseas service provider - Reverse Charge Mechanism - SCN issued by invoking Extended period of limitation - sub-section (3) of section 73 of FA - Held that - The assessee had failed to pay the service tax only due to the bonafide belief that M/s. ICICI Hong Kong being a financial institution functioning overseas and belonging to ICICI based in India, and the overseas bank not being of foreign origin, the provision of section 66A are not applicable. That therefore they are not liable to pay service tax under reverse charge mechanism - the provisions of section 66A(2) of the Act provides that in case of permanent establishment in India and permanent establishment in a country other than India, such permanent establishments should be treated as separate persons for the purpose of the said Section. Therefore, on being pointed out, the assessee has discharged their service tax liability. Penalty rightly set aside - appeal dismissed.

Summary

Issues:
- Liability of the assessee to pay service tax on upfront fee, commitment fee, etc. paid to overseas service provider.
- Applicability of sub-section (3) of Section 73 regarding issuance of show cause notice.
- Validity of penalties imposed by the Commissioner (Appeals) and their set aside.

Analysis:

1. Liability to Pay Service Tax on Fees:
The appellant, engaged in manufacturing activities, availed a loan from M/s. ICICI, Hong Kong, and failed to pay service tax on various fees to the overseas service provider. The issue revolved around whether the assessee was liable to pay service tax on these fees. The appellant contended that the matter had been settled by a High Court judgment in a similar case. However, it was noted that the appellant had paid the service tax along with interest before the show cause notice was issued. The Tribunal highlighted the provision of section 66A(2) of the Act, which treats permanent establishments in India and abroad as separate entities. The appellant, upon realizing their liability, discharged the service tax. Consequently, the Tribunal upheld the decision of the Commissioner (Appeals) in setting aside the penalties, as the appellant had acted in good faith based on a genuine belief.

2. Applicability of Section 73(3) Regarding Show Cause Notice:
The appellant argued that as they had paid the service tax before the show cause notice was issued, invoking sub-section (3) of section 73, no notice should have been served. The Tribunal agreed with this contention, emphasizing that the appellant's failure to pay the tax was due to a legitimate misunderstanding regarding the applicability of the reverse charge mechanism. The Tribunal found that the Commissioner (Appeals) had correctly set aside the penalties under section 80 of the Finance Act, considering the circumstances and the provisions of the law.

3. Validity of Penalties Imposed:
The Revenue contended that the penalties imposed on the appellant should not have been set aside, alleging suppression of facts. However, the Tribunal found no merit in this argument, as the appellant had rectified the non-payment of service tax upon realizing their liability. The Tribunal upheld the decision of the Commissioner (Appeals) in dropping the penalties, emphasizing the appellant's compliance with the law once the issue was clarified. Both the appeals filed by the appellant and the Revenue were dismissed, with the cross-objection filed by the appellant disposed of accordingly.

In conclusion, the Tribunal dismissed the appeals and upheld the decision of the Commissioner (Appeals) regarding the liability to pay service tax, the issuance of show cause notice, and the validity of penalties imposed, based on the specific circumstances and legal provisions involved in the case.