2018 (9) TMI 1147 - AT - Service Tax

Demand of Interest and penalty - extended period of limitation - Reverse charge mechanism - business auxiliary service - payment made to overseas commission agent - non-payment of service tax - sub-section (3) of Section 73 - Held that - it is up to the respondent department to establish that the appellant had practised any kind of act contemplated under sub-rue (4) so that penalty can be imposed on it. Going by the adjudication order and also the order passed by the Commissioner (Appeals), it cannot be said to have been established by the department that such practice of fraud collusion etc., were established before those authorities. In view of the fact that parameters of proviso to Section 73 and ingredients constituting suppression of fact by the appellant has not been made out and the same had not been established by the respondent department before the authorities adjudicating the matter, it can safely be concluded that Section 4 would have no application to the case of the appellant attracting penalty, in which case explanation 2 to sub-section (3) of Section 73 will have its effect. Demand set aside - appeal allowed.

Issues Involved:
1. Confirmation of penalty.
2. Invocation of extended period after discharge of duty liability along with interest.
3. Interpretation of Section 66A of the Finance Act, 1994 regarding service tax under the reverse charge mechanism.
4. Applicability of Section 73(3) and Section 73(4) of the Finance Act, 1994.
5. Establishment of suppression of facts or intention to evade tax.

Detailed Analysis:

1. Confirmation of Penalty:
The appellant contested the imposition of penalties after having paid the service tax and interest prior to the issuance of the show-cause notice. The appellant argued that there was no suppression or malafide intention to evade tax, and thus, they should be entitled to the benefit of Section 73(3) of the Finance Act, 1994. The appellant cited several case laws and a CBEC Circular to support their claim that all proceedings should be concluded upon payment of tax and interest.

2. Invocation of Extended Period:
The Commissioner (Appeals) confirmed the penalty and invoked the extended period for the tax demand. The appellant argued against this, stating that the payment was made immediately upon being pointed out by the department, and there was no suppression of facts since the payment to the overseas party was disclosed in their books of accounts. The appellant further argued that the extended period should not apply as there was no intention to evade tax.

3. Interpretation of Section 66A of the Finance Act, 1994:
Section 66A provides for charging service tax on services received from outside India under the reverse charge mechanism. The appellant contended that the services provided by the overseas party were performed abroad and not in India, thus not attracting service tax. The appellant maintained that the taxable event is the rendering of services, not the person receiving them, and since the services were rendered abroad, they should not be subject to service tax.

4. Applicability of Section 73(3) and Section 73(4) of the Finance Act, 1994:
The appellant relied on Section 73(3) to argue that no penalty should be imposed as they had paid the service tax and interest before the issuance of the show-cause notice. However, the department argued that Section 73(4), which deals with cases of fraud, collusion, wilful misstatement, or suppression of facts, overrides Section 73(3). The department maintained that the appellant's actions fell under these categories, justifying the extended period and penalties.

5. Establishment of Suppression of Facts or Intention to Evade Tax:
The burden of proof lies on the department to establish that the appellant engaged in fraud, collusion, wilful misstatement, or suppression of facts with the intent to evade tax. The Tribunal noted that the department failed to provide sufficient evidence to prove these allegations. The Tribunal cited the judgment in M/s. Uniworth Textiles Ltd., which emphasized that mere non-payment of duties does not equate to suppression of facts or intention to evade tax.

Conclusion:
The Tribunal concluded that the department did not establish that the appellant had any ill intention to evade tax. The parameters for invoking the extended period and imposing penalties under Section 73(4) were not met. Consequently, the Tribunal allowed the appeal, setting aside the order passed by the Commissioner (Appeals) demanding duty, interest, and penalty.

ORDER:
The appeal is allowed, and the order passed by the Commissioner (Appeals) in Order-in-Appeal No. NGP/EXCUS/000/APPL/540/17-18 dated 28.11.2017 is hereby set aside.

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