2018 (9) TMI 1726 - AT - Service Tax

Penalty - non-payment of service tax on investigation service - tax alongwith interest paid on being pointed out - Section 73(3) of the Finance Act, 1994 - Held that - As soon as the Department pointed out that the appellants are liable to pay service tax on Investigation Service, the appellant paid the service on investigation along with interest much before the issuance of the show-cause notice and therefore the case of the appellant is covered under Section 73(3) of the Finance Act, 1994 in respect demand on investigation service is concerned - Penalty set aside. Valuation - Security Agency Service - inclusion of reimbursable expenses Section 67 of the Finance Act, 1994 - Held that - Section 67 was amended by Finance Act, 2015 to include the reimbursement of expenses for charging the service tax but the period involved in the present case is prior to the amendment and therefore during the relevant period, the appellant was not liable to pay service tax on reimbursement of expenses - The demand of service tax on reimbursement of expenses has been held to be ultra vires by the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT OF INDIA - demand set aside. Appeal allowed - decided in favor of appellant.

Issues:
1. Whether the appellant is liable to pay service tax on Investigation Service and reimbursement of expenses.
2. Whether the impugned order rejecting the appeal is sustainable in law.
3. Whether the Revenue correctly invoked the extended period of limitation and imposed penalties.

Analysis:
1. The appellant was registered under Service Tax for Security Agency Service and regularly paid service tax on it. However, they did not collect or pay service tax on Investigation Service and reimbursement expenses initially. The appellant later paid the service tax on Investigation Service along with interest before the show-cause notice was issued. The main contention was that during the relevant period, the Finance Act did not include reimbursement of expenses for service tax. The appellant argued that they were not liable to pay service tax on reimbursement expenses based on legal precedents. The Tribunal agreed, citing the decision of the Delhi High Court and the Hon’ble Supreme Court, holding that the demand for service tax on reimbursement expenses was ultra vires the Finance Act during the period in question.

2. The appellant challenged the impugned order, arguing that it was contrary to the provisions of the act and legal precedents. The consultant for the appellant contended that the impugned order was unsustainable in law and that there was no suppression on the part of the appellant regarding service tax payments. The Tribunal found that the appellant had a bona fide belief that they were not liable to pay service tax on Investigation Service. The Tribunal also noted that the appellant paid the service tax on Investigation Service before the show-cause notice was issued, which falls under Section 73(3) of the Finance Act, 1994. Additionally, the Tribunal held that penalties under Sections 76 and 78 cannot be imposed simultaneously.

3. The Revenue invoked the extended period of limitation and imposed penalties on the appellant. However, the Tribunal found that the appellant had been regularly paying service tax on Security Agency Service and promptly paid the service tax on Investigation Service upon being informed by the Department. The Tribunal held that since the appellant paid the service tax with interest before the issuance of the show-cause notice, the proceedings were concluded under Section 73(3) of the Finance Act, 1994. The Tribunal referenced a decision by the Hon’ble Karnataka High Court to support its conclusion that no penalty was warranted in this case. As a result, the Tribunal set aside the impugned order and allowed the appeal.

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