2018 (11) TMI 1088 - AT - Service Tax

Penalty - non-payment of Service tax on TDS amount deducted - case of appellant is that they had mistakenly believed that since the amount was already deposited with the Government, service tax was not payable on the same amount of TDS - Held that - The Tribunal in the case of C. Ramachandran Vs Commissioner of Service Tax, Chennai 2016 (7) TMI 1036 - CESTAT CHENNAI had considered the issue as to the penalty imposed when the appellant had entertained a bonafide belief as to whether the TDS deducted has to be included in the taxable value of the services. In the said judgment, the penalty imposed under section 78 was set aside by the Tribunal. In the present case also, the appellant had no intention to evade payment of duty and the issue was only interpretational one - penalty not warranted - impugned order is modified to the limited extent of setting aside the penalty imposed - appeal allowed in part.

Summary

Issues:
- Failure to pay service tax on TDS amount deducted by organizations.
- Demand of differential service tax and penalty under Section 78.
- Appeal before the Commissioner (Appeals) against confirmed demand.
- Contesting penalty imposed under Section 78.
- Inclusion of non-taxable activities in taxable value.
- Arguments presented by both sides.
- Interpretation of bonafide belief regarding payment of service tax on TDS amount.
- Precedents cited for setting aside penalty under Section 78.
- Decision on setting aside the penalty and invoking Section 80.

Analysis:
The appellant, acting as an agent for two organizations, diligently paid service tax on 'commission earned' but failed to pay service tax on the TDS amount deducted by these organizations. A show-cause notice was issued demanding differential service tax and penalty under Section 78 amounting to ?4,76,636 for the period from 2006-07 to 2010-11. The adjudicating authority confirmed the demand, leading to an appeal before the Commissioner (Appeals) where a partial relief was granted, reducing the demand to ?3,98,494 along with interest and penalties.

During the appeal, the appellant contested the penalty imposed under Section 78, arguing a mistaken belief that service tax was not payable on the TDS amount already deposited with the government. The appellant voluntarily paid a significant sum before the show-cause notice was issued. Citing precedents, the appellant sought to set aside the penalty, emphasizing the absence of intent to evade payment and the interpretational nature of the issue.

A specific amount related to non-taxable activities was included in the taxable value by the respondent, which the appellant acknowledged and agreed to pay. The authorized representative supported the findings in the impugned order, leading to a hearing where both sides presented their arguments.

Upon thorough consideration and perusal of records, the Tribunal acknowledged the appellant's bonafide belief regarding the payment of service tax on TDS amounts. Referring to relevant precedents, including the case of C. Ramachandran, the Tribunal set aside the penalty under Section 78, invoking Section 80 due to the reasonable cause for non-payment established by the appellant. The impugned order was modified to only set aside the penalty, partially allowing the appeal in this regard.