2018 (12) TMI 262 - AT - Service Tax

Extended period of limitation - Levy of penalty - Partial RCM - non-payment of service tax under partial reverse charge mechanism - there was a gap of six months between date of receipt of show-cause on 03.12.2015 and date of personal hearing given in May 2016 and appellant had not availed the gap period to obtain copy of audit report - principles of natural justice - Held that - The appellant had failed to discharge the service tax liability. It is not understood as to why a person who failed to discharge the same cannot be equated with his ignorance to follow the new rule of partial reverse charge mechanism introduced by Notification no. 30/2012 w.e.f. 01.07.2012 and why the same shall be equated with suppression of fact and mis-declaration through ST-3. More importantly, neither the show-cause notice nor any documents relied in Order-in-Appeal and order-in-original, any reference is available as to whether the entire 100% tax component was realised by the service provider and deposited in the government to establish that there was occasion of revenue loss to the government. Partial reverse charge mechanism has been introduced by way of Notification 30/2012 dated 20.06.2012. In the said Notification, w.e.f. 01.07.2012 in case of supply of manpower for any purpose or service in execution of work contract by an individual, HUF or partnership firm whether registered or not including association of persons are required to pay 25% of service tax and the service receiver is required to pay 75% of the said tax - Going by the backdrop of bringing such provision into the statute book, if various literatures are referred, it can be found that this Notification 30/12 has brought a new legislation of taxation to existing system of reverse charge mechanism by including partial reverse charge mechanism as a new system in respect of specified services provided for certain category of services fixing liability of payment of service tax partially on the service provider and partially on the service recipient. It cannot be said that only because audit party had found non-observance of partial reverse charge mechanism procedure in respect of certain services, without any reference to the categorising of service provider, appellant is to be tested for suppression etc. - there is no hesitation to say that respondent has not brought forth any cogent evidence on record to establish the charge of wilful suppression by the appellant company to invoke extended period of service so as to justify penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of penal liability under the Finance Act against non-payment of service tax under partial reverse charge mechanism.

Analysis:
The case involved the confirmation of penal liability under the Finance Act due to non-payment of service tax under the partial reverse charge mechanism. The appellant, a manufacturer, had undergone an EA Audit in March 2015 by the respondent department, which revealed non-payment of service tax for renting motor vehicles, security services, and manpower services. The appellant had discharged the tax liability and interest upon audit findings but had not voluntarily paid the penalty of 15%. The adjudicating authority confirmed the duty liability, interest, and penalty without giving the appellant an opportunity for a personal hearing, which led to the appeal.

During the appeal, the appellant argued that they had discharged the tax liability upon audit findings and should not have been issued a show-cause notice. They contended that they were not liable to pay the penalty under the reverse charge mechanism. The department, however, supported the penalty, stating it was mandatory in case of duty default. The Commissioner (Appeals) upheld the penalty, citing the appellant's failure to disclose correct tax values and wilful suppression.

The Tribunal analyzed the case records and found that the appellant had failed to discharge the service tax liability under the partial reverse charge mechanism. It questioned why the appellant's ignorance of the new rule should be equated with suppression of facts. The Tribunal noted the lack of evidence regarding the realization and deposition of the entire tax component by the service provider to establish revenue loss to the government.

The Tribunal delved into the partial reverse charge mechanism introduced by Notification 30/2012, highlighting the division of tax liability between service provider and receiver. It discussed the challenges and confusion associated with this mechanism, especially in identifying vendors, and emphasized the legislative intent behind its introduction.

Regarding the audit procedure, the Tribunal explained the purpose and process of EA and CERA audits to ensure tax compliance and revenue recovery. It concluded that the respondent failed to provide sufficient evidence to justify the penalty for wilful suppression by the appellant, leading to the allowance of the appeal and setting aside of the Commissioner (Appeals) order.

In conclusion, the Tribunal ruled in favor of the appellant, finding no substantial evidence to support the charge of wilful suppression and overturning the Commissioner (Appeals) order.