2019 (1) TMI 566 - AT - Service Tax

Penalty u/s 78 - short payment of service tax - appellant had gone to its notice during finalisation of the financial accounts for which it could not revise the same in their return - intent to evade - Held that - Such short payment was mainly due to the fact that it had failed to furnish proof during assessment that it had fulfilled the criteria of pure agent as laid down under Rule 5 and failed to discharge service tax liability under reverse charge mechanism on payment made to the Directors - Show-cause also indicated that appellant had failed to charge and pay the service tax on the value received as pure agent and value of director service for which it had contravened the provision of Section 68 of the Finance Act. There is nothing available in the show-cause that such contravention of the Act or Rule was made with an intent to evade payment of service tax. In the instant case when the nature of service provide by the appellant being marketing and research agency services, why those items like travel cost, local conveyance, interview etc. will not be considered as expenditure for a company engaged in marketing and research agency. Be that as it may, when appellant had not challenged the same those point needs no further discussion except for the purpose that availment of benefits as pure agent was asserted by the appellant and denied by the revenue authority in which case it cannot be said that such denial has attained finality and appellant had therefore contravened the provisions of the Act Rule as contemplated in Section 73(1) proviso. Also, it cannot be said that appellant had not followed the provisions contained in Chapter of Finance Act or in the Rule made thereunder since under erroneous interpretation of the provisions, it had not considered those duty and not discharged those duty liability. On the other hand, when it had met the duty demand without protest after the same has brought to its knowledge, Explanation 2 to Section 73(3) of the Finance Act is more applicable to the appellant. Penalty u/s 78 set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of penalty under section 78 of the Finance Act by Commissioner (Appeals) assailed in appeal.

Analysis:
The case involved the appellant providing marketing and research agency services, registering under service tax. The appellant filed ST3 returns belatedly for the financial years 2013-14 and 2014-15. A show-cause notice was issued under section 73(1) for alleged short payment of service tax amounting to ?41,04,525. The duty liability, interest, and penalty were confirmed by the adjudicating authority and upheld by the Commissioner (Appeals), leading to the appeal before the Tribunal.

The appellant argued that the penalty confirmation under section 78 of the Finance Act was erroneous as the show-cause notice did not specify any fraud, collusion, wilful misstatement, or suppression of facts to attract such penalty. The appellant cited legal decisions emphasizing the burden of proof on the department to establish any malafide. The appellant contended that the penalty was unsustainable and prayed for setting aside the Commissioner (Appeals) order.

The department's representative supported the penalty imposition, stating that the appellant admitted non-payment of duty and discharged the tax liability. The appellant's failure to pay service tax despite filing ST-3 returns was highlighted, with the department asserting that there was no reason for the Tribunal to interfere with the penalty imposition.

After hearing both sides and reviewing the case record, the Tribunal found that the appellant had indeed short-paid service tax due to failure in furnishing proof as a "pure agent" and not discharging service tax liability under reverse charge mechanism for payments made to directors. The show-cause notice did not indicate any intent to evade payment of service tax but highlighted the appellant's failure to comply with certain provisions. The Tribunal questioned the Commissioner (Appeals) rejection of the appellant's claim as a "pure agent" based on invoice descriptions, pointing out inconsistencies in the decision-making process.

The Tribunal further noted that the appellant's actions did not amount to intentional evasion, especially considering the confusion surrounding the definition of "pure agent" in the appellant's line of business. The Tribunal also addressed the erroneous interpretation of provisions related to remuneration to directors under the Income Tax Act, ultimately setting aside the penalty imposed by the Commissioner (Appeals) under section 78 of the Finance Act.

In conclusion, the Tribunal allowed the appeal, overturning the penalty imposed by the Commissioner (Appeals) of CGST & CX, Thane under section 78 of the Finance Act.