2019 (2) TMI 1107 - AT - Service Tax

Penalty u/s 78 - Tax collected but not paid - appellant had collected brokerage charges and transaction charges during the period from 1st April, 2007 to December, 2011 from their customers, but not paid - Held that - It is clear that whenever the element as that of fraud, collusion, willful mis-statement or suppression of fact is apparent on the part of the appellant as a ground for non-payment of the service tax that the appellant is liable to be imposed with the penalties under this section. The appellant herein has taken the ground of bonafide impression for not being liable to pay the service tax on the transaction charges. Though the Department s case is that the alleged non-payment came to the notice of Department only on audit of records of the appellant by the Department. But there has been catena of decisions that mere non-payment may not suffice to be clothed with the grave allegations as that of fraud and mis-representation unless and until there is evidence about a positive act on part of appellant, as produced by Department, to prove that appellant had intent to not to pay the duty. The apparent fact of the appeal is that the appellant has not contested the liability and in fact has prayed for his sufficient cenvat credit available to be utilized against the said demand - The transaction charges were subjected to levy of tax for the first time w.e.f 16-05-2008 without any intention to amend the forward contract service already existing at that time. Further, the CBEC vide Letter F. No. 137/57/2006-CX-4 Dated May 18, 2007 also issued instruction on transaction charges stating that the same is not liable to Service Tax. Penalty not imposable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability to pay service tax on transaction charges collected by the appellant.
2. Imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:

Issue 1: Liability to pay service tax on transaction charges collected by the appellant

The appellant, a service provider under the category of forward contract service, was found to have collected brokerage and transaction charges from customers without paying the proper service tax. The Department issued a show cause notice proposing recovery of service tax. The appellant contended that they were not liable to pay service tax on transaction charges as they were receiving them as agents. However, they also argued that they had sufficient cenvat credit available, making the alleged short levy revenue-neutral. The Commissioner (Appeals) granted an opportunity to submit relevant documents to prove the services were related to output services. The appellant challenged the imposition of penalty under Section 78 of the Act, claiming they were under a bonafide impression and did not intend to evade tax.

Issue 2: Imposition of penalty under Section 78 of the Finance Act, 1994

The Department argued that the short levy was discovered only during an audit, suggesting an intent to evade tax. They contended that Section 78 penalties should apply. The appellant, however, argued that there was no fraud, misrepresentation, or suppression of facts, and the penalty was not sustainable. The Tribunal noted that the imposition of penalties under Section 78 requires evidence of fraud, collusion, willful misstatement, or suppression of facts. Mere non-payment may not be sufficient unless there is evidence of intent to evade tax. The appellant's case was supported by precedents emphasizing the burden of proof on the Department to show malafide intent. The Tribunal also considered CBEC instructions and case laws supporting the appellant's bonafide belief regarding the liability to pay tax on transaction charges.

In conclusion, the Tribunal found that the appellant's bonafide belief and the absence of malafide intent justified setting aside the penalty under Section 78. The appeal was allowed, and the order imposing the penalty was overturned.

This detailed analysis of the judgment highlights the issues of liability to pay service tax and the imposition of penalties under Section 78, providing a comprehensive overview of the legal arguments and precedents considered by the Tribunal in reaching its decision.