2019 (4) TMI 1084 - AT - Service Tax

Penalty u/s 78 of FA - Non-payment of service tax - insurance auxiliary services received from abroad for vessels - reverse charge mechanism - period between 11.04.2008 and 31.03.2013 - bonafide belief or not - HELD THAT - The Appellants are having specification vessels including accommodation, barges and tugs etc., which are primarily used by Oil and Gas Industries and are also providing water diving services. In the light of confusion within the industry and challenge on levy, the Appellants registered themselves on 21.11.2018, under Supply of Tangible goods Services classifiable under Section 65 (105) (zzzzj) read with Section 65(50) of the Finance Act, 1994 and started paying service tax. Respondent Department entertained a view that for the period prior to registration from 15.06.2008 to 30.11.2008, the Appellants are required to pay service tax. This being so, demand of service tax under supply of tangible services for the period prior to such registration, though not disputed, can never be considered to be in conformity to Section 265 of the Constitution of India. Having regard to the fact that investigation by Anti-Evasion Wing had brought all those duty demand from the records maintained by the appellant and considering the fact that the issue is a bonafide dispute of legal interpretation of the newly introduced provision, no malafide can be attributed to the appellant so as to call for imposition of any penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues: Imposition of penalty under Section 78 of the Finance Act

Analysis:
1. The appellant was engaged in the supply of tangible goods services and was raided by the Anti-Evasion Wing of Service Tax -I, Mumbai. The appellant was found to have not paid service tax under the reverse charge mechanism for the period between 11.04.2008 and 31.03.2013, resulting in a service tax demand of &8377; 43,21,540/-. Additionally, there was a duty demand for the supply of tangible goods from 15.06.2008 to 31.11.2008, amounting to &8377; 8,95,482/-. The appellant also faced service tax demands for wrong availment of Cenvat credit and payment of GTA. The appellant paid the service tax demand totaling to &8377; 52,55,120/- along with applicable interest but was issued with a show cause notice for penalty under Section 78 of the Finance Act.

2. The appellant contested the penalty before the adjudicating authority, which confirmed a 100% penalty on the duty demand. The appellant challenged this decision before the Commissioner (Appeals) CGST & CX (II) Mumbai, but the penalty was upheld, leading to the current appeal. The appellant argued that due to confusion surrounding taxability on services provided outside the territorial waters of India and taxability under the reverse charge mechanism, it had not considered the duty demanded as its liability until certain judicial pronouncements clarified the situation.

3. The appellant's counsel highlighted various judicial pronouncements and circulars issued by the Department between 1999-2011 to demonstrate the lack of clarity regarding the taxability of certain services. The appellant had paid the service tax to mitigate litigation, although it believed it had a strong case on merit. The confusion regarding taxability extended to mining services and supply of tangible services as well. The appellant had not charged or recovered service tax on these services but met the duty demand to avoid further disputes.

4. The appellant also argued that it had rightfully availed Cenvat credit for payment of service tax on GST services and stressed that there was no malafide intention or suppression on its part. The appellant cited various judgments to support its position that it had followed the correct procedures and that the revenue neutrality of its actions should be considered a valid ground for setting aside the penalty imposed by the Commissioner (Appeals).

5. After hearing arguments from both sides and examining the case record, the Tribunal found that there was significant confusion within the industry regarding the taxability of certain services provided outside India. The appellant had registered itself under the relevant sections of the Finance Act, 1994, and started paying service tax after clarity emerged from judicial pronouncements. The Tribunal concluded that the duty demands were a result of a bona fide dispute over legal interpretation and that no malafide intention could be attributed to the appellant. Therefore, the penalty imposed under Section 78 of the Finance Act was set aside, and the appeal was allowed.