2019 (6) TMI 1023 - AT - Service Tax

Imposition of penalty - service tax paid on being pointed out - Manpower supply services - reverse charge mechanism - suppression of facts or not - invocation of extended period of limitation - Revenue neutrality - HELD THAT - Appellant was liable to pay tax which they failed to pay. But on being pointed out the audit party, without waiting for any notice from the department, the Appellant immediately deposited the entire service tax amount along with interest much before the issuance of show cause notice. This shows that there was no intention to evade payment of duty. A perusal of the impugned order would show that there is no discussion or finding about the issue of revenue neutrality raised by the Appellants. It is settled law that where credit is available to an assesee itself it cannot be said that there is any intention to evade payment of duty. From the records, it is found that although the issue of revenue neutral was raised by the Appellant before both the authorities below, but none of the authority have either discussed or disputed or rejected the same - thus the transaction is revenue neutral. Also mens rea is not established for imposition of penalties since here also it is revenue neutral. Admittedly the Appellants have paid the service tax amount with interest much before the issuance of show cause notice. Penalties cannot be imposed - other demand upheld - appeal allowed in part.

Summary

Issues:
Non-payment of service tax under reverse charge mechanism, imposition of penalties under Sections 77 & 78 of the Finance Act, 1994, failure to provide option to pay service tax, interest, and penalty within 30 days, revenue neutrality argument, intention to evade payment of duty, applicability of the decision in Jain Irrigation Systems Ltd. vs. CCE, Nashik.

Analysis:

1. Non-payment of service tax under reverse charge mechanism: The Appellant failed to pay service tax amounting to ?4,20,869 under the reverse charge mechanism as per provisions of Section 68(2) of the Finance Act, 1994. The audit revealed this discrepancy, following which the Appellant promptly paid the due amount along with interest. The issue revolved around the Appellant's liability to pay the tax, which was acknowledged but not paid initially.

2. Imposition of penalties under Sections 77 & 78: The department imposed penalties under Sections 77 & 78 of the Finance Act,1994 for the non-payment of service tax within the stipulated period. The Appellant contested these penalties on the grounds of revenue neutrality, arguing that the transaction was revenue neutral as the service tax paid would have been available to them as Cenvat credit. The Appellant relied on the decision in Jain Irrigation Systems Ltd. vs. CCE, Nashik to support their argument against the imposition of penalties.

3. Failure to provide option to pay service tax, interest, and penalty within 30 days: The Appellant contended that they were not given the option to pay service tax, interest, and 25% service tax towards penalty within 30 days of the receipt of the adjudication order, as mandated by Section 78 of the Finance Act, 1994. Despite depositing the duty with interest before the issuance of the show cause notice, the Appellant argued that they were not afforded the opportunity to exercise this option.

4. Revenue neutrality argument: The Appellant emphasized the revenue neutrality of the transaction, asserting that there was no intention to evade payment of duty as the entire exercise was revenue neutral. The Tribunal noted that the Appellant had paid the service tax amount with interest before the issuance of the show cause notice, indicating a lack of intent to evade payment. The Tribunal referenced the Jain Irrigation case to support the argument that in revenue-neutral situations, penalties for evasion are not justified.

5. Applicability of the decision in Jain Irrigation Systems Ltd. vs. CCE, Nashik: The Tribunal cited the decision in Jain Irrigation Systems Ltd. vs. CCE, Nashik, where penalties were set aside due to the revenue-neutral nature of the transaction. In alignment with this precedent, the Tribunal modified the impugned order to set aside the penalties imposed on the Appellant, considering the payment of service tax with interest before the show cause notice was issued.

In conclusion, the Appellant's appeal was partly allowed based on the revenue neutrality of the transaction and the lack of intent to evade payment of duty, leading to the setting aside of penalties imposed under Sections 77 & 78 of the Finance Act, 1994. The Tribunal's decision aligned with the principles established in previous cases regarding revenue-neutral situations and the imposition of penalties.