2019 (8) TMI 321 - AT - Service Tax

Imposition of penalty - non-payment of service tax under reverse charge mechanism (RCM) - Selling Commission‟ services provided in relation to export of goods to foreign agents in foreign currency - reverse charge mechanism - applicability of exemption granted under Section 26 of the Special Economic Zone Act, 2005 - period of dispute is from 3 March, 2009 to 31 March 2011 - suppression of facts or not - extended period of limitation - HELD THAT - It is true that the exemption was granted under Section 26(1) (e) of the 2005 Act, subject to the provisions of sub section (2) and Notification dated 3 March, 2009 provided that the exemption from payment of Service Tax shall be by way of refund. Thus, it was obligatory on the part of the appellant to have deposited the service tax on reverse charge mechanism and then claimed refund. This was not done and it is only when the Department pointed out this fact to the appellant when it visited the offices of the appellant, that the appellant immediately deposited the amount of service tax as also interest and thereafter claimed refund. This refund was granted to appellant by orders dated 31 January, 2012 and 13 February, 2012 and the amount was also paid to the appellant. These refund orders, as pointed out by the learned counsel for the appellant have attained finality. The refunds were granted since taxable services were provided by the appellant to carry out authorized operation in SEZ. Extended period of limitation - HELD THAT - The appellant had submitted a detailed reply to the show cause notice pointing out that the appellant had for bona fide reasons not deposited the service tax and in any case when the Department brought to the notice of the appellant the Notification dated 3 March, 2009, the appellant deposited the entire service tax as also interest. The appellant cannot be said to have had any intention to evade payment of service tax, more particularly when the Notification dated 3 March, 2009 enabled the appellant to claim refund of any service tax paid by it in its entirety. It is plausible that the appellant may not have paid service tax because of ignorance of the Notification dated 3 March, 2009. The subsequent Notification dated 1 March, 2011, which superseded earlier Notification dated 3 March, 2009, is in similar terms and it also provides for exemption of payment of service tax by way of refund - It is true that ignorance of law is no excuse, but at the same time non-payment has to be with an intention to evade payment of service tax. The requirement that suppression has to be with an intent to evade payment of Service Tax. The orders imposing penalty for the reason that the appellant had not deposited the Service Tax cannot, therefore be sustained - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Liability to pay service tax under reverse charge mechanism.
2. Eligibility for exemption under Section 26 of the Special Economic Zone Act, 2005.
3. Validity of demand-cum-show cause notice under Section 73(1) of the Finance Act, 1994.
4. Allegation of suppression of facts with intent to evade tax.
5. Imposition of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability to Pay Service Tax Under Reverse Charge Mechanism:
The appellant, M/s Pheonix Lamps Ltd., was found liable to pay service tax on "Selling Commission" services provided in relation to the export of goods to foreign agents in foreign currency under the reverse charge mechanism as per Section 66A of the Finance Act, 1994. The appellant initially claimed exemption under Section 26 of the SEZ Act, 2005, but later deposited the service tax along with interest when the Department pointed out the liability.

2. Eligibility for Exemption Under Section 26 of the Special Economic Zone Act, 2005:
The appellant argued that they were entitled to exemption from service tax under Section 26 of the SEZ Act, 2005. However, the exemption was conditional upon the provisions of sub-section (2) and required the service tax to be paid first and then claimed as a refund under Notification No. 9/2009 and Notification No. 17/2011. The appellant deposited the service tax and claimed a refund, which was granted and finalized.

3. Validity of Demand-Cum-Show Cause Notice Under Section 73(1) of the Finance Act, 1994:
The Department issued a demand-cum-show cause notice on January 18, 2013, alleging that the appellant had suppressed facts with the intent to evade payment of service tax. The appellant contended that the issuance of the show cause notice was contrary to Section 73(3) of the Act, as they had already deposited the service tax and interest before the notice was issued.

4. Allegation of Suppression of Facts with Intent to Evade Tax:
The Original Authority and the Commissioner (Appeals) concluded that the appellant had suppressed facts with the intent to evade payment of service tax. The appellant argued that there was no suppression as the payment was reflected in their books of account and they acted in good faith. The Tribunal found that the appellant’s actions did not indicate an intention to evade tax, as they promptly deposited the service tax and interest upon being informed by the Department.

5. Imposition of Penalty Under Section 78 of the Finance Act, 1994:
Penalties were imposed on the appellant under Section 78 of the Finance Act, 1994, for non-payment of service tax. The Tribunal concluded that the appellant did not have the intention to evade payment of service tax, and the penalties could not be sustained. The Tribunal emphasized that non-payment must be with an intent to evade tax, which was not proven in this case.

Conclusion:
The Tribunal set aside the orders imposing penalties and allowed the appeals, concluding that the appellant did not have the intention to evade payment of service tax. The Tribunal found that the appellant's failure to pay service tax initially was due to ignorance of the Notification requiring payment first and then claiming a refund, rather than an intention to evade tax.

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