2019 (10) TMI 414 - AT - Service Tax

Imposition of penalty u/s 77 and 78 of Finance Act. 1994 - non-payment of service tax on SWIFT charges by the Commissioner (Appeals) - HELD THAT - There is nothing available in the case record to indicate that M/s. SWIFT is a Banking company but as its name appears, it handles transmission of financial and other telecommunication net working for the Banks. The allegation against appellant in the show cause is found to be use of service of transmission of financial and other related messages. In common parlance, transfer of data and transmission of messages could be different from each other but as SWIFT charges has been held to be taxable in various judgements, judicial precedent dictates that the same principal is to be respected for all times to come unless over-ruled by a larger Bench or Appellate Forum. Taxability on SWIFT charges, which has been accepted by the appellant who also discharged duty liability, is to be excluded from the purview of this discussion - However, having regard to the fact that taxability on SWIFT charges and application of reverse charge mechanism during the relevant period was in hegemony, imposition of penalty by invoking the extended period is beyond the purview of section 78 (4) unless the intention to evade payment of tax on ground of suppression etc. is established - Section 77 penalty is for not reflecting the taxable service in the periodic Returns. The appeal is allowed to the extent of setting aside penalties u/s 77 and 78 of the Finance Act - Appeal allowed in part.

Summary

Issues:
Confirmation of penalty under section 77 and 78 of Finance Act for non-payment of service tax on SWIFT charges.

Analysis:
1. The appellant contested the penalty imposed under section 77 and 78 of the Finance Act by the Commissioner (Appeals) for non-payment of service tax on SWIFT charges. The appellant, engaged in providing banking and financial services, paid SWIFT charges to a Belgian company for transmission of financial messages internationally. Despite promptly paying service tax and interest, a penalty equivalent to the tax amount was imposed, leading to the appeal.

2. The appellant's counsel argued that the taxability under reverse charge mechanism had been disputed by various sectors until settled by the Supreme Court in a specific case. He contended that penalties under section 78 should not apply based on established legal precedents from various tribunal decisions involving different banks. The counsel emphasized the applicability of section 80 of the Finance Act due to the interpretational nature of the taxability issue and absence of wilful evasion by the appellant, who had paid substantial service tax amounts promptly during the relevant period.

3. The respondent's representative supported the Commissioner (Appeals)'s decision, citing previous judgments to reject the appellant's plea of bonafide belief. The representative argued against intervention, considering the appellant's familiarity with indirect tax laws as a large company. Upon reviewing the case record and relevant laws, it was noted that SWIFT charges were paid for international message transmission services, falling under banking and financial services' definition during the relevant period. While the appellant accepted tax liability and paid the dues, the imposition of penalties under sections 77 and 78 was deemed inappropriate given the prevailing legal interpretations and absence of intent to evade taxes.

4. The Tribunal, aligning with previous decisions, ruled in favor of the appellant, setting aside the penalties imposed under sections 77 and 78 of the Finance Act. The order passed by the Commissioner (Appeals) was modified accordingly, considering the legal precedents and the appellant's compliance with tax obligations during the contentious period.

This judgment highlights the importance of legal precedents, interpretation of tax laws, and the application of penalties in cases of disputed tax liabilities, providing clarity on the consequences of non-payment and the significance of timely compliance with tax regulations.