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2022 (7) TMI 1032 - AT - Service TaxExtended period of limitation - evasion of service tax or not - service tax with interest paid on being pointed out (under Reverse Charge mechanism) - suppression of facts or not - scope of section 73(4) of Finance Act - Revenue Neutrality - HELD THAT - It is undisputed that the appellant had, initially, not paid service tax on the services received under reverse charge mechanism for the relevant period and had, on being pointed out by DGCEI, immediately paid the same with interest and took Cenvat credit of the service tax paid. It is also undisputed that the Cenvat credit was available to it. Needless to say that the appellant could not have and has not taken Cenvat credit of the interest paid on the service tax because it is not available as Cenvat credit. It is also undisputed that it was paying service tax prior to the disputed period and was availing Cenvat credit of the service tax paid. After the changes in the Act in 2012, from a regime where only specified taxable services were chargeable to service tax to one where all services were taxable except those in the negative list, the appellant had not paid service tax but did so after being pointed out by DGCEI. Whether the appellant is covered by Section 73(4)? - HELD THAT - This sub-section applies to cases where service tax has not been paid by reasons of (a) fraud; or (b) collusion; or (c) willful misstatement; or (d) suppression of facts or contravention of the provisions with an intent to evade payment of service tax. According to the Revenue the appellant had suppressed the facts and contravened provisions with intent to evade paying service tax. It is a well settled law that fraud, collusion, willful misstatement and suppression all require the intent to be established - The notice can be issued within the normal period of limitation (which varied from time to time) OR extended period of limitation of five years if the elements of fraud, collusion, willful misstatement or suppression of facts or contraventions with an intent to evade are present. This power to issue the show cause notice is further limited by Section 73(3) which states that no show cause notice can be issued if the tax is paid before the notice is issued. However, Section 73(3) does not apply in cases covered by Section 73(4) which applies if there are elements of fraud, collusion, etc. which are identical to the elements required to invoke extended period of limitation. Thus, the charge of service tax is not reduced or abated with efflux of time but only the remedy available to the Revenue goes if it is time barred. Further, the remedy available to the Revenue is also subject to the other limitations under Section 73(3) which is available in all cases where the tax is paid before the issue of show cause notice unless the elements of fraud, collusion, etc. indicated in Section 73(4) are present. As discussed, each of these elements require an intention. Revenue Neutrality - HELD THAT - Revenue neutrality becomes significant to determine if the appellant had an intention to evade or otherwise although it does not make any change to the charging section. The intention of any person can only be inferred from the circumstances of the case. The case of the Revenue is that the appellant had intention to evade service tax. No evidence of it, is found - All that happened in this case is by not paying the service tax when it is due but by paying it late, the appellant had to pay interest on it as well. The interest is not available as Cenvat credit. The appellant had, in fact, lost by not paying service tax in time and has not gained anything at all. It is thus found that there is no evidence of fraud or collusion of willful misstatement or suppression of facts or contraventions with an intent to evade service tax on the part of the appellant. In the absence of these elements, the appellant is not covered by Section 73(4) and is squarely covered by Section 73(3). The show cause notice should therefore not have been issued to the appellant. The elements required to impose a penalty under Section 78 are identical to the elements required to invoke Section 73(4) and it is found that they are not present, the penalty under Section 78 should not have been imposed on the appellant. Further, Section 80 under which penalties could have not been imposed for reasonable cause for failure was also available to the appellant since the lis in the case began when the show cause notice was issued on 2 June 2014 and Section 80 was abolished only in 2015. The fact that the Commissioner adjudicated the matter after 2015 makes no difference as cases have to be decided as per the law when the lis began. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Applicability of Section 73(3) or Section 73(4) of the Finance Act, 1994. 2. Validity of penalties imposed under Sections 77 and 78 of the Finance Act, 1994. Detailed Analysis: Issue 1: Applicability of Section 73(3) or Section 73(4) of the Finance Act, 1994 Arguments by the Appellant: - The appellant argued that there was no suppression, collusion, fraud, willful misstatement, or intent to evade service tax. - The appellant emphasized that the situation was revenue-neutral as the service tax paid was immediately available as Cenvat credit. - The appellant cited case laws such as *British Airways vs. Commissioner of Central Excise, Delhi* and *Jet Airways (I) Ltd. vs. Commissioner of Service Tax, Mumbai* to support their claim that there was no intention to evade tax. Arguments by the Revenue: - The Revenue contended that the appellant did not pay the service tax on its own but only after being pointed out by the DGCEI. - The Revenue argued that the appellant was aware of its liability to pay service tax and intentionally evaded it. - The Revenue relied on case laws such as *Star Industries vs. Commissioner of Customs (Import) Raigarh* and *Vogue Textiles vs. Commissioner of Central Excise, Delhi III* to assert that revenue neutrality is not a valid defense. Tribunal's Findings: - The Tribunal noted that the appellant had paid the service tax along with interest and informed the assessing officer before the show cause notice was issued. - The Tribunal emphasized that Section 73(3) should apply unless the elements of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax, as outlined in Section 73(4), are present. - The Tribunal found no evidence of intent to evade tax, as the appellant would not gain anything by evading tax due to the availability of Cenvat credit. - The Tribunal concluded that the appellant's case is covered by Section 73(3) and not Section 73(4), and hence, the show cause notice should not have been issued. Issue 2: Validity of Penalties Imposed Under Sections 77 and 78 of the Finance Act, 1994 Arguments by the Appellant: - The appellant argued that penalties under Sections 77 and 78 should not be imposed as there was no intention to evade tax. - The appellant claimed entitlement to the waiver of penalties under Section 80, which was available during the relevant period. Arguments by the Revenue: - The Revenue asserted that the appellant had not brought any evidence to show its bona fide to claim waiver of penalties. - The Revenue argued that the penalties were correctly imposed due to the appellant's intentional evasion of service tax. Tribunal's Findings: - The Tribunal held that the elements required to impose a penalty under Section 78 are identical to those required to invoke Section 73(4). - Since the Tribunal found no evidence of fraud, collusion, willful misstatement, or suppression of facts, the penalties under Section 78 should not have been imposed. - The Tribunal also acknowledged that Section 80, which allowed for the waiver of penalties for reasonable cause, was available at the time the show cause notice was issued. - The Tribunal concluded that the penalties under Sections 77 and 78 were not justified and should be set aside. Conclusion: The Tribunal set aside the impugned order, finding that the appellant's case was covered by Section 73(3) and not Section 73(4), and that the penalties under Sections 77 and 78 were not warranted. The appeal was allowed with consequential relief to the appellant.
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