2022 (8) TMI 8 - AT - Service Tax

Levy of penalty under Section 78 of FA - non-compliance in depositing the tax under the RCM - It is alleged that the appellant have not discharged service tax on three invoices - revenue neutrality - HELD THAT - There is no deliberate non-compliance and further the situation is wholly revenue neutral. Thus, there is no incentive for the appellant to evade payment of service tax under the RCM. The penalty under Section 78 is set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Penalty under Section 78 imposition validity.

Analysis:
The appeal before the Appellate Tribunal CESTAT NEW DELHI revolved around the imposition of penalty under Section 78. The appellant, engaged in providing hotel and restaurant services, faced allegations of not discharging service tax on legal services invoices totaling Rs. 41,000 under Reverse Charge Mechanism (RCM) for the period of July 2012 to March 2016. The appellant admitted the liability and deposited the service tax of Rs. 5540 upon audit scrutiny. However, a penalty equal to the tax amount was imposed under Section 78 by the Order-in-Original (O-I-O) dated 30/11/2017, citing potential tax evasion if the audit had not intervened. The Commissioner (Appeals) confirmed the penalty, leading to the appellant's appeal.

The appellant contended that the non-compliance in tax deposit was not deliberate but due to oversight or clerical error. They argued that since they were paying output tax and the legal services were input services, allowing Cenvat credit, the situation was revenue-neutral. The appellant sought the setting aside of the imposed penalty. On the other hand, the Authorised Representative for the revenue supported the impugned order upholding the penalty.

After considering the arguments, the Hon'ble Member (Judicial) found no deliberate non-compliance on the appellant's part. Moreover, the situation was deemed wholly revenue-neutral, with no incentive for tax evasion under RCM. Consequently, the appeal was allowed, and the penalty under Section 78 was set aside, acknowledging the absence of intent to evade service tax payment. The judgment emphasized the importance of considering the circumstances and intent behind apparent non-compliance in tax matters, ultimately ruling in favor of the appellant based on the absence of deliberate evasion and the revenue-neutral nature of the situation.