2022 (9) TMI 1159 - AT - Service Tax

Levy of penalty u/s 78 of FA - demand of service tax for the period post 18.04.2006 and interest thereon has been paid prior to issue of show cause notice - services received from overseas under reverse charge mechanism in terms of Section 66A of the Finance Act, 1994 - HELD THAT - The appellant have admittedly paid the service tax on the service received from foreign country in terms of Section 66A on reverse charge basis and interest thereupon was also paid before issuance of show cause notice. The issue on merit is whether there is levy of service tax on reverse charge mechanism on the service received from the overseas. This issue has undergone litigation in various cases before various forums. The hon ble Supreme Court in the case of UNION OF INDIA VERSUS INDIAN NATIONAL SHIPOWNERS ASSOCIATION 2009 (12) TMI 850 - SC ORDER held that the levy of service tax is not legal on the said service prior to 18.04.2006 on the ground that Section 66A was enacted on 18.04.2006 only therefore, prior to this stage the levy was not legal and correct. Since the issue involved grave interpretation of law, there cannot be any mala fide intention on the part of the appellant - Moreover, the appellant paid the service tax and interest for the period from 18.04.2006 onwards before issuance of show cause notice therefore, the case of the appellant is squarely covered under the provision of Section 73(3) of Finance Act, 1994 accordingly, the revenue was not suppose to issue show cause notice therefore, there was no question of imposition of penalty. The penalty is not imposable on the appellant hence, the penalty imposed under Section 78 and upheld by learned Commissioner (Appeals) is set aside - Appeal allowed.

Summary

Issues:
Imposition of penalty under Section 78 for service tax on reverse charge mechanism on services received from overseas.

Detailed Analysis:
The appeal challenged the penalty under Section 78 imposed by the Commissioner of Central Excise, Customs, and Service Tax-VADODARA-I. The issue revolved around the demand for service tax, interest, and penalty under Section 78 for services received from overseas under the reverse charge mechanism as per Section 66A of the Finance Act, 1994. The appellant disputed only the penalty under Section 78, having paid the service tax for the period post 18.04.2006 along with interest before the show cause notice was issued.

The appellant's representative argued that the levy of service tax on reverse charge mechanism for services received from foreign countries was a contentious issue, citing the Supreme Court's decision in the case of Indian National Ship Owners Association. It was held that service tax was leviable only from 18.04.2006 onwards. The appellant contended that there was no intention to evade tax, as they had been regularly paying service tax on other services and filing returns. The appellant's case fell under Section 73(3) of the Finance Act, 1994, as they had paid the service tax and interest before the show cause notice, which should have precluded the imposition of a penalty.

The Revenue's representative reiterated the findings of the impugned order, maintaining the stance on the penalty under Section 78. The Tribunal examined the submissions and records, emphasizing that the key issue for consideration was the imposition of the penalty. The Tribunal noted that the appellant had indeed paid the service tax and interest before the show cause notice, in compliance with Section 66A on reverse charge basis for services received from overseas. Referring to the Supreme Court's decision in the Indian National Ship Owners Association case, it was established that prior to 18.04.2006, the levy of service tax on such services was not legal. Given the complex legal interpretation involved, the Tribunal concluded that there was no mala fide intent on the appellant's part. As the appellant's actions aligned with Section 73(3) of the Finance Act, 1994, which negated the need for a show cause notice, the imposition of a penalty was deemed unwarranted.

Consequently, the Tribunal set aside the penalty imposed under Section 78 and upheld the appeal on this specific issue, while affirming the remaining aspects of the order. The judgment was pronounced in open court on 23.09.2022.