2022 (11) TMI 752 - AT - Service Tax

Refund of service tax - banking and other financial services - appellant availed services of the foreign based companies for raising/ collecting financial funds through External Commercial Borrowings (ECB) and Foreign Currency Convertible Bonds (FCCB) - reverse charge mechanism - appellant only disputed the service tax demand of Rs. 2,26,213/- on the ground that amount was refunded by the Foreign Financial Institution to the Appellant and they have not received the services to that extent - suppression of facts - levy of penalty u/s 76, 77 and 78 of FA - HELD THAT - Appellant had submitted the documents in support of their claim in this matter - there are force in submission of appellant - demand not sustainable. Levy of penalty - the submission of appellant is that penalty is not imposable as the Service Tax demand along with interest was paid before the issue of show cause notice - HELD THAT - Such matter cannot be taken as evasion of service tax, the matter is revenue neutral as the Cenvat credit of service tax is always admissible and it is a fit case, for invocation of Section 80 of the Finance Act, 1994 - it is evident from the records that the appellant discharged the service tax liability along with interest thereon as soon as they came to know about the liability of service tax in this matter and they also paid the same much before the show cause notice. It is also a fact that they have not disputed to service tax liability on merits and the disputed transactions were reflected in the balance sheets of the appellant for the relevant years. These evidences available on records indicate that the appellant had no intention to suppress any information or withhold any information from the department with an intention to evade payment of service tax. Further whatever Service Tax was required to be paid by the appellant, was available to them as Cenvat credit and there was no need for them to evade any payment of tax. As such, the entire situation is revenue neutral, in which case, no mala fide can be attributable to the appellant - Penalty u/s 77 and 78 set aside. Penalty imposed under Section 76 and 78 - HELD THAT - Simultaneous penalty under Section 76 and 78 cannot be imposed as held by Hon ble Gujarat High Court in the case of M/S RAVAL TRADING COMPANY VERSUS COMMISSIONER OF SERVICE TAX 2016 (2) TMI 172 - GUJARAT HIGH COURT , therefore, the penalty imposed under Section 76 is also not sustainable. Appeal allowed.

Summary

Issues:
Appeal against service tax demands on foreign-based services for financial funds through ECB and FCCB, contesting service tax demand and penalties, imposition of penalty, simultaneous penalties under Section 76 and 78.

Analysis:
The appeal challenged Order-in-Original No. 03/STC/BRC-I/MP/Comm-I/11, focusing on service tax demands related to availed services from foreign companies for financial fund-raising activities. The Revenue asserted that payments to foreign service providers were taxable under reverse charge mechanism for service tax under 'banking and other financial services'. The appellant disputed a portion of the service tax demand and penalties, emphasizing the refund received from a Foreign Financial Institution and lack of services received to that extent. They promptly paid the undisputed service tax and interest before the show cause notice, indicating no intention to evade tax.

Regarding penalties, the appellant argued against their imposition, citing the revenue-neutral nature of the situation due to the availability of Cenvat credit for the paid service tax. The Tribunal referenced precedents like Essar Steel Ltd. vs. CCE Surat and Commissioner of Central Excise vs. Dineshchandra R. Agrawal to support the appellant's position. The Tribunal found no mala fide intent on the appellant's part, leading to the conclusion that penalties under Sections 77 & 78 of the Finance Act, 1994 were not applicable due to Section 80 of the same Act.

Furthermore, the Tribunal addressed the issue of simultaneous penalties under Section 76 and 78, aligning with the Hon'ble Gujarat High Court's stance in Rawal Trading Company case that such penalties cannot be imposed together. Consequently, the penalty under Section 76 was deemed unsustainable. The Tribunal modified the impugned order accordingly, allowing the appeal based on the findings and discussions presented.

In summary, the Tribunal's decision on the appeal highlighted the appellant's prompt payment of undisputed service tax, lack of mala fide intent, and the revenue-neutral nature of the situation due to available Cenvat credit. The Tribunal's analysis of penalties under various sections and alignment with relevant precedents ensured a comprehensive and just resolution of the issues raised in the appeal.