2006 (8) TMI 20 - AT - Service Tax

Service Tax The issue whether service tax imposable only when appellants were providing both clearing and forwarding operations, settled in favour of Revenue by Larger Bench Penalty not imposable, if assessee proves reasonable cause for failure to pay service tax

Summary

Issues:
1. Confirmation of demand of service tax against the appellant treated as C & F Agent.
2. Imposition of penalties on the appellant.

Analysis:

Issue 1: Confirmation of demand of service tax
The appellant appealed against the Order-in-Appeal confirming a demand of service tax and treating them as a Clearing and Forwarding (C & F) Agent. The Tribunal referred to a previous decision by the Larger Bench in Final Order No. 5/2006-LB, which settled the issue in favor of the revenue. The Tribunal upheld the demand of service tax based on this decision, despite the appellant's reference to a previous Tribunal decision in their favor. The Tribunal highlighted that the levy of service tax is attracted when a C & F unit carries out both clearing and forwarding operations, as clarified in previous cases. The Tribunal also noted the provision under Section 80 of the Finance Act, which states that no penalty shall be imposed if the assessee proves reasonable cause for the failure.

Issue 2: Imposition of penalties
The revenue contended that the appellant had stopped paying service tax post-June 30, 2001, despite providing services as a C & F Agent. The revenue directed the appellant to deposit the tax and imposed penalties, arguing that there was no reasonable cause for the appellant to believe they were not liable to pay service tax during the relevant period. However, the Tribunal, in light of the Larger Bench's resolution on the scope of a clearing and forwarding agent's activities, found that the penalty imposition was not justified. Citing Section 80 of the Finance Act, the Tribunal set aside the penalty imposed on the appellant, modifying the impugned order accordingly.

In conclusion, the Tribunal upheld the demand of service tax against the appellant but set aside the penalties imposed, based on the resolution of the issue regarding the scope of activities of a clearing and forwarding agent by the Larger Bench.