2009 (7) TMI 194 - AT - Service Tax

Penalty - activities of arranging loans from banks and other financial institutions on behalf of their clients - during the relevant period there was doubt about all such service being covered under the category of Business Auxiliary Services - . Commissioner (Appeals) has attributed the suppression to the appellants on the sole ground that they have agreed to pay the service tax voluntarily much before any kind of communication from the department, which leads to inevitable conclusion that service tax value was consciously suppressed by the appellant. I cannot agree with the above reasoning of the appellate authority. Merely because the appellants have chosen subsequently to pay service tax does not mean that there was no doubt in the fields and such non-payment during the relevant period was on account of any suppression. The fact that the trade was entertaining doubt is clear from the first line of the Board Circular Circular No. 87/05/2006-ST, dated 6-11-2006. Inasmuch as there was doubt prevailing during the relevant time, which can be held to be a reasonable cause in terms of the provisions of Section 80, I set aside the penalty imposed under Section 78

Summary

Issues: Liability for service tax under "Business Auxiliary Services" category, Penalty under Section 78 of the Act, Invocation of Section 80 of the Finance Act, 1994

The judgment addresses the issue of liability for service tax under the "Business Auxiliary Services" category. The Original Adjudicating Authority confirmed a service tax amount against the appellants for arranging loans from banks and financial institutions on behalf of clients. The Commissioner (Appeals) upheld the Revenue's stand but remanded the matter for re-quantification of liability after allowing abatement of tax. The Commissioner also upheld the penalty under Section 78, considering it equivalent to the re-quantified duty. The appellants did not contest the tax amount but argued against the penalty invocation under Section 78, citing doubts during the relevant period. The Circular No. 87/05/2006-ST clarified the inclusion of such services under business auxiliary services, indicating doubt in the field. The Tribunal agreed with the appellants, setting aside the penalty under Section 78 due to the prevailing doubt during the relevant period.

Regarding the penalty under Section 78 of the Act, the Tribunal analyzed the circumstances leading to the imposition of the penalty. The Commissioner (Appeals) attributed suppression to the appellants based on their voluntary payment of service tax before any communication from the department. However, the Tribunal disagreed with this reasoning, emphasizing that the voluntary payment did not necessarily indicate suppression, especially considering the doubt prevailing in the field during that time. The Tribunal found that the doubt existing during the relevant period could be considered a reasonable cause under Section 80 of the Finance Act, 1994. Consequently, the Tribunal set aside the penalty under Section 78 but confirmed the duty, as it was not contested, to be re-quantified in accordance with the Commissioner (Appeals) orders.

The judgment also delves into the invocation of Section 80 of the Finance Act, 1994. The appellants sought to invoke Section 80 to set aside the penalty under Section 78, citing the doubt surrounding the classification of services during the relevant period. The Tribunal acknowledged the Circular issued by the Board, which clarified the inclusion of the services under business auxiliary services due to doubts in the field. Relying on this, the Tribunal agreed with the appellants' argument and set aside the penalty under Section 78, emphasizing the reasonable cause of doubt during the relevant period as per the provisions of Section 80 of the Finance Act, 1994.