2009 (10) TMI 266 - AT - Service Tax

Penalty-The respondents are engaged in providing taxable service under the category of Multi-System Operator (MSO) which was brought under service tax net with effect from 10-9-2004. It has been alleged that the respondents have wrongly availed credit of Rs. 37,077 on the basis of documents of service tax paid by their subscriber cable operator during the period October, 2004 to September, 2005. Original authority confirmed the denial of credit along with interest and also imposed penalty under sections 76 and 77 of the Finance Act, 1994. Commissioner (Appeals) set aside the penalties. Held that- there was a confusion on the new levy of tax on MSO and availment of Cenvat credit. Commissioner (Appeals) had given detailed finding to come to the conclusion that there was a reasonable cause for failure to pay the tax. It is a case, where the respondents paid the tax by way of availing Cenvat credit, which was ascertained as irregular, and was reversed by them subsequently. Thus, I find that there is no reason to interfere with the order of the Commissioner (Appeals). Accordingly, appeal filed by the revenue is rejected.

Issues:
- Appeal against setting aside of penalties under sections 76 and 77 of the Finance Act, 1994 by the Commissioner (Appeals).

Detailed Analysis:
1. The appeal was filed by the Revenue against the Order of the Commissioner (Appeals) where penalties under sections 76 and 77 of the Finance Act, 1994 were set aside. The case involved the respondents engaged in providing taxable services as Multi-System Operators (MSO) under service tax net from September 10, 2004. Allegations were made that the respondents wrongly availed credit of Rs. 37,077 based on service tax paid by their subscriber cable operator from October 2004 to September 2005. The original authority confirmed the denial of credit, imposed interest, and penalties under sections 76 and 77 of the Finance Act, 1994. The Commissioner (Appeals) set aside the penalties, leading to the appeal by the Revenue.

2. The Department's representative argued that the penalties were dropped by invoking section 80 of the Act, 1994 due to a bona fide belief. It was contended that the respondents did not pay the tax even after a show-cause notice was issued, and therefore, section 80 should not have been applied. The Department claimed that the Commissioner (Appeals) did not properly consider the facts of the case while setting aside the penalties.

3. The respondents' representative argued that the levy of tax on MSO was introduced in September 2004, and the dispute period was from October 2004 to September 2005. They stated that there was confusion regarding the levy of tax on MSO, but the respondents reversed the credit, deposited the tax, and the Commissioner (Appeals) rightly invoked section 80 of the Act. Reference was made to a Tribunal decision in a similar case.

4. Upon review of the case, the Judicial Member found that the respondents had availed inadmissible credit based on the tax paid by their Subscriber Cable Operator. The Commissioner (Appeals) held that the respondents acted under a bona fide belief due to confusion regarding the payment of service tax credit. It was noted that the respondents had paid the service tax through TR-6 challan and Cenvat credit, with no intention to evade tax. The Commissioner (Appeals) concluded that it was a technical offense and a fit case for invoking section 80, thus no penalties under sections 76 and 77 of the Finance Act, 1994 were imposable.

5. The Department argued that since the respondents contested the tax demand, section 80 should not be invoked. However, the Judicial Member observed that there was confusion regarding the new tax levy on MSO and Cenvat credit availment. The Commissioner (Appeals) provided detailed findings supporting the reasonable cause for the failure to pay tax, as the respondents rectified the irregularity by reversing the credit.

6. In conclusion, the Judicial Member found no reason to interfere with the Commissioner (Appeals) order and rejected the appeal filed by the Revenue.

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