2012 (7) TMI 346 - AT - Service Tax

Waiver of pre-deposit cenvat credit - suppression of facts or mis-declaration as soon as the appellant was informed that they are liable to Service Tax, they promptly paid the Service Tax with interest - Held that - if the appellant was to pay Service Tax on the services received by them, the entire amount was available as CENVAT Credit and could have been utilized for payment of Excise duty on the manufactured goods. By not paying the Service Tax, the appellant have, in fact, lost the benefit of immediate credit and interest element and no benefit could have been derived by avoiding Service Tax in this case. There is no suppression of facts or mis-declaration. Requirement of pre-deposit of penalty is waived. Stay granted.

Summary

Issues:
1. Liability to pay Service Tax on Marketing & Management Consultancy services provided to a company based in the USA.
2. Imposition of penalty under Section 78 of Finance Act, 1994 for non-payment of Service Tax.
3. Lack of reasoning for imposition of penalty by lower authorities.
4. Appeal for waiver of pre-deposit of penalty.

Analysis:

Issue 1: Liability to pay Service Tax
The appellant, engaged in the manufacture of excisable goods, provided Marketing & Management Consultancy services to a company in the USA. As the service provider did not have an office in India, the appellant was required to discharge the Service Tax liability under the Finance Act, 1994. The appellant failed to pay the Service Tax initially, but upon notification of their liability, promptly paid the due amount with interest. The appellant argued that they had no intention to evade payment as the entire Service Tax amount could have been utilized as CENVAT Credit for payment of Excise duty. The delay in payment resulted in the loss of CENVAT Credit and interest, but the appellant contended that penalty under Section 78 was not warranted.

Issue 2: Imposition of penalty under Section 78
The Department imposed a penalty equal to the amount of Service Tax under Section 78 of the Finance Act, 1994. The appellant contended that there was no suppression of facts or mis-declaration to warrant such a penalty. Both the original adjudicating authority and the appellate authority did not provide a clear rationale for imposing the penalty. The appellant argued that the delay in payment did not result in any benefit for them, as they lost the immediate credit and interest element by not paying the Service Tax promptly.

Issue 3: Lack of reasoning for penalty imposition
The lower authorities did not specify the nature of suppression or mis-declaration that would justify the penalty under Section 78. The Commissioner (Appeals) discussed the issue raised by the appellant but did not provide a justification for the penalty imposition. The lack of clear reasoning for the penalty raised doubts about the validity of the penalty under Section 78.

Issue 4: Appeal for waiver of pre-deposit
Considering the arguments presented, the Tribunal found merit in the appellant's case and granted a waiver of pre-deposit of the penalty. The Tribunal noted that the appellant had made a strong prima facie case in their favor, indicating that the penalty imposition might not be justified.

In conclusion, the Tribunal dismissed one of the appeals filed by the appellant due to a procedural mistake. The decision highlighted the importance of clear reasoning and justification for the imposition of penalties under the Finance Act, 1994, emphasizing the need for transparency and fairness in tax proceedings.