2012 (11) TMI 652 - HC - Service Tax

Penalties u/s 76, 77 and 78 - CESTAT deleted the levy u/s 80 - Held that - Tribunal has noted that the assessee has paid the entire amount of service tax liability along with interest prior to issuance of the show cause notice and has not disputed the liability to pay service tax and interest. The assessee held a bona fide belief that it was liable to pay customs duty on the drawings and designs imported by it as the same were goods. Under the circumstances, no mala fide intention could be attributed to it in not discharging the service tax liability under the category of Intellectual Property Rights Services . Thus, the Tribunal found that reasonable cause as envisaged under section 80 has been shown by the assessee for failure to discharge its service tax liability. As to whether or not reasonable cause has been made out is a question of fact. No substantial question of law so as to warrant interference - in favour of assessee.

Summary

Issues:
- Whether the Tribunal was correct in setting aside penalties imposed under sections 76, 77, and 78 of the Act without proof of reasonable cause?
- Whether the Tribunal's order was legally sustainable due to alleged misinterpretation of statutory provisions?

Analysis:

Issue 1:
The case involved an appeal by the Department against the Tribunal's order setting aside penalties imposed on an assessee for failure to comply with provisions under the Customs Tariff Act. The Department contended that the assessee did not prove any reasonable cause for non-compliance, specifically regarding service tax liabilities. The Tribunal, however, found that the assessee had shown reasonable cause for its failure to discharge the service tax liability, thereby justifying the invocation of section 80 of the Act to set aside the penalties. The Department argued that the assessee, being a large corporate entity, could not claim a reasonable cause for non-compliance. Despite the Department's assertions, the Tribunal upheld its decision based on the assessee's prior payment of the service tax liability and its belief that customs duty applied to the imported goods, not service tax. The Tribunal's conclusion on reasonable cause was deemed plausible and not perverse, leading to the dismissal of the appeal.

Issue 2:
The second issue pertained to the legality and sustainability of the Tribunal's order in light of alleged erroneous findings and misinterpretation of statutory provisions. The Department challenged the Tribunal's interpretation of section 80 of the Act, arguing that the assessee had failed to prove reasonable cause for non-compliance, thus disqualifying it from the benefits of the said section. However, the Tribunal's decision was based on the assessee's genuine belief regarding the tax liabilities and its actions taken in good faith. The Tribunal's assessment of the facts led to the conclusion that the assessee had indeed shown reasonable cause, warranting relief under section 80. The High Court, after a thorough review, found no substantial question of law arising from the Tribunal's decision, ultimately dismissing the appeal for lack of legal grounds.

In summary, the High Court upheld the Tribunal's decision, emphasizing the importance of demonstrating reasonable cause for non-compliance with tax provisions and highlighting the Tribunal's authority to interpret facts and apply the law accordingly.