2013 (5) TMI 367 - AT - Service Tax

Waiver of penalty u/s 77 & 78 - dispute relating to import of services - Marketing and Management Consultancy from foreign consultancy - Held that - Appellant herein had discharged the service tax liability along with interest on receipt of the show-cause notice and before adjudication. It is also undisputed that the serviced tax liability has arisen on the ground of appellant being the recipient of services of Management and Business Consultancy Services from an overseas Consultancy Service and these services are received by the appellant for the advises given on marketing. Understandably, service tax paid on such services rendered would be available to the appellant themselves as cenvat credit which can be utilized for discharge of any excise duty on the final goods manufactured and cleared by the appellant. On the factual matrix the issue is to be decided in favour of the appellant, as regards penalty imposed as that during the period service tax liability under reverse charge mechanism was being disputed at various forums and attained finality, after the judgment of the Hon ble High Court of Bombay in the case of Indian National Ship Owners Association 2008 (12) TMI 41 - HIGH COURT OF BOMBAY . Also Dinesh chandra R. Agarwal Infracon Pvt. Ltd. (2009 (10) TMI 395 - CESTAT, AHMEDABAD) and Sagar Enterprises (2009 (10) TMI 242 - CESTAT, AHMEDABAD) directly in favour of the assessee.

Issues:
1. Liability of service tax on overseas consultancy services received by appellant.
2. Discharge of service tax liability before adjudication.
3. Imposition of penalties under sections 77 and 78 of the Finance Act, 1994.
4. Applicability of Cenvat credit on service tax paid under reverse charge mechanism.
5. Dispute regarding service tax liability under reverse charge mechanism.
6. Revenue neutrality in the context of service tax liability.

Issue 1: Liability of service tax on overseas consultancy services received by appellant:
The appellants, engaged in manufacturing excisable goods, received Marketing and Management Consultancy services from foreign consultants not having a presence in India. The liability to pay service tax fell on the appellants as service recipients. A show-cause notice was issued for recovery of service tax, interest, and penalties under the Finance Act, 1994.

Issue 2: Discharge of service tax liability before adjudication:
The appellants paid the service tax liability along with interest before adjudication. They argued that there was confusion regarding the date from which service tax was payable and that they paid the amount promptly upon clarification. They contended that penalties should not be imposed due to a genuine misunderstanding of the tax provisions.

Issue 3: Imposition of penalties under sections 77 and 78 of the Finance Act, 1994:
The Adjudicating Authority confirmed the service tax demand, interest, and imposed penalties under sections 77 and 78. The appellants challenged the penalties, citing bona fide doubt about the tax applicability and requested their removal since they had paid the service tax and interest upon being informed by the audit party.

Issue 4: Applicability of Cenvat credit on service tax paid under reverse charge mechanism:
The appellants argued that service tax paid under reverse charge was eligible for Cenvat credit as per a relevant circular. They asserted that the tax paid could be utilized for discharging excise duty on final goods manufactured, supporting their claim for credit.

Issue 5: Dispute regarding service tax liability under reverse charge mechanism:
The appellant's counsel highlighted the confusion surrounding the service tax liability under the reverse charge mechanism, which was being debated in various forums until a judgment clarified the issue. The appellant's timely payment upon clarification was emphasized to defend against penalties.

Issue 6: Revenue neutrality in the context of service tax liability:
The argument of revenue neutrality was raised, suggesting that the appellant's utilization of Cenvat credit for excise duty discharge supported the obligation to pay service tax. Various judgments favored the appellant's position, emphasizing the availability of credit and the absence of reasons to evade service tax liability.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the penalties imposed under sections 77 and 78 of the Finance Act, 1994. The decision was based on the appellant's timely payment of service tax liability, the confusion surrounding the reverse charge mechanism, and the applicability of Cenvat credit for excise duty discharge. The principle of revenue neutrality was upheld, emphasizing the legitimate use of credits and the absence of grounds to avoid service tax liability.

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