2013 (11) TMI 798 - AT - Service Tax

Levy of penalty where service tax has been deposited before issuance of show cause notice - Section 73(3) versus Section 73(4) - Business Auxiliary Service - The adjudicating authority did not impose penalties, by relying on provisions of Section 73(3) of the Act. - Revenue filed an appeal against the order - Held that - where there was wilful contravention of the provisions of Chapter 5 of the Act, with a view to evade payment of service tax, provisions of sub-section 3 would not apply, in view of the provisions of sub-section 4 of Section 73. It is axiomatic Legislation is operative proprio vigore on its enactment and effectuation. The operation of legislation is not contingent upon affirmation by the judicial branch, even where a challenge to its constitutionality is presented before the Courts. No person therefore, could reasonably harbour any manner of doubt that when legislation is under challenge, the challenged legislation is in eclipse to be upheld. A doubt. The appellate authority has rightly rejected the appellant s claim in this regard and has rightly reversed the order of adjudicating authority on a true and fair construction of Section 73(4) of the Act. The order of the Appellate Commissioner is impeccable and warrants no interference - Decided against assessee.

Issues: Liability of service tax on the appellant as a recipient of Business Auxiliary Service, imposition of penalties under Section 73(3) of the Act, interpretation of Section 66A regarding the liability of a service recipient, bonafide misconception as a defense against penalties.

Liability of service tax on the appellant as a recipient of Business Auxiliary Service:
The Joint Commissioner confirmed the appellant's liability to service tax as the recipient of Business Auxiliary Service under Section 65(19) read with Section 65(105) ZZB of the Finance Act, 1994. The amount remitted by the appellant before the show cause notice was appropriated towards service tax and interest. The adjudicating authority did not impose penalties, citing a bonafide misconception by the appellant as a reason for non-payment.

Imposition of penalties under Section 73(3) of the Act:
The adjudicating authority refrained from imposing penalties under Section 73(3) of the Act, considering the appellant's failure to remit tax as a result of a bonafide misconception. However, the appellate Commissioner reversed this decision, stating that where there is a wilful contravention of the Act to evade payment of service tax, the provisions of sub-section 3 would not apply, as per sub-section 4 of Section 73.

Interpretation of Section 66A regarding the liability of a service recipient:
Section 66A, inserted into the Act in 2006, specifies the liability of a service recipient for taxable services received. The provision mandates that if a service is provided to a recipient in India by a person established outside India, the recipient is liable to pay service tax. The liability of the service recipient for taxable services provided locally by a service provider with an overseas establishment is clear and unequivocal.

Bonafide misconception as a defense against penalties:
The appellant argued that due to challenges to the validity of Section 66A in various courts, they were under the impression that compliance with the provision was not mandatory. However, the appellate authority rejected this argument, emphasizing that legislation is effective upon enactment, regardless of judicial challenges. The appellate authority upheld the reversal of the adjudicating authority's decision based on a true interpretation of Section 73(4) of the Act.

In conclusion, the appeal was dismissed as without merit, affirming the liability of the appellant as a service tax recipient, clarifying the interpretation of Section 66A, and rejecting bonafide misconception as a defense against penalties.

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