2014 (7) TMI 33 - AT - Service Tax

Penalty u/s 76, 77 & 78 - waiver of penalties u/s 80 - commission received on sale of RBI bonds and mutual funds - appellant paid the amount of service tax before issuance of show cause notice - Held that - Board issued Circular No. 66/15/2003 dated 5.11.2003 wherein it has been clarified that the benefit of Notification 13/2003-ST is applicable only for commission agent dealing in goods and not to the commission received by the distributor of mutual funds. This circular was subsequently quashed by the Hon ble Andhra Pradesh High Court in the case of Karvy Securities Ltd. 2004 (9) TMI 604 - ANDHRA PRADESH HIGH COURT - Tribunal in the case of CST vs. P.N. Vijay Financial Services Pvt. Ltd. reported in 2008 (9) TMI 72 - CESTAT, NEW DELHI held that mutual fund units being goods as per the definition of Section 65(5) of the Finance Act read with Section 2(7) of the Sale of Goods Act, stand at par with the stock and share and the same are to be treated as goods. In view of the above decision, we find merit in the contention of the appellants regarding imposition of penalties. By invoking the provisions of Section 80 of the Finance Act, the penalties imposed under Sections 76, 77 and 78 are set aside, otherwise the impugned order is upheld - Decided partly in favour of assessee.

Summary

Issues:
- Restoration of appeal
- Confirmation of demand with interest and penalties under Sections 76, 77, and 78 of the Finance Act
- Challenge to penalties imposed
- Interpretation of Circular No. 66/15/2003
- Application of Notification 13/2003-ST to commission agents

Restoration of Appeal:
The appellant filed an application for restoration of the appeal after it was dismissed for non-prosecution. The order dismissing the appeal was recalled, and the appeal was restored to its original number.

Confirmation of Demand and Penalties:
The appeal was against an order confirming a demand of Rs.69,14,614 with interest and penalties under Sections 76, 77, and 78 of the Finance Act. The appellant did not challenge the demand but only the penalties imposed.

Challenge to Penalties Imposed:
The appellant argued that confusion existed regarding the liability of tax on commission received on the sale of bonds and mutual funds. The appellant believed they were not liable for service tax due to this confusion and relied on Circular No. 66/15/2003 and a decision by the Tribunal to support their claim that the penalties were unwarranted.

Interpretation of Circular No. 66/15/2003:
Circular No. 66/15/2003 clarified that the exemption under Notification 13/2003-ST applied only to commission agents dealing in goods, not to distributors of mutual funds. This circular was later quashed by the Hon'ble Andhra Pradesh High Court, creating confusion in the service sector.

Application of Notification 13/2003-ST to Commission Agents:
The Tribunal held that mutual fund units are considered goods and are to be treated as such, similar to stocks and shares. Based on this interpretation, the penalties imposed under Sections 76, 77, and 78 were set aside under Section 80 of the Finance Act, which provides relief if there was a reasonable cause for the failure. The appeal was disposed of accordingly, upholding the impugned order except for the penalties.