2016 (12) TMI 437 - AT - Service Tax

Levy of tax - commission agents service - business auxiliary service - reverse charge mechanism - Held that - I have perused the records and I notice that the grounds of appeal have contested the levy imposed by the original authority on the consideration paid to commission agents outside the country both by questioning the legality of the levy and coverage beyond the normal period of limitations This is in contrast with the specific prayer for setting aside of penalty. It must be pointed out that the proceedings before the first appellate authority on this issue was also limited to imposition of penalty. The Tribunal cannot, therefore, revisit the demand for tax on services provided by commission agents abroad. I, therefore, decline to consider the challenge other than that of imposition of penalties. No justification has been brought forth either in the appeal or in the submissions that penalties under section 70 and 77 are not to be imposed. The discretionary empowerment under section 80 of Finance Act does not extend to penalties imposed under section 70. The tax confirmed and accepted as liability by the appellant is ₹ 1,93,075 for the period from 2006-07 to 2007-08 and ₹ 1,24,465 for 2008-09. No penalty has been imposed under section 76 in relation to the latter demand. It is, however, seen that service tax and interest paid before the issue of show cause notice. The original authority has not imposed penalties under section 78 of Finance Act, 1994 implying that the ingredients spelt out in section 73(4) of Finance Act, 1994 does not exist. Consequently, the issue of show cause notice for recovery of ₹ 1,93,075 and ₹ 1,24,465 for the two respective periods was not warranted in law as per section 73(3) of Finance Act, 1994. In the absence of show cause notice, penalty under section 76 of Finance Act, 1994 could not have been imposed - penalty u/s 76 set aside - appeal disposed off - decided partly in favor of appellant.

Summary

Issues:
Levy of tax on 'commission agents service' under 'business auxiliary service' for 2006-07 and 2007-08, and 2008-09; Imposition of penalties under sections 70, 76, and 77 of Finance Act, 1994.

Analysis:

Issue 1: Levy of Tax on 'Commission Agents Service' under 'Business Auxiliary Service'
The appellant, M/s NRB Bearing Ltd, received notices for tax levy as a recipient of 'commission agents service' under 'business auxiliary service' for 2006-07 and 2007-08, as well as for 2008-09. The appellant argued that the services provided were to entities abroad and constituted export of services, hence not taxable. The dispute regarding tax on services provided abroad was remanded for verification by the original authority, and the focus of this appeal was on penalties imposed.

Issue 2: Imposition of Penalties under Sections 70, 76, and 77 of Finance Act, 1994
The impugned order-in-appeal imposed penalties under sections 70, 76, and 77 of the Finance Act, 1994. The appellant sought to set aside penalties of ?20,000 under section 70, ?10,000 under section 77 for both periods, and additional penalties under section 76 for 2003-04 to 2007-08. The Tribunal noted that the appeal grounds primarily contested the levy of tax on consideration paid to commission agents abroad and declined to revisit the demand for tax, limiting the consideration to the imposition of penalties.

Issue 3: Consideration of Penalties under Section 78 and Section 80 of Finance Act, 1994
The Tribunal observed that penalties under section 78, relating to tax short-levied, were not invoked in the impugned orders. The grounds of appeal extensively discussed the proviso in section 73(1) of the Finance Act, 1994, which was not applicable due to the absence of penalties under section 78. The Tribunal declined to consider these grounds and submissions as the cause of action for penalties under section 78 did not exist.

Issue 4: Setting Aside of Penalty under Section 76
The Tribunal found that the appellant had paid the tax liability for the respective periods before the show cause notice was issued. As penalties under section 76 were not imposed by the original authority and the show cause notice was not warranted by law, the Tribunal set aside the penalty under section 76 in relation to the tax demand for ?1,93,075. Consequently, the appeal was allowed to that extent.

In conclusion, the Tribunal upheld the imposition of penalties under sections 70 and 77 but set aside the penalty under section 76 for the tax demand of ?1,93,075. The judgment clarified the limited scope of the appeal regarding penalties and the specific issues under consideration, emphasizing the legal provisions governing tax liabilities and penalties under the Finance Act, 1994.