2017 (11) TMI 155 - AT - Service Tax

Penalty u/s 76 and 78 of FA - reverse charge mechanism - appellant is an exporter and received the services from a commission agent located outside India. In terms of Section 66A of the Finance Act, 1994, the appellant is required to pay the Service Tax under reverse charge mechanism on the services received from outside India but the appellant did not pay Service Tax thereon under reverse charge mechanism - malafide intent or not - invocation of section 80. Held that - till the decision of Indian National Shipowners Association vs. UOI 2008 (12) TMI 41 - BOMBAY HIGH COURT , the exporters were under doubt that whether they are liable to pay Service Tax under Section 66A of the Finance Act or not under reverse charge mechanism and the same has been settled by the Hon ble High Court of Bombay in November, 2008. Admittedly, the period in dispute is upto March, 2008. The benefit of Section 80 of the Finance Act can be extended to the appellant, consequentially, no penalty imposed on the appellant - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against penalty under Sections 76 and 78 of the Finance Act, 1994 for non-payment of Service Tax under reverse charge mechanism.
Whether appellant is entitled to benefit under Section 80 of the Finance Act.

Analysis:

Issue 1: Appeal against Penalty under Sections 76 and 78 of the Finance Act
The appellant, an exporter, received services from a commission agent outside India but failed to pay Service Tax under reverse charge mechanism as required by Section 66A of the Finance Act, 1994. Show cause notices were issued for the period 09.07.2004 to 02.03.2008. The penalties under Sections 76, 77, and 78 were confirmed in the adjudication, with the Ld. Commissioner (Appeals) dropping the penalty under Section 76 but confirming penalties under Sections 77 and 78 for subsequent periods. The appellant, after the Ld. Commissioner's order, paid the Service Tax along with interest and sought the benefit of Section 80 to waive the penalties imposed.

Issue 2: Entitlement to Benefit under Section 80 of the Finance Act
The appellant argued that there was no mala-fide intention as they had unutilized Cenvat Credit balance, and they believed they were not liable to pay Service Tax under reverse charge mechanism due to the challenge to the constitutional validity of Section 66A. They cited a decision where penalties were not imposed under similar circumstances. The respondent contended that the appellant was aware of their liability for Service Tax under Section 66A for subsequent periods and thus should be penalized, citing precedents to support their argument.

The Tribunal considered the confusion regarding the liability to pay Service Tax under Section 66A until the decision in Indian National Shipowners Association vs. UOI in November 2008. Given that the disputed period was up to March 2008, the Tribunal examined whether the appellant was entitled to the benefit of Section 80. Referring to a similar case, the Tribunal held that in the absence of mala-fide intent, penalties were not justifiable and set them aside, confirming only the tax and interest. The Tribunal distinguished the cases cited by the respondent, stating they were not relevant to the issue at hand. Consequently, the benefit of Section 80 was extended to the appellant, and no penalty was imposed, allowing the appeals filed by the appellant.

In conclusion, the Tribunal allowed the appeals, setting aside the penalties imposed on the appellant under Sections 76 and 78 of the Finance Act, 1994, based on the entitlement to the benefit of Section 80 and the absence of mala-fide intent in non-payment of Service Tax under reverse charge mechanism.