2017 (12) TMI 724 - AT - Service Tax

Business Auxiliary Services - whether demand of service tax amounting to ₹ 10,22,575/- have been rightly made on the brokerage earned for providing taxable services under the head Business Auxiliary Service for the period October, 2009 to June, 2012 and further July, 2012 to March, 2014? - penalty - Held that - Nomenclature in accounts is not material to classification of service event, taxable entry specifies legislative intent. The description of taxable service in the Act as well as in any of the terms therein are primary determinant for taxation of any service - in the course of audit it was seen that the assessee had ocean freight surplus and it was explained that these profits are arising from purchase and sale of space or slots for ocean transport of container and the same was proposed to be taxed under BAS, this Tribunal held, the notional surplus earned thereby arises from purchase and sale of space and not by acting for a client who has space or slot on a vessel. The appellant - assessee have taken adequate measures for meeting the service tax liability, being the facts on record that there was defalcation of the amounts by its staff, drawn towards payment of service tax is not disputed and further appellant have on discovering the defalcation by its employee, deposited the tax forthwith with interest - the penalty u/s 78(1) is not tenable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether demand of service tax on brokerage for providing taxable services was rightly made.
2. Whether penalties imposed under various sections of the Finance Act were justified.
3. Whether the show cause notice for the demand of service tax was rightly issued.

Analysis:

Issue 1:
The appeal dealt with the demand of service tax on brokerage earned for providing taxable services under Business Auxiliary Service. The appellant, engaged in Cargo Handling Services, faced allegations regarding non-disclosure of service tax liability. The appellant contended that they had discharged the service tax liability and provided detailed documentation to support their claim. The Tribunal considered the nature of income sources and previous judgments, ultimately setting aside the demand of ?10,22,575 on brokerage as it was covered by a previous ruling. The demand of ?1,14,15,678 confirmed in the impugned order was declared as already paid and declared in ST-3 Returns before the show cause notice, rendering it unsustainable.

Issue 2:
Penalties were imposed under various sections of the Finance Act. The Tribunal found that the penalty under Section 78(1) was not justifiable considering the appellant's prompt actions upon discovering defalcation by an employee. This penalty was set aside. However, other penalties under different sections were upheld, indicating a nuanced approach to penalty imposition based on the specific circumstances of the case.

Issue 3:
Regarding the issuance of the show cause notice for the demand of service tax, the Tribunal ruled that the notice concerning the amount of ?1,14,15,678 was invalid since the tax had already been paid and declared. The appellant's proactive measures upon discovering the employee's misconduct were considered, leading to the dismissal of the penalty under Section 78(1) due to the circumstances surrounding the defalcation and subsequent tax payment with interest.

In conclusion, the Tribunal allowed the appeal, setting aside the demand on brokerage, declaring the show cause notice for ?1,14,15,678 as invalid, and overturning the penalty under Section 78(1) while upholding other penalties. The judgment showcases a meticulous analysis of the facts and legal provisions to arrive at a balanced decision.