2018 (5) TMI 1216 - AT - Service Tax

Penalty u/s 78 - demand with interest paid before issuance of SCN - Held that - revenue did not have authority to issue show cause notice dated 25.03.2013 in terms of provisions of Sub-section (3) of Section 73 of Finance Act 1994. Therefore the question of proposal of imposition of penalty under Section 78 does not arise - penalty u/s 78 set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Service tax liability on Bandwidth Charges under reverse charge mechanism.
2. Service tax liability on "Web Hosting Service" and imposition of penalty under Section 78 of Finance Act, 1994.
3. Authority to issue show cause notice and imposition of penalty.

Analysis:

Issue 1: Service tax liability on Bandwidth Charges under reverse charge mechanism
The appellants were receiving Bandwidth Charges services and were required to pay service tax under the reverse charge mechanism. The show cause notice proposed to appropriate service tax and interest amounts deposited by the appellant. The Order-in-Original confirmed the demands and imposed a penalty under Section 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld the demand but did not interfere with the penalty. The Tribunal found that the revenue did not have the authority to issue the show cause notice as the amounts were paid before the notice was issued. Consequently, the penalty imposed under Section 78 was set aside, and the appeal was allowed.

Issue 2: Service tax liability on "Web Hosting Service" and imposition of penalty
The appellants were also providing "Web Hosting Service" and were required to pay service tax on it. The show cause notice proposed to appropriate the service tax amounts deposited by the appellant and imposed a penalty under Section 78 of the Finance Act, 1994. The Commissioner (Appeals) held that the demand of service tax raised on "Web Hosting Service" for the period before its introduction was not sustainable. However, the penalty under Section 78 was not interfered with. The authorized representative argued that the demand on "Web Hosting Service" remaining after adjustments was paid before the issuance of the show cause notice, making the imposition of penalty unsustainable. The revenue agreed that the amounts were paid before the notice was issued. The Tribunal, after considering the submissions and records, concluded that the revenue lacked the authority to issue the show cause notice, rendering the penalty under Section 78 irrelevant. Therefore, the penalty imposed on the appellant was set aside, and the appeal was allowed.

Issue 3: Authority to issue show cause notice and imposition of penalty
The Tribunal found that the revenue did not have the authority to issue the show cause notice in accordance with the provisions of Sub-section (3) of Section 73 of the Finance Act, 1994. As the amounts were paid before the notice was issued, the imposition of penalty under Section 78 was deemed unsustainable. Consequently, the penalty imposed on the appellant was set aside, and the appeal was allowed.