2019 (6) TMI 206 - AT - Service Tax

Levy of service tax - inputs on which transportation charges were paid - reverse charge mechanism - HELD THAT - The appellant has been issued the SCN for short payment of service tax under reverse charge basis. They had received inputs for being used in the manufacture of their final products. For such inward transportation of goods, they are liable to pay service tax under reverse charge basis - demand of service tax alongwith interest upheld. Penalty - HELD THAT - The appellant has submitted that the appellants were not aware of the fact that they are liable to pay service tax on such freight charges under reverse charge basis. On perusal of the records, it is seen that the appellant has raised this plea from the very beginning itself - also appellant have paid up the entire service tax along with interest on being pointed out by the Department much before the issuance of the Show Cause Notice - penalty set aside by invoking section 80. Appeal allowed in part.

Summary

Issues: Liability of service tax under reverse charge basis, imposition of penalty under Section 78 of the Finance Act, 1994

In this judgment by the Appellate Tribunal CESTAT CHENNAI, the issue revolved around the liability of the appellant to pay service tax under reverse charge basis for transportation charges on inputs received. The Original Authority and the Commissioner (Appeals) confirmed the demand, interest, and penalty under Section 78 of the Finance Act, 1994. The appellant, represented by Shri. J. Shankaraman, argued that they had paid the service tax along with interest before the Show Cause Notice was issued, believing the service provider was liable. On the other hand, the respondent, represented by Shri. L. Nandakumar, contended that the penalties imposed were justified as the appellant had not paid the service tax during the relevant period.

Upon review, the Tribunal noted that the appellant had received a Show Cause Notice for short payment of service tax under reverse charge basis for inward transportation of goods. The appellant claimed they were unaware of their liability to pay service tax on freight charges under reverse charge basis and had paid the tax along with interest upon being informed by the Department before the Notice was issued. Considering these facts, the Tribunal invoked Section 80 of the Finance Act, 1994, as the appellant had shown reasonable cause for the failure to discharge the service tax. Consequently, the Tribunal modified the impugned order, setting aside the penalty under Section 78 without affecting the demand or interest.

In conclusion, the appeal was partly allowed, with the penalty under Section 78 being waived due to the appellant's established reasonable cause for the failure to pay the service tax under reverse charge basis.