2019 (12) TMI 642 - AT - Service Tax

100% EOU - Classification of services - Business Auxiliary Services or not - appellant had engaged foreign commission agents in order to procure business for them - reverse charge mechanism - utilization of CENVAT credit - penalty - HELD THAT - Prima facie, the nature of service rendered by the foreign agent is that of promotion and marketing of the appellant s goods which appear to fall under the category of business auxiliary services . In terms of Section 66A of the Finance Act, 1994 the appellant was liable to pay service tax under reverse charge mechanism being the recipient of the service. Utilization of CENVAT Credit - HELD THAT - If the appellant had paid the service tax he could have availed cenvat credit of the same. They are already registered with the service tax department and could have used that cenvat credit for payment of service tax - Being a 100% EOU, if they are unable to utilise cenvat credit they could have applied for refund of unutilised cenvat credit under Rule 5 of Cenvat Credit Rules, 2004. Penalty - HELD THAT - Non-payment of service tax in this case was possibly due to a reasonable error or misunderstanding and there is no likely to be a motive to evade as they would not profit from such evasion - penalty u/s 77 and 78 set aside. The appeal is partly allowed to the extent of setting aside the penalties imposed under Section 77 and 78 of the Finance Act, 1994 - other part upheld.

Summary

Issues:
- Liability to pay service tax under reverse charge mechanism for services received from foreign commission agents
- Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994

Analysis:
1. The appellant, a 100% EOU engaged in manufacturing and exporting granite slabs and tiles, was registered for service tax under GTA services. The department alleged that the appellant engaged foreign commission agents for business promotion, classifying it as "business auxiliary service" chargeable to service tax under Section 65(19) of the Finance Act, 1994. A show cause notice was issued, demanding service tax, interest, and penalties under Sections 75, 78, and 77 of the Act. The Original Authority confirmed the demand, interest, and penalties.

2. The appellant appealed to the First Appellate Authority, which upheld the original order, leading to the current appeal. The appellant, while contesting the demand for service tax, sought waiver of penalties under Sections 77 and 78 of the Finance Act, 1994.

3. The appellant's counsel, in the appeal, did not press for contesting the service tax demand but only requested the waiver of penalties under Sections 77 and 78. The Departmental Representative supported the impugned order, asserting the need to uphold both the demand and penalties.

4. The Tribunal considered the nature of services provided by the foreign agent as falling under "business auxiliary services," making the appellant liable for service tax under reverse charge mechanism per Section 66A of the Finance Act, 1994. It was noted that the appellant could have utilized cenvat credit for service tax payment and, being a 100% EOU, could have sought a refund of unutilized cenvat credit under Rule 5 of Cenvat Credit Rules, 2004. The Tribunal found the non-payment of service tax to be possibly due to a reasonable error or misunderstanding, without any motive to evade tax.

5. Accordingly, invoking Section 80, the Tribunal set aside the penalties imposed under Sections 77 and 78 of the Finance Act, 1994, considering the circumstances of the case. The appeal was partly allowed, specifically in relation to the penalties under Sections 77 and 78, which were waived.

6. The Tribunal's decision highlighted the importance of considering the circumstances surrounding non-payment of service tax and the availability of cenvat credit for payment. The waiver of penalties under Sections 77 and 78 was justified based on the lack of intent to evade tax and the possibility of a reasonable error leading to non-payment.