2023 (12) TMI 310 - AT - Service Tax

Declared service - amount shown as miscellaneous income and receipts under head the balance written back in the balance sheet of 2016-17 - Department formed an opinion that the appellants have tolerated the situation and thus are covered under the ambit and scope of declared service as provided under section 66E (e) of the Finance Act, 1994 - levy of penalty - HELD THAT - The appellant has not agreed to tolerate an act or a situation nor has agreed to the obligation to refrain from any act. What has been agreed by the appellant is, commitment of performance towards the machines supplied by them in case those perform subdued as per the standard committed performance. The alleged tolerance, in the given circumstances, is possible on the part of the receiver of machines. Hence, the question of tolerating any act by the appellant does not at all arise. The Appellant, therefore, cannot be held liable for rendering any declared service as defined under section 66E (e) of Finance Act, 1994. The findings to that extent of order under challenge are therefore, not sustainable and are thus liable to be set aside. Levy of penalty - HELD THAT - It is held that the admitted facts on record and the findings above are sufficient to hold that there is no liability of payment any service tax on the part of the appellant, the question of evasion, thereof, does not at all arises. Penalty is, therefore, not imposable upon the appellant. The presence of any malafide intent to evade becomes irrelevant in the given scenario. Thus, there is neither any legal basis nor factual with the adjudicating authorities to penalize the appellant. Resultantly, the order imposing penalty is also held liable to be set aside. Appeal allowed.

Summary

Issues:
The issues involved in the judgment are the classification of services provided by the appellant under section 66E (e) of the Finance Act, 1994 and the imposition of penalty on the appellant.

Classification of Services Provided:
The appellant, engaged in manufacturing various products and providing taxable services, was alleged by the Department to have rendered declared services under section 66E (e) of the Finance Act, 1994. This allegation was based on the appellant's write-off of a payable amount to their debtors/vendors, which the Department considered as an act of tolerance. The Department issued a show cause notice proposing recovery of service tax on the written-back amount. The appellant contended that they had committed to performance standards for supplied machines and had already paid excise duty on the full transaction value. The Tribunal observed that the appellant had agreed to compensate the receiver of machines in case of underperformance, and the alleged tolerance, if any, would be on the part of the receiver. The Tribunal held that the appellant did not agree to tolerate any act and thus did not provide declared services as per section 66E (e). Therefore, the demand for service tax was set aside.

Imposition of Penalty:
Regarding the imposition of penalty, the Tribunal found that since there was no liability for the appellant to pay service tax, the question of evasion did not arise. The Tribunal concluded that there was no legal basis or factual evidence to penalize the appellant. It was held that there was no malafide intent to evade tax, and therefore, the penalty imposed was set aside. Consequently, the order under challenge was set aside, and the appeal was allowed.