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TMI Blog2018 (1) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... ligations. If the Service recipients had paid Service Tax, which they need not have paid, it was for them to approach the proper authority and seek refund - Payment of Service Tax by the service recipients of the Applicant cannot extinguish the liability cast on the Applicant. The Bench is of the view that the Applicant is required to pay an additional Service Tax of ₹ 6,70,831/-. The Bench, thus, settles the Service Tax liability at ₹ 80,30,602/- (Rs. 80,22,513 + ₹ 8,089/- (not covered in the Show Cause Notice, but accepted by the Applicant and paid). The Applicant, having paid ₹ 73,59,771/- (Rs. 73,51,682/- + ₹ 8,089/-), is required to pay the remaining amount of ₹ 6,70,831/-. Liability of Interest - Held that:- As the Applicant is required to pay an additional amount of ₹ 6,70,831/- towards Service Tax, the quantum of interest payable shall vary and the Applicant shall work out the revised interest liability to the satisfaction of the Jurisdictional Commissioner. Penalty - Held that:- It has to be construed that the Applicant had failed to discharge the statutory obligations and their act entails penalty, as proposed in the show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n providing Manpower Recruitment or Supply Agency services taxable under Clause (44), read with Clause (51) of Section 65B of the Finance Act, 1994. On intelligence that the Applicant was rendering taxable service to their clients, receiving consideration for the services rendered and not paying Service Tax, search operation was conducted by the officers of DGCEI, Hyderabad at the premises of the Applicant and some incriminating documents were recovered. Statement was also recorded from the Co-Applicant, Managing Director in the Applicant company. Investigation revealed that the Applicant provided skilled, semi-skilled and unskilled labour to M/s. Aurobindo Pharma Ltd., M/s. Thermal Systems, M/s. Fleming Laboratores Ltd., M/s. Lee Pharma Ltd., M/s. Tecumseh Products India Ltd. etc. During the investigation the Applicant provided sales invoices from August, 2013 to March, 2015, monthly abstract of statement of sales, worksheet for Service Tax liability, statement of challans evidencing payment of Service Tax of ₹ 1,37,79,589/-, income-tax returns for the years 2013-14 and 2014-15, Form 26AS statements, copies of ST3 returns and copies of agreements to the investigating Agency. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de payments of over ₹ 65 lakhs from the day of inception. They were new to the business segment and not well-versed with the Rules and Regulations and due to lack of legal guidance they could not understand the objections raised during investigation and were bound to give statements in a blind manner and in distressed mind without realizing the impact. Subsequently, they realized that the demand of ₹ 6,70,831/-, being 75% of the Service Tax liability paid by the Service recipients, is not payable by them. Despite true and transparent statements given, fair cooperation extended, providing all the data required for investigation and discharging the entire Service Tax liability of ₹ 73,51,682/-, the department had issued the show cause notice demanding a sum of ₹ 80,22,513/- invoking penal provisions. They had approached the Settlement Commission paying the admitted liabilities with interest as there was no scope for them to get any relief from the department. There is no dispute on the working pattern of the Service Tax liability, except for an amount of ₹ 6,70,831/-. The observation of DGCEI with regard to Service Tax liability in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the department and they had paid the same along with appropriate interest. They had paid the entire accepted Service Tax liability with interest and paid a sum of ₹ 34,000/- towards penalty for belated filing of ST3 returns. As regards imposition of penalty, the department had failed to establish any one of the acts, viz, undervaluation of service consideration, receipt of sale consideration from customers by cash and suppressing the same in the books of account and any shady transaction held in benami. In the absence of any such case, there is no justification to invoke the provisions of Section 78 of the Finance Act, 1994. All the transactions were transparent and accounted at every stage and all details were available to anyone at any given point of time. The only lapse on record is belated payment of Service Tax, which was openly admitted by the Applicant. The mistakes committed were unintentional and they relied on some case laws in this regard. Hence, they pleaded for waiver of penalty proposed in the notice. 2.2 Reiterating the facts of the case, the Co-Applicant, in his application filed on 27-7-2017, submitted that there was no intent on his part to ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their case; that the Government, while deciding to revert the benefit of Reverse Charge Mechanism to Manpower Supply should categorically worded in the notification to the extent that the service had been removed from the purview of Reverse Charge Mechanism; that keeping the said service category continuously under Reverse Charge Mechanism by inserting certain clauses under para 1(A)(ii)(v) of Notification No. 30/2012-ST., dated 20-6-2012 in confused state would attribute to committing procedural lapses unintentionally; that as change of percentage of Service Tax ratio and non-observance would be seriously viewed, if it resulted in Revenue loss, it could be treated as condonable lapse or assessees could be educated/guided for corrective measures instead of issuing Demand Notice; that for such unintentional procedural lapses no provisions are framed under Section 78 of the Finance Act, 1994 to impose penalty; that the subject notification was framed in a haphazard and hasty manner is apparent with regard to its form/wording; that demand of additional 75% tax liability in their case, inasmuch as 100% tax was remitted to the exchequer, would result in unjust enrichment to the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the only lapse that could be noticed apparently on record is the belated payment of Service Tax which was candidly admitted by them in the statement given before the officers of the DGCEI. The above lapse was due to various operational problems and lack of proper knowledge about the Service Tax provisions, as a result, they failed to file ST3 returns since 2014-15, although they made a periodical payment of ₹ 65 lakhs. They committed certain mistakes unintentionally during the initial stage of operations. 5.3 In view of the above and as the Department has failed to establish any of the acts, viz., undervaluation of service consideration, receipt of sale consideration from customers by cash and suppressing the same in the books of account and any shady transaction held in benami, there is no justification to invoke the provisions of Section 78 of the Finance Act read with other penal provisions. Accordingly, no penalty on the applicant be imposed and prosecution proceedings be dropped. 5.4 So far as Shri Pogiri Narasimha Murthy, Managing Director (the co-applicant) is concerned, two statements were recorded from him. In the first statement, the co-applicant had sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd interest : 5.1 This is a case of short payment of Service Tax on Manpower Supply Service. The charge against the Applicant was that, being a Private Limited Company, they should have paid 100% of the Service Tax liability on Manpower supply services rendered to their clients instead of 25% of the liability, as reverse charge mechanism envisaged under Notification No. 30/2012-S.T., dated 20-6-2012 was not applicable to them. Thus a demand of ₹ 80,22,513/- was raised on them. The Applicant contended that they were totally new to business segment and not well-versed with the rules and regulations. On initiation of investigation they had paid ₹ 73,51,682/- as against the demanded amount of ₹ 80,22,513/- and ₹ 13,16,371/- as interest. They contested the balance amount of ₹ 6,70,831/- payable on the ground that the condition, - by any individual, Hindu Undivided Family or partnership firm, whether registered or not including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory , envisaged in the Notification No. 30/2012-S.T., dated 20-6-2012 applied only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 73,59,771/- (Rs. 73,51,682/- + ₹ 8,089/-), is required to pay the remaining amount of ₹ 6,70,831/-. 5.4 As regards the interest liability, the Applicant had paid a sum of ₹ 13,16,371/-, which has been accepted by the jurisdictional Commissioner. The jurisdictional Commissioner had also reported that the interest payable on the amounts paid by them was ₹ 12,49,461/-. However, as the Applicant is required to pay an additional amount of ₹ 6,70,831/- towards Service Tax, the quantum of interest payable shall vary and the Applicant shall work out the revised interest liability to the satisfaction of the Jurisdictional Commissioner. Penalty : 5.5 This case was investigated by the Directorate General of Central Excise Intelligence, Hyderabad Zonal Unit. The short payment of Service Tax was noticed and unearthed after scrutinizing the work agreements/contracts, income-tax returns, Form 26AS statements and statements were recorded from the Managing Director, Shri Pogiri Narasimha Murthy. The Applicant had pleaded that they were not well-versed with the rules and regulations and that there was vagueness and confusion in the Notification No. 30/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sixteen thousand three hundred and seventy-one only) already paid, the Applicant is required to pay the balance interest, if any. iii. The Bench imposes a penalty of ₹ 2,00,000/- (Rupees Two lakhs only) on the Applicant and grants waiver in excess of the penalty imposed. iv. The Bench imposes penalty of ₹ 10,000/- (Rupees Ten thousand only) on Shri Pogiri Narasimha Murthy, Co-Applicant, under the provisions invoked in the show cause notice and grants waiver in excess of the penalty indicated herein. v. The Applicant and the Co-Applicant shall pay the amounts ordered above in Para 6.1(i), (ii), (iii) and (iv) within thirty days from the date of receipt of this order and proof of payment be furnished to jurisdictional Commissioner. vi. Subject to the payment of the amounts ordered above, the Applicant and the Co-Applicant are granted immunity from prosecution under the Finance Act, 1994. 6.2 The immunities are granted in terms of Section 32K of the Central Excise Act, 1944, as made applicable to Service Tax matters vide Section 83 of the Finance Act, 1994. If the Applicant and the Co-Applicant fail to pay the sum ordered as above, the immu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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