No penalty imposable when service tax with interest paid before issuance of SCN.

PJ/Case law/2014-15/2202

Case:- COMPUSERVE SYSTEMS PVT. LTD. VERSUS COMMR. OF C. EX., AHMEDABAD

Citation:- 2012 (28) S.T.R. 161 (Tri. - Ahmd.)

Brief facts:-The appellants are engaged in providing Business Auxiliary Service to M/s. Tata Teleservices Ltd., M/s. Fascel Ltd. and M/s. Xerox Modi Ltd. The appellants provides the services such as collection of application forms, collection of bills, undertakes sales promotion of products etc. for these 3 customers. The appellant was not paying any Service Tax till 8-7-2004 and after withdrawal of exemption given to Commission Agents in Budget of 2004 which it came into effect from 9-7-2004, the appellant took registration as a service provider of Business Auxiliary Service and started paying Service Tax from 9-7-2004. There is no dispute as regards liability of Service Tax after 9-7-2004. In Sept.’04, the appellants were visited by Central Excise officers and they had informed that they are required to pay Service Tax for the period prior to 9-7-2004 also and they are required to pay Service Tax right from 1-7-2003 onwards and exemption provided for commission agents is not available to them. Immediately after the visit of the officers, without waiting for any further action by issue of Show Cause Notice or correspondence, the appellant discharged the liability of Service Tax with interest. This being so, proceedings were initiated by issue of Show Cause Notice on 30-9-2008, proposing imposition of penalty under Sections 75A, 76, 77 and 78 of Finance Act, 1994 and proposing, demand of Service Tax and appropriation of the amount already paid which culminated into an adjudication order, whereby the penalty was imposed under Section 77, 78 of Finance Act, 1994, against which the party went in appeal before Commissioner (Appeals) and Revenue also filed an appeal seeking penalty under Section 76 of Finance Act, 1994. The appeal filed by the Revenue was allowed and the appeal filed by the appellant has been rejected.

Appellant’s contentions:-Ld. Counsel on behalf of the appellant submits that the very fact that the appellant took registration as soon as the notification providing exemption to commission agents was withdrawn w.e.f. 9-7-2004 and started paying Service Tax, shows that they had a bona fide belief that they were not liable to pay Service Tax prior to 9-7-2004. The ld. Counsel also submitted that the appellant obtained registration and started paying Service Tax without any intimation or suggestion or advice or action by the Department. As soon as the officers visited in September 2008, without waiting for Show Cause Notice, the appellant deposited the Service Tax due with interest and even though, they could have contested the same on merit, they are not contesting the same. However, their grievance is that the Show Cause Notice should not have been issued to them, proposing penalties under various Sections of Finance Act, 1994, when there was no suppression of facts or mis-declaration on their part. He submits that the penalty of 25% deposited by them under protest may be set aside and as regards Service Tax and interest, he is not contesting the same.

Respondent’s contentions:- Ld. A.R. would submit that the appellants did not take registration prior to 9-7-2004 and this shows that there was suppression of facts.

Reasoning of judgment:- In the absence of any finding that the appellant obtained registration after 9-7-2004 because of the action on the part of the Department and was not a voluntary step taken by the appellant, the submission of the ld. Counsel that the appellant entertained a bona fide belief that they are not liable to Service Tax since they were only acting as commission agent for the 3 customers, has considerable force. The very fact that as soon as the officers visited, even without waiting for Show Cause Notice, the appellant deposited the Service Tax, would also show that they did not want to have any dispute with the Department and want to settle the issue. It has to be noted that the amount of Service Tax and the interest was paid within one year except for 1 or 2 months would also show that the appellant is entitled to benefit of provisions of Section 73(3) of Finance Act, 1994 which provides that if the appellant makes the payment of Service Tax and interest, no further proceedings will be initiated. Unless the Department is able to show that the appellant did not and could not have entertained a bona fide belief and suppressed the facts deliberately, the benefit of Section 73(3) of Finance Act, 1994 cannot be denied. As already observed above, the amount received by the appellant from the customers was mainly commission especially when they take into account that the fact that the activities undertaken by the appellant consisted of collection of bills, wherein they were getting percentage for having collected the amount. It was also submitted that in almost all the activities, the appellants were getting commission and therefore, they entertained a belief that what was being received by them is a commission and therefore they were acting as commission agent. There can be different views as regards the activities undertaken by the appellant, but the fact remains that having regard to the facts and circumstances of this case the appellant cannot be found fault with for entertaining a bona fide belief that they were acting as commission agent. Under these circumstances, proceedings initiated invoking suppression/misdeclaration by issue of Show Cause Notice in September 2008 is unwarranted and was not required.
Under these circumstances, the appeal is required to be allowed and accordingly the same is allowed with consequential relief to the appellant as regards penalty under Section 78 already paid by them under protest.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that as the assessee was under bonafide belief that no service tax was payable and paid the service tax amount along with interest before issuance of show cause notice, the benefit of section 73 (3) was admissible to them and no penalty was imposable on them.

Prepared by:- Monika Tak

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PJ/Case law/2014-15/2202

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