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PJ/Case Laws/2011-12/1291

Penalty under Section 78

Case: COMMISSIONER OF CENTRAL EXCISE, MADURAI v/s M/S L S MILLS LTD.
 
Citation: 2011-TIOL-976-CESTAT-MAD
 
Issue:- Penalty under Section 78 - whether impossible when assessee has paid Service tax along with interest under Section 66A and when amount paid was available as Cenvat credit to assessee?
 
Brief Facts:- Respondent is a manufacturer of cotton yarn and were exporting to various foreign countries. They engaged the services of foreign-based agents for the purpose of procuring orders and ensuring repatriation of sale proceeds. For the services rendered by the said foreign-based agents, they paid commission during the period 08.09.2006 to 02.02.2008.
 
The Original authority vide order dated 04.02.2009 confirmed the demand of duty and imposed penalty under Section 78. On appeal, the Commissioner (Appeals) set aside penalty under Section 78 imposed on the respondents. Hence the department is in appeal.
 
Appellant’s Contention:- Revenue contended that the present dispute relates to demand on the recipient of services in terms of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 for the period after 18.04.2006 i.e., after insertion of Section 66A of the Finance Act, 1994. The stay order by the High Court of Madras staying the operation of Rule 2(1)(d) (iv) relates to the period prior to introduction of Section 66A of the Act which cannot be the basis for bonafide belief by the respondent in not paying the service tax as recipients and, therefore, the Commissioner (Appeals) was wrong in setting aside the penalty.
 
Respondent’s Contention:- Respondent argued that whatever service tax payable by them as recipient was eligible as CENVAT credit to them and, therefore, there could be no intention on their part to evade any service tax. He further stated that, in fact, they have taken CENVAT credit of the service tax paid by them subsequently and taken rebate as well. The decision of the High Court staying the operation of Rule 2 (1)(d)(iv) was the basis for their bonafide belief in not paying service tax during the relevant period.
 
Reasoning of Judgment:- The Tribunal held that in the present case, the service tax demand which is not being disputed has arisen in assessee’s capacity as recipients. It was also not in dispute that whatever service tax paid by them as recipient was available as credit and that they were eligible for rebate of duty on yarn cleared on payment of duty utilizing such credit. While there appears to be merit in the submission of the respondent that the stay order of the High Court in relation to Rule 2(1)(d)(iv) when section 66A was not in force may not apply to the period when Section 66A is in force, the belief entertained by the respondent cannot be held other than bonafide especially in the context of Revenue neutrality as the entire tax paid by them as recipient was available to them as credit. The respondents have not disputed the tax liability primarily on the ground that whatever service tax paid by them was available to them as credit. Under these peculiar facts and circumstances of the case, the view taken by the Commissioner (Appeals) in setting aside the penalty under Section 78 appears to be reasonable and calls for no interference.
 
Decision:- Appeal rejected.
 

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