Penalty under section 78 set aside on the ground of revenue neutrality.

PJ/Case law/2013-14/1644

Case:- M/s KANCHAN INTERNATIONAL LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, DAMAN

Citation:-2013-TIOL-1014-CESTAT-AHM

Brief Facts:-This appeal is directed against Order-in-Appeal No.CS/118/DMN/SDMN/2011-12, dt.30.11.11.

The facts of the case in brief are that the appellant M/s. Kanchan International Limited (Unit-II), is engaged in the manufacture of Pressure Cooker and Non Stick Utensils falling under Ch. 73 & 76 of the Central Excise Tariff Act, 1985 and holding Central Excise Registration No.AMCK2599XM003. The unit also obtained Service Tax Registration No.AAACK2599ST003 for the category "Transport of goods by Road Services". They are availing the facility of Cenvat credit as per Cenvat Credit Rules, 2004. During the course of EA-2000 Audit, it was noticed by the department that during the period of 2005-06 to 2008-09, the unit paid Rs.5,14,060/- as commission for sales of their export goods and also paid Rs.3,66,394/- for advertisement charges to foreign firms viz. the person from country other than India. Audit raised an objection that the unit being the recipient of such service, therefore, is liable to pay service tax under reverse charge. Accordingly a show cause notice dated 29.04.2010 was issued demanding service tax of Rs.98,223/- under Section 73(1) along with interest under Section 75, proposed penalty under Section 76, 77 & 78 of the Finance Act, 1994 by invoking extended period.
The demands were confirmed by the adjudicating authority by upholding the service tax liability of Rs.50,536/- along with interest and also penalties under Section 76, 77 & 78 of the Finance Act, 1994.

Aggrieved by such an order appellant preferred an appeal before the first appellate authority. The first appellate authority also did not agree with the contentions raised by the appellant and upheld the order-in-original. Hence, the present appeal.

Appellant Contentions:-The appellant submitted that they are not challenging the service tax liability. It is his submission that the service tax liability has arisen on the appellant under the reverse charge mechanism for the commission paid on export sales and for engaging advertising agency in Hong Kong for advertisement of their products; and question of revenue neutrality will arise, in as much as that the service tax liability which will be discharged by the appellant would be available as cenvat credit, as they are manufacturing final products on which excise duty is leviable. It is also his submission that since the issue involved in this case was under dispute, and had to be decided by the Hon'ble High Court of Bombay in the case of Indian National Ship Owners' Association - 2009 (14) S.T.R. 289 (Bom.) = (2009-TIOL- 150-HC-MUM-ST), hence bonafide belief also arises in the appellant's favour. It is his submission that there was a confusion as regards the services availed by the appellant and it could be termed as an importer of service into India. It is his submission that the service tax imposed on the appellant be set aside.
Respondent Contentions:-The respondent submitted that the appellant has not brought to the notice of the department regarding the payment of commission on export sales as well as the advertising expenses incurred by him at Hong Kong are for the marketing of their products. It is his submission that if appellant was in doubt, he could have got in touch with the department and could have got matters clarified, having not done so, he is not eligible to the benefit of revenue neutrality. It is his submission that the adjudicating authority had extended the benefit of discharge of penalty of 25% of the amount of service tax liability confirmed by the adjudicating authority under Section 78 of the Finance Act, 1994.

Reasoning of Judgment:-We have considered the submission from both parties and perused their record, we find that the appellant has accepted the service tax liability but has discharged the service tax liability only of Rs.45,286/- after the issuance of show cause notice along with interest. But has not paid the service tax liability of Rs.5,250/-.

As regards the penalty imposed under Section 76 on this amount of Rs.5,250/-, we find that the same needs to be set aside.

As regards the service tax liability of Rs.45,286/-, it is found that the appellant has discharged the entire amount of service tax liability with interest after the issuance of show cause notice but before the adjudication. As the adjudicating authority has already appropriated this amount it is found that the imposition of penalty under Section 76 on the appellant on this amount is incorrectas the said service tax liability has arisen on 16.01.09. Hence penalty imposed under Section 76 on this amount is liable to be set aside.

As regards the equivalent amount of penalty imposed under Section 78 on the said amount, it is found that appellant's contention as to the revenue neutrality is on a strong wicket, in as much as it is undisputed that the appellant is manufacturing the final products on which excise duty liability is discharged. The appellant can avail the cenvat credit on the amount of service tax paid by him under reverse charge mechanism. Tribunal finds that the revenue neutrality is a strong ground which can be taken for setting aside the imposition of penalty. Tribunal finds that the appellant has made out a case for setting aside the penalty imposed under Section 78, on the ground of revenue neutrality and accordingly set aside the penalties imposed by the lower authorities under Section 78 on tax liability of Rs.45,286/-. It is recorded that the appellant is liable to discharge interest on all the amounts which is not paid till date. As regards the imposition of penalty under Section 77, it is found that the said penalty needs to be upheld in this case.

Decision:-The appeal is disposed of on above terms.

Comment:- The substance of this case is that as the situation was revenue neutral, as the service tax paid under reverse charge mechanism was available as credit to the assessee manufacturer, penalty under section 78 was set aside.

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