Whether penalty should be imposed on non-payment of service tax under RCM if the assessee had a bona fide intention?

PJ/Case Law /2016-17/3400

Case-FERMANTA BIOTECH LTD. Versus COMMISSIONER OF C. EX., CHANDIGARH

Citation-2016 (45) S.T.R. 285 (Tri. - Chan.)

Brief Facts-The appellant is in appeal against the impugned order for imposing equivalent amount of penalty under Section 78 of the Finance Act, 1994.
The facts of the case are that during the period, i.e., 2006-07 to 2009-10, the appellant received services from foreign based commission agents. On these services, the appellant was required to pay service tax under reverse charge mechanism, the appellant failed to do so and the same was paid on pointing out by audit team when the audit was conducted in their premises in June, 2010 along with interest. Thereafter, a show cause notice was issued to the appellant for appropriation of the amount already paid as service tax along with interest and to impose penalty under Section 78 of the Finance Act, 1994. Both the lower authorities have confirmed the demand along with interest and also imposed equivalent amount of penalty under Section 78 of the Finance Act, 1994. Aggrieved from the said imposition of equivalent amount of penalty on the appellant, the appellant is in appeal.

Appellant’s Contention-The ld. Counsel for the appellant submits that as appellant has received services from foreign based commission agents and there required to pay service tax under reverse charge mechanism but the appellant was not known of these technicalities, therefore, they could not pay service tax on commission paid to foreign based commission agents. He further submits that as per provision of Section 73(3) of the Finance Act, 1994, a show cause notice was not required to be issued therefore, the order of imposition of penalty on the appellant be set aside.

Respondent’s Contention-On the other hand, The ld. AR opposed the contention of the ld. Counsel and submits that as appellant has not disclosed the fact that the commission paid to foreign based commission agents which tantamount to suppression of facts. In these circumstances, provisions of Section 73(3) of the Finance Act, 1994 are not applicable to the facts of this case. Therefore, both the authorities below has rightly imposed penalty on the appellant.

Reasoning Of Judgment-Heard the parties and considered the submissions.
On careful consideration of the facts, the Tribunal found that in this case the appellant is receiving services from foreign based commission agents located outside India and the appellant was required to pay service tax under reverse charge mechanism. It is not a case where the appellant is providing some service and required to pay service tax thereon. In that circumstances, benefit of doubt goes in favour of the appellant, therefore, the charges of suppression of facts cannot be alleged on the appellant. In these circumstances, provisions of Section 73(3) of the Finance Act, 1994 are attracted to the facts of this, therefore, no show cause notice was required to be issued to the appellant. In these circumstances, penalty imposed on the appellant under Section 78 of the Finance Act, 1994 is set aside.
The appeal is allowed in above terms.

Decision-Appeal allowed.

Comment-The gist of the case is that the assessee received services from foreign based commission agents located outside India. Thus, he was required to discharge Service tax under reverse charge mechanism but he did not do so. But, he had a bona fide belief that as he was not providing any service, he was not required to pay service tax on the same. Hence, charge of suppression could not be established against him. In fact, no show cause notice should have been issued as the appellant had paid entire Service Tax with interest during audit. It was held that penalty was not imposable in accordance with Section 78 of the Finance Act, 1994.

Prepared By - Praniti Lalwani

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PJ/Case Law /2016-17/3400

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