Whether assessee can be made liable for payment of penalties when demand itself is not sustainable?

CASE STUDY

Prepared By: CA Neetu Sukhwani &
Kavita Thanvi

Introduction:-

The assessee was served upon with a SCN alleging that they have willfully suppressed the information with intent to evade payment of service tax on foreign agent service received by them as the same was required to be paid in cash while the assessee had paid the service tax by utilizing the cenvat credit balance. Vide OIO no. 89/2011, the Additional Commissioner confirmed demand of Service tax under section 73 along with interest under Section 75. But penalty under Sections 76, 77 and 78 of the Finance Act, 1994 was not imposed on them. The Commissioner of Central Excise, Jaipur-II vide OIR no. 41/2011, directed Additional Commissioner to file appeal before Commissioner (A) for determination about legality of non imposition of penalty under sections 76, 77 and 78. The Commissioner (A) after considering the relevant facts rejected the appeal filed by the Department.

Additional Commissioner, Central Excise Commissionerate, Jaipur-II v/s M/s Alcobex Metals Ltd., Jodhpur
[Order- In-Appeal No. 13(RDN) ST/JPR-II/2013, dt. 10/01/2013]

Relevant Legal Provisions:-

ü Instruction [F. No. 276/8/2009-CX8A]:-

Kind attention is invited to instruction F No. 275/7/2010-CX8A, dated 30.6.2010, wherein the Board had communicated its view that services tax on a taxable service received in India, when provided by a non-resident/person located outside India, would be applicable on reverse charge basis with effect from 1.1.2005, and that the ratio of judgement in M/s Indian National Shipowners Association (INSA) case [2009 (13) STR 235 (Bom)] would not apply to such cases. Further, direction was issued to field formations to defend the levy of service tax on such services for the period on or after 1.1.2005, as post INSA judgment, it has been held by the High Courts/Tribunal in a large number of cases, applying ratio thereof, that service tax on such services is leviable only w.e.f. 18.4.2006. However, the appeals filed by the department before the Hon’ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently (subsequent to the issuance of said instruction dated 30.6.2010) in the following cases:-

(i)        SLP (C) No. 29539 of 2010 in CCE Vs Bhandari Hosiery Exports Ltd
(ii)        SLP (C) No. 18160 of 2010 in CST Vs Unitech Ltd
(iii)        SLP (C) No. 34208/09 of 2010 in UOI Vs S R Batliboi & Co.
(iv)        SLP (C)No. 328/332 of 2011 in UOI Vs Ernst & Young
(v)        SLP (C) No. 25687-25688/2011 in CCE Vs Needle Industries
(vi)        SLP (C) No. 25689-25690/2011 in UOI Vs SKM Engg Products

Further, Review Petition No. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon’ble Supreme Court vide order dated 18/8/2011.

2. In view of the aforementioned judgments of the Hon’ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position. Accordingly, the instruction F No. 275/7/2010-CX8A, dated 30.6.2010 stands rescinded.

ü Section 76 Penalty for failure to pay service tax

Any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made under this Chapter, who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax amount in accordance with the provisions of section 75, a penalty which shall not be less than two hundred rupees for every day during which such failure continues or at the rate of two per cent. of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax:

Providedthat the total amount of the penalty payable in terms of this section shall not exceed the service tax payable.

ü Section 77 Penalty for contravention of rules and provisions of Act for which no penalty is specified elsewhere

(1) Any person,—

(a)        who is liable to pay service tax, or required to take registration, fails to take registration in accordance with the provisions of section 69 or rules made under this Chapter shall be liable to pay a penalty which may extend to five thousand rupees or two hundred rupees for every day during which such failure continues, whichever is higher, starting with the first day after the due date, till the date of actual compliance;

(b)        who fails to keep, maintain or retain books of account and other documents as required in accordance with the provisions of this Chapter or the rules made thereunder, shall be liable to a penalty which may extend to five thousand rupees;

(c)           who fails to—

(i)      furnish information called by an officer in accordance with the provisions of this Chapter or rules made thereunder; or

(ii) produce documents called for by a Central Excise Officer in accordance with the provisions of this Chapter or rules made thereunder; or

(iii) appear before the Central Excise Officer, when issued with a summon for appearance to give evidence or to produce a document in an inquiry, shall be liable to a penalty which may extend to five thousand rupees or two hundred rupees for every day during which such failure continues, whichever is higher, starting with the first day after the due date, till the date of actual compliance;

(d)        who is required to pay tax electronically, through internet banking, fails to pay the tax electronically, shall be liable to a penalty which may extend to five thousand rupees;

(e)        who issues invoice in accordance with the provisions of the Act or rules made thereunder, with incorrect or incomplete details or fails to account for an invoice in his books of account, shall be liable to a penalty which may extend to five thousand rupees.

(2)        Any person, who contravenes any of the provisions of this Chapter or any rules made thereunder for which no penalty is separately provided in this Chapter, shall be liable to a penalty which may extend to five thousand rupees.”;

ü Section 78 Penalty for suppressing value of taxable services-

Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of —

(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:”;

Providedthat where such service tax as determined under sub-section (2) of section 73, and the interest payable thereon under section 75, is paid within thirty days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent. of the service tax so determined :

Providedfurther that the benefit of reduced penalty under the first proviso shall be available only if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :

Providedalso that where the service tax determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the service tax as reduced or increased, as the case may be, shall be taken into account :

Providedalso that in case where the service tax determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of service tax so increased, the interest payable thereon and twenty-five per cent. of the consequential increase of penalty have also been paid within thirty days of communication of the order by which such increase in service tax takes effect.

Providedalso that if the penalty is payable under this section, the provisions of section 76 shall not apply.

Explanation.- For the removal of doubts, it is hereby declared that -

(1) the provisions of this section shall also apply to cases in which the order determining the service tax under sub-section (2) of section 73 relates to notices issued prior to the day on which the Finance Bill, 2003 receives the assent of the President;

(2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.”

Issue: - Following issue was made before the Commissioner (Appeals):-

Whether assessee can be made liable for payment of penalties when demand itself is not sustainable?

Brief Facts:-

The present appeal has been filed by the Department in terms of Order-in-Review no. 41/2011 dated 24.08.2011 against OIO no. 89/ST/JP-II/2011 dated 28.06.2011 passed by the Additional Commissioner, Central Excise Commissionerate, Jaipur in respect of M/s Alcobex Metals Ltd., Jodhpur, the respondent.

The assessee, M/s Alcobex Metals Ltd., Jodhpur are engaged in the manufacture of Brass Copper tubes and rods etc. falling under chapter 74 of the schedule to the Central Excise Act, 1985 having Central Excise Registration and also registered under Section 69 of the Finance Act, 1994 under the category of Goods transport Agency. They have received foreign agent service for promotion /marketing of their product, Consulting Engineer service, Advertisement and Business Exhibition service during the period from 01.01.05 to 31.08.06 from overseas persons who did not have any establishment in India, therefore in terms of Section 66A of the Finance Act, 1994 read with Notification No. 36/2004-ST dated 31.12.04 and Rule 2(1)(d)(iv) of Service Tax Rules, 1994, the appellant were liable to pay service tax under reverse charge. The adjudicating authority vide its OIO has confirmed demand of Rs. 16,34,709/- under section 73(1) of Finance Act, 1994 along with interest but no penalty was imposed. Being aggrieved with the impugned orders, the Commissioner, Central Excise, Jaipur-II in exercise of their power, issued OIR No. 41 dated 24.08.2011. Accordingly the Department filed this appeal.

Appellant’s Contentions:-

The Additional Commissioner, the appellant submits that the adjudicating authority, while adjudicating the case appears to have not examined the factual position of the issue involved in the case. The non imposition of penalties under Section 76, 77 and 78 of the Finance Act, 1994 does not appear to be legal and correct. The adjudicating authority has confirmed the demand under Section 73 of the Finance Act, 1994 by invoking the extended period and also ordered for recovery of interest under Section 75 ibid. But no penalty has been imposed under Section 76 and 77 ibid. Further the penalty was also proposed under Section 78 of the Finance Act, 1994, but no discussion has been made regarding non imposition of penalty under Section 78 ibid.

Further, the impugned order is contradictory to findings made by the adjudicating authority, wherein it has been held that there has been a deliberate act by the assessee to suppress the information and it is not the case of ignorance on their part. They willfully suppressed the information with intent to evade payment of service tax. The adjudicating has finally held that show cause notice issued under proviso to Section 73 of the Finance Act, 1994 invoking the extended period is legal and proper. Once the extended period is invoked on the grounds of suppression of facts with intent to evade payment of service tax, penalty should have been imposed under Sections 76, 77 and 78 of the Finance Act, 1994. In view of these, the Additional Commissioner was required to impose appropriate penalty under Sections 76, 77 and 78 of the Finance Act, 1994, however he failed to do so, which appears not to be legal and correct. In exercise of powers conferred upon him under Section 84(1) of the Finance Act, 1994, the Commissioner, Central Excise, JP-II directed the Additional Commissioner, Central Excise, JP-II to file an appeal before the Commissioner (A), Jaipur-II for determination of legality and correctness of the OIO and to correct the same.

Assessee’s Contentions:-

Assessee made following cross objections before the Commissioner (Appeals):-

-       The Respondent - assessee submits that the order in original passed by the Additional Commissioner is very correct upto the extent of refraining from imposing penalties under Section 76, 77 and 78 of Finance Act, 1994. The impugned appeal filed by the department is therefore totally erroneous and is liable to be set aside.

-       The respondent submit that in the appeal filed by the Additional Commissioner it has been submitted that the Adjudicating Authority has confirmed the demand under Section 73 of the Finance Act, 1994 by invoking the extended period and also ordered for recovery of interest under Section 75 ibid. But no penalty has been imposed under Section 76 and 77 ibid. In this regard, the respondent submits that that the penalty under section 76 is imposed if the person liable to pay service tax does not pay service tax. But they have paid the service tax. They have duly paid the service tax under the provisions of Finance Act, 1994 read with Cenvat Credit Rules, 2004. The service tax if is paid through the Cenvat credit then also finally is paid by them. So this cannot be said that they have not paid service tax and therefore no penalty can be imposed on them. The Additional Commissioner therefore was right in not imposing any penalty under Section 76.

-       Respondent also submits that demand raised for recovery of service tax for import of service prior to 18.04.2006 is not sustainable. The Hon’ble Supreme Court in the case of Union of India & Ors v/s Indian National Shipowners [2009-TIOL-129-CS-ST] has upheld the judgment of the Hon’ble High Court of Bombay in the case of Indian National Ship owners Association v/s Union of India & Ors [2008-TIOL-633-HC-MUM-ST] wherein it was held that the service tax liability on any taxable service provided by a non-resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.04.2006 i.e. the date of enactment of Section 66A of the Finance Act, 1994.

-       The respondent further submit that in their case also the demand is raised for the period prior to 18.04.2006, therefore, they were not liable to pay service tax before 18.04.2006 as held by the Hon’ble Supreme Court in the afore-said cases. Therefore, as there was no liability to pay service tax and yet they have paid service tax from cenvat credit account, demand itself is not sustainable then the question of imposing penalty will not arise. Therefore, the appeal filed by the Department is not sustainable and is liable to be set aside.

-       Further it was submitted that the Board itself has accepted the position that in case of import of service, the liability of the service recipient to pay service tax will arise only from 18.04.2006. The Board has accepted this position vide their Circular No. F. No. 276/8/2009-CX8A dated 26.09.2011. Therefore, it is clear that the demand of service tax itself is not sustainable and is liable to be set aside. It is submitted that when the demand itself is not sustainable then the issue of imposing penalty does not arise. Therefore, the appeal filed by the Department should be set aside.

-       Respondent further submitted that the learned Additional Commissioner has rightfully not imposed any penalty under Section 77 on the respondent. It is submitted that the Section 77 says that there are certain reasons for which the penalty may be imposed: -

Ø   Failure to take registration, or
Ø   Failure to keep, maintain or retain books of account and other documents, or
Ø   Failure to furnish information called by an officer in accordance with the provisions of this Chapter or rules made there under, or
Ø   Failure to produce documents called for by a Central Excise Officer; or
Ø   Failure to appear before the Central Excise Officer on issue of a summon; or
Ø   Failure to pay tax electronically through internet banking if required to do so; or
Ø   For issuance of invoice which is not in accordance to the provisions of the Act or rules made there under with incorrect or incomplete details or fails to account for an invoice in his books of account; or
Ø   For any failure or contravention for which no penalty is separately provided in this Chapter.

The analysis of section 77 makes it clear that the penalty under this section can be imposed only for the reasons prescribed therein or for any other contravention/failure for which no separate penalty is prescribed. The present case neither falls under any of the defaults listed in the section 77 nor the show cause notice describe any other reason for which the penalty u/s 77 is invokable against them. As such, in absence of the fulfillment of the conditions prescribed u/s 77; no penalty can be imposed upon them. So the Additional Commissioner was right in refraining them from penalty under Section 77. Therefore the appeal filed by the department should be disallowed.

-       The appellant has filed the appeal saying that the show cause notice dated 26.08.2010 has proposed penalties under Section 78 of the Finance Act, 1994. It has been contended in the appeal that the Additional Commissioner has passed the order-in-original dated 13.07.2010 did not impose penalty under the said Section of the Act, which appears to be incorrect.

In this regard, they submit that the Section 78 provides that penalty under this Section is imposed if the assessee has been indulged in fraud, collusion, misrepresentation, wilful misstatement or committed the contravention as prescribed in the section. The show cause notice was issued saying that they have contravened the provisions of Chapter V of the Finance Act, 1994 and the rules made there under. It is submitted that they have not contravened the provisions of Chapter V and the rules made there under with intent to evade payment of service tax. They were liable to pay service tax on services provided by Goods Transport Agency Service, BAS, Foreign consultancy and foreign engineering services. They have duly paid the same from the Cenvat credit. The only dispute is that the department wants the same amount to be paid through cash. They were liable to pay service tax and have paid it. Therefore they have not contravened the provisions of Chapter V of the Finance Act, 1994. Even the hon’ble Supreme Court has decided that penalty should not be ordinarily imposed unless there is deliberate in defiance of law. This has been held in the case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. It is further held in the case of Orient Ceramics and Industries [1987 (32) ELT 218 (I)] that words ‘with intent to evade payment of duty’ are very significant and unless and until the intention to evade payment is proved on part of assessee, no penalty can be imposed. As such, relying on these decisions, no penalty u/s 78 should be imposed upon the respondent. Therefore the Additional Commissioner was right in refraining from imposing penalty under Section 78 on the respondent.

-       The respondent further submit that against the impugned Order-in-Original demanding service tax with interest by invoking the extended period of limitation, they have filed an appeal before the learned Commissioner (Appeal). It is submitted that in the appeal they have contested the demand of service tax which was confirmed by the Learned Additional Commissioner has been raised in the second show cause notice. The said demand was not raised for the first time. It is submitted that the audit has raised this point and they had filed for amendment in registration certificate. Thereafter, they had paid the service tax along with interest and filed return immediately. They had filed the condonation of delay along with these returns on 24.11.2006 wherein it is clearly mentioned that audit has taken the point and they are paying the service tax. Thereafter, the department has issued show cause notice no. V(ST)SCN/929/JDR/07/3978 dated 9.4.2007 to them. The penalty of Rs. 500/- was also imposed on them by OIO 2480/ST/07 dated 29.10.2007. Thereafter, this second show cause notice was issued to them. They have pleaded in their reply that extended period cannot be invoked in second show cause notice. But the learned adjudication officer tried to mislead the thing by saying that they have not submitted the information at their own. But the learned Additional Commissioner had kept silent on the issue that extended period cannot be invoked when the second show cause notice is issued on the same subject. Such an order is liable to be quashed.

-       In continuation it is submitted that in the light of the judgment of the Hon’ble Supreme Court, the appeal filed by them will be decided in their favour and the demand will be set aside. Therefore, when there is no demand then the question of imposing penalty does not arise. Therefore, the appeal filed by the Department is to be rejected.

-       Respondent further submits that there are various judgments in their favour wherein it was held that service tax liability will be on the service recipient from 18.04.2006 onwards. It is submitted that the appellant has acted accordingly under bona fide belief. It is submitted that when the respondent has acted under bona fide belief, then it cannot be alleged against them that they have acted with mala fide intention and therefore, the extended period of limitation is not invokable against the respondent. Therefore, the Adjudication Officer has rightly not imposed any penalty on the respondent in the order-in-original. Therefore, when the demand is not sustainable then the penalty also cannot be imposed on the respondent. Thus, the appeal filed by the Department is not sustainable and is liable to be set aside.

-       It is also submitted by the Respondent that merely because penalty under Section 78 was proposed in the show cause notice, the same cannot be imposed on the assessee. It is required to be proved that the assessee had not made payment of service tax with intent to evade the payment of the same. In the appeal of the Department it has not been shown as to how they are warranted to be penalised under Section 78.

-       It is further submitted that the hon’ble Supreme Court has decided that penalty should not be ordinarily imposed unless there is deliberate defiance of law. This has been held in the case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. It is further held in the case of Orient Ceramics and Industries [1987 (32) ELT 218 (I)] that words ‘with intent to evade payment of duty’ are very significant and unless and until the intention to evade payment is proved on part of assessee, no penalty can be imposed. As such, relying on these decisions, no penalty u/s 78 should be imposed upon themas there was no suppression on their part with intent to evade payment of duty.

-       The respondent further submits that they have paid the service tax due from the Cenvat Credit. The Finance Act, 1994 read with the Cenvat Credit Rules, 2004 prescribes the utilization of Cenvat for the purpose of paying the service tax. Thus, payment from Cenvat is also a mode of discharging the tax liability. Since they have duly paid service tax due, no mala fide intention is proved. When the mala fide intention is not proved, penalty cannot be imposed. Reliance placed on following decisions: -

Ø M/s Chandan Electricals Vs CCE, Ludhiana [2010-TIOL-259-CESTAT-DEL]

Ø CST, Bangalore Vs M/s Atria Convergence Technologies Pvt Ltd [2009-TIOL-2020-CESTAT-BANG]

Ø CCE, Coimbatore Vs M/s A P Vivekanandan & Co [2009-TIOL-478-CESTAT-MAD]

Ø CCE, Ludhiana Vs M/s Supreme Polytubes (P) Ltd [2009-TIOL-554-HC-P&H-CX]

Ø M/s Jocil Ltd Vs CC & CCE, Guntur [2009-TIOL-1169-CESTAT-BANG]

Ø M/s General Motors India (P) Ltd Vs CCE, Vadodara [2009-TIOL-849-CESTAT-AHM]

Thus, the imposition of penalty as demanded by the appellant is not sustainable.

-       Alternatively, it is submitted that the appellant has filed the appeal to impose penalties under Section 76 as well as under Section 78 simultaneously. In this regard, the respondent submits that the Section 76 and Section 78 are mutually exclusive provisions and penalty cannot be imposed simultaneously under the provisions of both the Sections. It is provided in Section 78 of the Finance Act, 1994 that if penalty is payable under section 78 than penalty under section 76 will not leviable.

This has also been held in the judgment given in the following cases:-

Ø M/s Anand Agencies v/s CCE (Service Tax), Coimbatore [2010-TIOL-364-CESTAT-MAD]

Ø M/s AR AS PV Motors Erode (P) Ltd v/s CCE, Salem [2010-TIOL-1241-CESTAT-MAD]

Ø COMMISSIONER OF C. EX., SALEM Versus PHOENIX MARKETING [2010 (19) S.T.R. 755 (Tri. - Chennai)]

Ø JOE TRANSPORT Versus COMMISSIONER OF CENTRAL EXCISE, TRICHY [2010 (18) S.T.R. 646 (Tri. - Chennai)]

Ø ANDHRA BANK Versus COMMISSIONER OF C. EX., HYDERABAD [2010 (18) S.T.R. 475 (Tri. - Bang.)]

Ø COMMISSIONER OF CENTRAL EXCISE, SALEM Versus PKN BUS SERVICE [2010 (18) S.T.R. 424 (Tri. - Chennai)]

Ø COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH Versus GREWAL TRADING CO.[ 2010 (18) S.T.R. 350 (Tri. - Del.)]

Ø SAFE TEST ENTERPRISES Versus COMMR. OF C. EX., SALEM [2010 (18) S.T.R. 172 (Tri. - Chennai)]

Ø THE FINANCERS Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR [2007 (8) S.T.R. 7 (Tri. - Del.)]

Ø COMMISSIONER OF C. EX., LUDHIANA Versus AKASH CABLE [2010 (19) S.T.R. 753 (Tri. - Del.)]

Ø M/s SRI Selvam Agency Vs Commissioner of Central Excise, Salem [2010-TIOL-1616-CESTAT-MAD]

Ø Commissioner of Central Excise, Chandigarh-I Vs M/s Cool Tech Corporation, Chandigarh [2011-TIOL-23-HC-P&H-ST]

All the above decisions submitted by them say that the penalty under section 76 and 78 are mutually exclusive and therefore cannot be imposed together. On that basis also the appeal filed by the department is totally erroneous and is liable to be set aside.

-       The respondent submits that penalty is not warranted as they have acted under the bonafide belief and no penalty can be imposed on the assessee for the acts done under bonafide belief. It has been held in various cases that no penalty is warranted when the assessee has acted on the basis of bonafide belief. Even the highest court of India – hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. This has also been held in the case of Sri Krishna Alloys vs Commissioner of Central Excise, Salem [2006 (200) ELT 158 (Tri.-Chennai)].

Some other cases in support of their contention are cited as follows: -

·                     Star Neon Singh vs. Commissioner of Central Excise, Chandigarh [2002 (141) ELT 770 (Tri.-Del.)]
·                     Straw Products Ltd. vs. Collector of Central Excise, Indore [1996 (87) ELT 115 (Tribunal)]
·                     Johnson & Johnson Ltd. vs. Collector of Central Excise, Bombay [1995 (78) ELT 193 (Tribunal)]
·                     Indian Explosives Ltd. vs. Collector of Customs [1992 (60) E.L.T. 111 (Cal.)]
·                     Tata Engineering & Locomotive Co. Ltd. vs. Collector of Customs [1991 (56) E.L.T. 812 (Tribunal)]
·                     Surat Municipal Corpn. Vs. Commissioner of C. Ex., Surat [2006 (4) S.T.R. 44 (Tri. - Del.)]

The analysis of above cited decisions makes it clear that since the assessee has acted under bona fide, no penalty can be imposed on them. Therefore, the benefit of above referred cases should be extended to the respondent and the appeal filed by the department should be set aside.

The Respondent submits that on the basis of the above grounds the Additional Commissioner has not rightly imposed penalty under Section 76, 77 and 78 of the Finance Act, 1994 against them. Therefore the appeal filed by the department should be set aside.

Reasoning of the Commissioner (Appeals):-

The Commissioner (Appeals) held that the service tax demand of Rs. 16,34,709/- payable under Section 66A of the Finance Act, 1994 in respect of payments made during the period from 01.01.05 to 31.08.06 to the overseas persons who did not have any establishment in India, was held to be not chargeable to Service Tax in view of the Board’s Circular No. 276/8/2009-CX8A dated 26.09.11 in which the Instruction No. 275/7/2010-CX8A, dated 30.6.2010 was withdrawn and clarified that in view of the various judgments of the Hon’ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.42006, i.e., the dated of enactment of section 66A of the Finance Act, 1994.

They observed that the demand was raised for the services received by the respondent during the period from 01.01.05 to 31.08.06 as mentioned in the impugned order. As such they find that respondent was not liable to pay service tax on the services in question receive by them prior to 18.04.2006 from a non resident or a person located outside India who did not have any establishment in India. The appeal filed by the respondent in this regard was also disposed of accordingly vide OIA No. 84(RDN) ST/JPR-II/2012 dated 07.09.2012. Therefore the appeal filed by the department for imposition of penalty under Section 76, 77 and 78 of the Finance Act, 1994 is also not sustainable in view of the fact that there is no liability of service tax on this account payable by the respondent.

Decision:- Department’s appeal rejected.

Conclusion:- The substance of the case is that when the assessee is not liable to pay service tax demand itself, then the question of imposing penalty cannot arise. In the instant case also, the assessee was not liable to pay service tax for the period prior to 18.04.2006 in view of Supreme Court judgement and so penalty could also not be imposed on them.

******

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