2003 (7) TMI 1 - AT - Service Tax

Foreign Entity's Service Tax Penalty Set Aside by Appellate Tribunal

COMMISSIONER OF C. EX., BHUBANESWAR-II Versus TYAZHPROMEXPORT

The Appellate Tribunal CESTAT, Kolkata upheld the Commissioner (Appeals) decision to set aside penalties imposed on a foreign entity for failure to pay ... Service Tax – Foreign company (1) Non-imposition (2) Reasonable cause (3) Penalty Issues:- Appeal against setting aside penalty imposed by Commissioner (Appeals)- Interpretation of Section 80 of the Finance Act, 1994 regarding imposition of penalty- Determination of 'reasonable cause' for failure to pay Service TaxAnalysis:1. The appeal before the Appellate Tribunal CESTAT, Kolkata pertained to challenging the portion of the Commissioner (Appeals) order that set aside the penalty imposed on the respondents by the original adjudicating authority. The respondent-company, an Association for Economic Affairs of the Ministry for Economic Affairs and Trade of the Russian Federation, had entered into a contract with Rourkela Steel Plant (RSP) for providing technical services, with the agreement that all taxes and duties would be borne by RSP.2. The dispute arose when the Department demanded service tax from the respondents for the services provided. The respondents clarified their position, stating that any tax liability should be borne by RSP. After legal opinion, RSP paid the service tax along with interest. The original authority confirmed the tax but also imposed a penalty under various sections of the Finance Act, 1994. The Commissioner (Appeals) upheld the tax demand but set aside the personal penalties, leading to the Revenue's appeal.3. The core issue revolved around the interpretation of Section 80 of the Finance Act, 1994, which states that no penalty shall be imposed if the assessee proves a reasonable cause for the failure. The respondents argued that being a foreign entity without a place of business in India, they believed the tax liability rested with RSP. They promptly addressed the issue with RSP, which paid the tax and interest. The Commissioner (Appeals) found a reasonable cause for the delay and set aside the penalties.4. The Appellate Tribunal analyzed the concept of 'reasonable cause' as interpreted in various judicial pronouncements. They highlighted that the respondents, being non-residents under the Ministry of Foreign Economic Affairs of the Russian Federation, had no intention to evade taxes. The terms of the contract with RSP clearly indicated that RSP was responsible for taxes payable in India. Considering these factors and legal precedents, the Tribunal upheld the Commissioner (Appeals) decision to set aside the penalties, citing the presence of a reasonable cause for the delay in tax payment.5. Ultimately, the Tribunal rejected the Revenue's appeal, emphasizing that the circumstances, the nature of the contract, and the non-resident status of the respondent-company collectively constituted a reasonable cause under Section 80 of the Finance Act, 1994. The decision aligned with the principle that penalties should be imposed judiciously, particularly in cases where there is no deliberate defiance of the law or dishonest conduct, but rather a genuine belief in compliance with contractual terms and legal obligations.