Appellant's Service Tax liability upheld for testing charges paid abroad under Finance Act. Penalties set aside.

The Tribunal upheld the Service Tax liability on the appellant for testing charges paid abroad under Section 66A of the Finance Act, 1994. However, the penalties imposed were set aside based on the appellant's genuine belief that no Service Tax liability arose due to testing being conducted abroad.

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Issues:
1. Liability of the appellant to pay Service Tax for testing charges paid abroad.
2. Imposition of penalties on the appellant.

Analysis:
1. The appellant had paid for testing charges abroad and was held liable to pay Service Tax under Section 66A of the Finance Act, 1994. The lower authorities confirmed the demands with interest and penalties. The appellant contended that the Service Tax liability should be eligible for Cenvat credit as the testing charges were for products manufactured and cleared by them. The Tribunal found that the Service Tax liability was correctly upheld as per Section 66A, and the appeal on this ground was rejected.

2. Regarding the penalties imposed on the appellant, the Tribunal noted that the appellant may have been under a bona fide impression that no Service Tax liability arose since the testing was done abroad. Considering this, the Tribunal invoked Section 80 of the Finance Act, 1994, and held that the appellant had shown sufficient cause for setting aside the penalties. As a result, the penalties imposed were set aside, and the appeal on this issue was allowed.

In conclusion, the Tribunal disposed of the appeal by upholding the Service Tax liability on the appellant for testing charges paid abroad but setting aside the penalties imposed, considering the appellant's bona fide belief during the material period.

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