Service tax liability under overseas service rules continues despite challenge; bona fide belief did not protect the assessee from penalty.

Section 66A made the service recipient liable to pay service tax on overseas taxable services from its commencement, and the levy was treated as clear and operative despite pending constitutional or other challenges. Mere pendency of litigation did not suspend the statutory obligation unless the provision was stayed or otherwise interdicted by a competent authority. On the facts, the appellate authority held that the assessee could not claim protection from penalty under Section 73(3) where the default amounted to wilful contravention under Section 73(4). The plea of bona fide belief was therefore rejected and the penalty action was upheld.

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Issues: Whether the assessee, being liable to pay service tax as recipient of an overseas taxable service under Section 66A, could avoid penalty on the plea of bona fide belief when the levy was under challenge.

Analysis: Section 66A made the service recipient liable to pay tax with effect from its commencement, and the liability was treated as clear and unequivocal. The mere pendency of constitutional or other challenges to the provision did not suspend its operation, since legislation operates upon enactment unless stayed or otherwise interdicted by competent authority. On the facts, the appellate authority held that the assessee could not claim the protection of Section 73(3) where the default attracted the mischief of wilful contravention contemplated by Section 73(4).

Conclusion: The plea of bona fide misconception was rejected, the reversal of non-levy of penalty was upheld, and the assessee's challenge failed.

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