Appellant not liable for service tax under reverse charge for part, liable for later period. Penalties waived due to genuine belief.

The Tribunal ruled that the appellant was not liable for service tax under the reverse charge mechanism for the period from 01.01.2005 to 17.04.2006 but was liable for the period from 18.04.2006 to 31.03.2008. Penalties under Section 78 were set aside due to the appellant's genuine belief in contesting the issue, supported by higher judicial forums' decisions. The appellant was directed to discharge the service tax liability and interest for the latter period, with penalties being waived based on the established finality of the issue.

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Issues:
Service tax liability under reverse charge mechanism for the period 01.01.2005 to 31.3.2008.

Analysis:
The judgment addressed the issue of service tax liability on the appellant under the reverse charge mechanism for the period from 01.01.2005 to 31.3.2008. The Tribunal noted that for the period from 01.01.2005 to 17.04.2006, the service tax liability does not arise based on the judgments of the Bombay High Court and the Apex Court. The law established that no service tax is payable by the recipient if the services were rendered before 18.04.2006 when Section 66A was introduced. Consequently, the service tax liability, interest, and penalties for this period were deemed unsustainable and set aside. However, for the period from 18.04.2006 to 31.03.2008, the appellant was held liable to discharge the service tax liability.

Regarding the payment of service tax and the issuance of a show-cause notice, it was mentioned that the appellant had paid a sum towards service tax liability before the notice was issued. The appellant argued that since the issue was being disputed and challenged in court, they had a bona fide belief in deferring the payment of service tax. The Tribunal acknowledged the appellant's contentions and agreed that during the relevant period, the issue of service tax liability under the reverse charge mechanism was vigorously contested at higher judicial forums. The finality of the issue was recognized with the judgment of the Indian National Ship Owners Association. Consequently, the penalties imposed on the appellant under Section 78 were set aside invoking the provisions of Section 80 of the Finance Act, 1994.

In conclusion, the appeal was disposed of with the findings that for the period from 18.04.2006 to 31.03.2008, the appellant was required to discharge the service tax liability along with interest. The penalties imposed by the lower authorities during this period were set aside based on the circumstances and finality of the issue established by the judgments.

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