2016 (8) TMI 244 - AT - Service Tax

Tribunal rules in favor of appellant in service tax penalty appeal under Finance Act

The tribunal ruled in favor of the appellant in an appeal against the imposition of a penalty under Section 78 of the Finance Act, 1994 for failure to pay ... Reverse charge mechanism – services received from commission agents located outside India – SCN issued for appropriation of amount with interest and penalty – Held that: - The appellant is receiving services from foreign based commissions agent located outside India and the appellant was required to pay services under reverse charges mechanism. It is not a case where the appellant is providing some service and required to pay service tax thereon. In that circumstances, benefit of doubt goes in favor of the appellant, therefore, the charges of suppression of facts cannot be alleged on the appellant - provisions of section 73(3) of the Finance Act, 1994 are attracted – no SCN – no penalty – decided in favor of appellant. Issues:- Appeal against imposition of penalty under Section 78 of the Finance Act, 1994 for failure to pay service tax under reverse charge mechanism on services received from foreign commission agents.Analysis:The appellant was in appeal against an order imposing an equivalent amount of penalty under Section 78 of the Finance Act, 1994 for failing to pay service tax under reverse charge mechanism on services received from foreign commission agents during 2006-07 to 2009-10. The audit team discovered this non-payment during an audit in June 2010, leading to the issuance of a show cause notice for appropriation of the unpaid amount along with interest and imposition of penalty. Both lower authorities upheld the demand, interest, and penalty. The appellant contended that they were unaware of the technicalities and thus did not pay the service tax, arguing that Section 73(3) of the Finance Act, 1994 did not require a show cause notice in this case, and hence, the penalty should be set aside. On the other hand, the respondent argued that the appellant's failure to disclose the commission payments amounted to suppression of facts, making Section 73(3) inapplicable and justifying the penalty.Upon hearing both parties, the tribunal considered the submissions and facts of the case. It was noted that the appellant received services from foreign commission agents and was obligated to pay service tax under reverse charge mechanism, not for providing services themselves. Given this, the tribunal found in favor of the appellant, as the situation did not involve the appellant providing services and being liable for service tax. Consequently, the tribunal ruled that the benefit of the doubt favored the appellant, and there was no basis for alleging suppression of facts. As a result, Section 73(3) of the Finance Act, 1994 applied, obviating the need for a show cause notice. Consequently, the penalty imposed under Section 78 of the Finance Act, 1994 was set aside, and the appeal was allowed in favor of the appellant.