2016 (11) TMI 1363 - AT - Service Tax

Tribunal Overturns Penalties for Yarn Manufacturer in Tax Dispute

The Tribunal set aside penalties imposed under Sections 76, 77, and 78 of the Finance Act on a yarn manufacturer for non-payment of service tax to foreign ... Penalty for failure to discharge service tax liability - reverse charge mechanism for service tax - bona fide mistake of law / bonafide belief - relief under Section 80 for bona fide cases - revenue-neutrality by availment of cenvat credit - effect of judicial clarification on liabilityPenalty for failure to discharge service tax liability - reverse charge mechanism for service tax - bona fide mistake of law / bonafide belief - relief under Section 80 for bona fide cases - effect of judicial clarification on liability - revenue-neutrality by availment of cenvat credit - Whether penalties under the Finance Act could be sustained against the assessee for non-payment of service tax on commission to foreign agents during the period prior to judicial clarification - HELD THAT: - The Tribunal found that prior to the Bombay High Court's decision in Indian National Shipowners Association (judgment dated 11.12.2008) the legal position on reverse charge liability for services rendered by foreign persons was unsettled, creating genuine confusion. The assessee deposited the disputed dues within three weeks of that judicial clarification and contended that there was a bona fide impression that no liability arose earlier; identical relief under Section 80 has been granted in comparable cases. The Tribunal noted also that the tax was revenue-neutral for the assessee by reason of available cenvat credit, and there was no material to demonstrate malafide or deliberate non-compliance. Applying these considerations, the imposition of penalties was held not justifiable and was set aside, while the demand and interest (not contested) were left confirmed. [Paras 6]Penalties set aside for the period in question on account of bona fide confusion, timely deposit after judicial clarification, and absence of malafide; demand and interest confirmed as not contested.Final Conclusion: Appeals allowed to the extent of setting aside the penalties; demand and interest sustained as not contested. Issues involved: Challenge to imposition of penalties under Sections 76, 77, and 78 of the Finance Act for non-payment of service tax on reverse charge basis to foreign commission agents.Detailed Analysis:1. Background: The appellant, engaged in yarn manufacturing and export, availed services of foreign commission agents for selling goods abroad. Revenue raised a demand for service tax liability from 18.04.2006 to 31.02.2007 on commission paid to foreign agents, leading to show cause notices and subsequent orders by the Adjudicating Authority.2. Appellant's Argument: The appellant contested penalties imposed under Sections 76, 77, and 78, citing confusion regarding service tax payment on reverse charge basis during the relevant period. They referred to the Bombay High Court's ruling in Indian National Shipowners Association Ltd. case, clarifying liability post-18.04.2006. The appellant claimed a genuine belief that no service tax liability existed before this date, invoking Section 80 of the Finance Act and citing precedents like Kitec Industries India Ltd., Jain Irrigation Systems Ltd., and Nirlon Ltd.3. Revenue's Submission: The Revenue argued that the appellant's failure to pay service tax on time constituted a violation of legal obligations, reflecting mala fide intent on their part. They sought to uphold the penalties imposed, emphasizing the appellant's duty to pay service tax promptly.4. Tribunal's Decision: The Tribunal noted the Bombay High Court's clarification on service tax liability in the Indian National Shipowners Association case, resolving prior confusion in the field. Considering the appellant's deposit of dues within three weeks of the High Court's judgment, the Tribunal found no mala fide intent and invoked Section 80 in a similar situation. Consequently, the Tribunal set aside the penalties, confirming the demand and interest without contest.5. Conclusion: The Tribunal, after reviewing submissions from both sides, acknowledged the legal clarity post the Bombay High Court's ruling and the appellant's prompt payment post the judgment. Given the absence of mala fide intent, the Tribunal deemed the penalties unjustifiable and overturned them, affirming the demand and interest. The appeals were disposed of accordingly.