Appellant's Appeal Allowed, Service Tax Demands Set Aside, Revenue's Appeal Dismissed

Commissioner of Central Excise, Customs and Service Tax Versus M/s. Stumpp Schuele & Somappa Pvt Ltd

Commissioner of Central Excise, Customs and Service Tax Versus M/s. Stumpp Schuele & Somappa Pvt Ltd - TMI Issues:
1. Leviability of service tax on commission paid on export orders and sales promotional expenses.
2. Applicability of penalty under Section 78 of the Finance Act, 1994.
3. Challenge to the imposition of penalty in relation to duty and interest already paid before the show-cause notice.

Analysis:

Issue 1: Leviability of service tax on commission and sales promotional expenses
The case involved a dispute regarding the leviability of service tax on commission paid on export orders and sales promotional expenses incurred by a 100% EOU through agents situated outside the country. The Revenue contended that service tax was applicable under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, as the services fell under the category of Business Auxiliary Services. A show-cause notice was issued demanding service tax for the mentioned services. The matter was adjudicated, and the demand was confirmed along with interest. The appellant challenged the demand, relying on legal precedents such as the judgment of the Hon’ble Bombay High Court and the Hon’ble Supreme Court, which held that service tax could not be levied on recipients of services rendered abroad. The Tribunal, following the Bombay High Court judgment, set aside the demand for the period prior to 18.4.2006 and for the period after, where the appellant had paid the service tax and interest before the show-cause notice, the penalty was also set aside.

Issue 2: Applicability of penalty under Section 78
The imposition of penalty under Section 78 of the Finance Act, 1994, was a crucial aspect of the case. The appellant argued that since they had paid the service tax and interest before the issuance of the show-cause notice, equivalent penalty should not be levied on them. The Tribunal, citing the judgment in the case of CST, Bangalore vs. C Ahead Info Technologies India Pvt. Ltd., held that if the assessee acknowledges the liability, pays the entire service tax due with interest before the show-cause notice, the authorities are precluded from issuing the notice. Accordingly, the penalty under Section 78 was set aside based on this legal principle.

Issue 3: Challenge to penalty imposition
The appellant also challenged the imposition of penalty in relation to duty and interest already paid before the show-cause notice. The Tribunal, following the legal precedent and the provisions of the Finance Act, held that when the full service tax and interest had been paid before the issuance of the show-cause notice, the penalty imposed on the appellant was not sustainable. Therefore, the penalty in this regard was set aside.

In conclusion, the Tribunal allowed the appeal filed by the appellant, setting aside the demands and penalties for the periods in question, while dismissing the appeal filed by the Revenue.