Appeal partly allowed, penalty set aside for service tax period. No penalty due under Section 78.

The appeal was partly allowed, setting aside the penalty and demand of service tax for the specified period from 1.10.2003 to 18.4.2006. The Tribunal held that the appellant had discharged the service tax liability for the period after 18.4.2006 before the show cause notice was issued, indicating no mala fide intention to evade tax. Therefore, the appellant was not liable for penalty under Section 78.

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Issues:
1. Taxability of services received from International Regulatory Authorities for certification under technical inspection and certification category.
2. Liability of service tax under reverse charge mechanism for the period 1.10.2003 to 31.3.2007.
3. Applicability of penalty under Section 78 for non-payment of service tax.

Analysis:

Taxability of Services Received:
The appellant received services from International Regulatory Authorities of various countries for obtaining approval and certification related to Good Manufacturing Process. These services included technical inspection, certification, and testing of raw materials, manufacturing processes, and safety norms confirmation. The issue was whether these services fall under the category of technical inspection and certification, and technical testing and analysis services.

Liability of Service Tax under Reverse Charge Mechanism:
The appellant was issued a show cause notice proposing a demand of service tax under the reverse charge mechanism for the period from 1.10.2003 to 31.3.2007. The appellant contended that as per the decision in Indian National Shipowners Association case, service tax on receipt of foreign services under reverse charge mechanism was payable only from 18.4.2006 after the enactment of Section 66A of the Finance Act, 1994. The appellant had already discharged the service tax liability for the period after 18.4.2006 along with interest before the show cause notice was issued.

Applicability of Penalty under Section 78:
The issue of penalty under Section 78 for non-payment of service tax was considered. The Tribunal noted that the taxability of services provided from abroad was a highly debatable issue until it was settled by the Hon’ble Supreme Court in 2009 and reported in 2010. The appellant had discharged the service tax for the period after 18.4.2006 along with interest before the issuance of the show cause notice, indicating no mala fide intention to evade tax. Therefore, the Tribunal held that the appellant had made sufficient cause for non-payment of service tax in time and was not liable for penalty under Section 78. The penalty imposed under Section 78 was set aside, and the demand of service tax for the period from 1.10.2003 to 18.4.2006 was also set aside.

In conclusion, the appeal was partly allowed, setting aside the penalty and demand of service tax for the specified period, based on the analysis of the taxability of services received, liability under the reverse charge mechanism, and the applicability of penalty under Section 78.

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