Appellate Tribunal overturns penalties on BPO for service tax non-payment

The Appellate Tribunal held that penalties imposed on a BPO for not paying service tax monthly and not doing so voluntarily were not justified. The Tribunal found that the service tax was paid before the show cause notice, making the penalties under Section 78 and Section 77 unwarranted. The Tribunal also ruled the Appellant eligible for credit of service tax paid on a reverse charge basis, noting no suppression of facts. Citing legal precedents, the Tribunal allowed the appeal, deeming the penalties unsustainable. Judgment was pronounced on 11th May 2018.

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Issues:
Service tax liability on import of services, imposition of penalty under Section 78 and Section 77, payment of service tax before show cause notice, eligibility for credit of service tax, suppression of facts, applicability of penalties.

Analysis:
The case involved a BPO providing business support services to international clients, facing a service tax demand for not depositing tax on import of services. The adjudicating authority confirmed a demand of &8377; 82,58,538/- but dropped the remaining amount. However, penalties were imposed under Section 78 and Section 77 for not paying service tax monthly and not doing so voluntarily. The Appellant contended that they had paid the service tax along with interest before the show cause notice, arguing against the penalties.

The Appellate Tribunal noted that the service tax was indeed paid by the Appellant after an audit by the revenue department, and before the show cause notice was issued. They also found the Appellant eligible for credit of the service tax paid on a reverse charge basis. Importantly, the Tribunal observed that there was no suppression of facts regarding the nature of services or non-payment of tax, as the details were in the Appellant's books of accounts. Citing precedents like Mahindra Water Utilities and others, the Tribunal concluded that penalties under Section 77 and 78 were not warranted in this case.

Therefore, based on the facts presented and the legal precedents, the Tribunal held that the penalties imposed on the Appellant were not justified. The appeal was allowed, and the penalties were deemed unsustainable. The judgment was pronounced on 11th May 2018.

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