2008 (3) TMI 36 - AT - Service Tax

Appellate tribunal rules in favor of appellants on Service Tax liability for commission paid to foreign agents

The appellate tribunal ruled in favor of the appellants regarding the liability to pay Service Tax on commission paid to foreign agents for export orders. ... Penalty under Section 78 of the Finance Act - Voluntary payment under Section 73(3) of the Finance Act - Reasonable cause / bona fide doubt as defence to penalty - Extended period for levy of Service TaxVoluntary payment under Section 73(3) of the Finance Act - Issuance of show cause notice after such payment - Effect of payment of Service Tax with interest before issuance of show cause notice under Section 73(3). - HELD THAT: - The appellants paid the Service Tax with interest on 30.8.2006 and 12.9.2006, prior to issuance of the show cause notice dated 9.10.2006. Section 73(3) provides that where a person pays the Service Tax on the basis of his own ascertainment or on the basis of tax ascertained by a Central Excise Officer before service of notice under subsection (1), and informs the officer in writing, the officer shall not serve any notice under subsection (1) in respect of the amount so paid. The Tribunal, on the facts, held that the payments having been made before the notice, the requirement of Section 73(3) was satisfied and there was therefore no necessity to issue the show cause notice in respect of the amount paid. The Board's circular of 3.10.2007 was noted as consistent with this position. [Paras 2, 6]Payments of Service Tax with interest made before issuance of the show cause notice attracted Section 73(3) and obviated the need for service of that notice in respect of the amounts so paid.Penalty under Section 78 of the Finance Act - Reasonable cause / bona fide doubt as defence to penalty - Extended period for levy of Service Tax - Whether penalty under Section 78 could be imposed where Service Tax was paid with interest before notice and there was a bona fide doubt about levy. - HELD THAT: - The Tribunal confined itself to the penalty issue, noting that the question of leviability prior to insertion of Section 66A was not decided since the tax had been paid. The appellants had a bona fide doubt about whether the foreign agent services were taxable prior to 18.4.2006. Given the prior voluntary payment with interest and the existence of a reasonable bona fide doubt, the Tribunal found that there was reasonable cause for not imposing penalty under Section 78. The invocation of the extended period was not justified on the material before the Tribunal, and mere payment after departmental communication cannot be equated with suppression or intent to evade tax sufficient to sustain penalty. [Paras 6]Penalty under Section 78 set aside as there was reasonable cause (bona fide doubt and voluntary payment with interest before notice), and extended period/intent to evade were not established.Final Conclusion: The appeal is allowed: the demands were obviated to the extent covered by payments made before notice under Section 73(3), and the penalty under Section 78 is set aside for want of culpability and because a bona fide doubt existed; consequential relief follows. Issues:- Liability to pay Service Tax on commission paid to foreign agents for procuring export orders.- Imposition of penalty under Section 78 of the Finance Act.Analysis:1. Liability to pay Service Tax: The appeal involved a case where the appellant paid commission to foreign agents in foreign exchange to procure export orders. Initially, the appellants believed they were not liable to pay Service Tax on these transactions. However, upon being informed by the departmental authorities, they paid the Service Tax along with interest before the issuance of a show cause notice. The period in question was from 09.07.2004 to 31.3.2006, with the show cause notice issued on 9.10.2006. The appellant contended that under Section 73 (3) of the Finance Act, no show cause notice was required if the Service Tax liability was discharged promptly upon notification. Despite this, the revenue authorities proceeded against the appellants, leading to the imposition of a penalty under Section 78 of the Finance Act. The appellants challenged this penalty, arguing that they had a genuine doubt about the applicability of Service Tax on the said transactions.2. Imposition of Penalty under Section 78: The main contention in the appeal revolved around the imposition of a penalty under Section 78 of the Finance Act. The appellants argued that there was no intention to evade payment of Service Tax, as they promptly paid the tax upon being informed by the department. They cited various legal precedents to support their argument that the Service Tax could not have been demanded prior to the insertion of Section 66A of the Finance Act, effective from 18.4.2006. The appellants also highlighted the provisions of Section 73 (3) of the Finance Act, which allowed for the payment of Service Tax before the issuance of a show cause notice. The appellate tribunal, after careful consideration, found merit in the appellant's arguments. They noted that the Service Tax had been paid along with interest before the show cause notice was issued, as per Section 73 (3), and that the appellants had a genuine doubt regarding the applicability of the tax. Therefore, the tribunal set aside the penalty imposed under Section 78 of the Finance Act and allowed the appeal with consequential relief.In conclusion, the appellate tribunal ruled in favor of the appellants, emphasizing their prompt payment of Service Tax upon notification and their genuine doubt about the tax liability. The tribunal found no merit in the imposition of the penalty under Section 78 of the Finance Act and set aside the same, providing the appellants with the necessary relief.