Appellate Tribunal partially allows appeal on service tax liability under reverse charge

The Appellate Tribunal CESTAT CHENNAI partially allowed the appeal in the case concerning liability of service tax under reverse charge basis. The Tribunal waived the penalty imposed under Section 78 of the Finance Act, 1994, as the appellant demonstrated reasonable cause for not paying the service tax promptly. The demand and interest were upheld, but the penalty was set aside, citing the appellant's lack of awareness regarding the tax liability and their prompt payment upon notification by the Department.

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Issues: Liability of service tax under reverse charge basis, imposition of penalty under Section 78 of the Finance Act, 1994

In this judgment by the Appellate Tribunal CESTAT CHENNAI, the issue revolved around the liability of the appellant to pay service tax under reverse charge basis for transportation charges on inputs received. The Original Authority and the Commissioner (Appeals) confirmed the demand, interest, and penalty under Section 78 of the Finance Act, 1994. The appellant, represented by Shri. J. Shankaraman, argued that they had paid the service tax along with interest before the Show Cause Notice was issued, believing the service provider was liable. On the other hand, the respondent, represented by Shri. L. Nandakumar, contended that the penalties imposed were justified as the appellant had not paid the service tax during the relevant period.

Upon review, the Tribunal noted that the appellant had received a Show Cause Notice for short payment of service tax under reverse charge basis for inward transportation of goods. The appellant claimed they were unaware of their liability to pay service tax on freight charges under reverse charge basis and had paid the tax along with interest upon being informed by the Department before the Notice was issued. Considering these facts, the Tribunal invoked Section 80 of the Finance Act, 1994, as the appellant had shown reasonable cause for the failure to discharge the service tax. Consequently, the Tribunal modified the impugned order, setting aside the penalty under Section 78 without affecting the demand or interest.

In conclusion, the appeal was partly allowed, with the penalty under Section 78 being waived due to the appellant's established reasonable cause for the failure to pay the service tax under reverse charge basis.

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