2019 (10) TMI 414 - AT - Service Tax

Appellant wins appeal, penalties set aside for non-payment of service tax on SWIFT charges.

The Tribunal ruled in favor of the appellant, setting aside the penalties imposed under sections 77 and 78 of the Finance Act for non-payment of service ... Penalty under section 77 of the Finance Act - Penalty under section 78 of the Finance Act - Reverse charge mechanism - Taxability of SWIFT charges - Interpretational uncertainty / bona fide belief (section 80) - Extended period and requirement of intent to evadePenalty under section 77 of the Finance Act - Penalty under section 78 of the Finance Act - Taxability of SWIFT charges - Interpretational uncertainty / bona fide belief (section 80) - Extended period and requirement of intent to evade - Whether penalties under sections 77 and 78 of the Finance Act can be sustained in respect of SWIFT charges paid under the reverse charge mechanism for the period 2006-07 to 2008-09. - HELD THAT: - The Tribunal noted that the appellant had accepted taxability of SWIFT charges and had discharged the service tax liability along with interest for the relevant period. The question of taxability and application of reverse charge during the period was one of interpretational uncertainty that was the subject of earlier judicial decisions. Applying the principle that penalty under section 78 (including invocation of extended period) requires establishment of intention to evade payment or suppression, the Tribunal held that imposition of penalty under section 78 is not warranted where taxability was interpretational and there is no finding of wilful suppression. Section 77, which penalises non-reflection of taxable service in periodic returns, was considered in the light of the appellant's prompt payment after investigation; having regard to precedents relied upon and the facts that the appellant had paid tax and interest and contest on taxability was arguable, the Tribunal found the penalties unsustainable. The Tribunal relied on earlier decisions treating SWIFT charges as taxable but concluded that the existence of a bona fide/interpretational dispute and payment of tax with interest precluded imposition of the penalties challenged. [Paras 5, 6]Penalties under sections 77 and 78 of the Finance Act are set aside and the Commissioner (Appeals) order is modified accordingly.Final Conclusion: The appeal is allowed to the extent of deleting the penalties under sections 77 and 78 of the Finance Act in respect of SWIFT charges for the stated period; the order-in-appeal dated 25-04-2018 is modified. Issues:Confirmation of penalty under section 77 and 78 of Finance Act for non-payment of service tax on SWIFT charges.Analysis:1. The appellant contested the penalty imposed under section 77 and 78 of the Finance Act by the Commissioner (Appeals) for non-payment of service tax on SWIFT charges. The appellant, engaged in providing banking and financial services, paid SWIFT charges to a Belgian company for transmission of financial messages internationally. Despite promptly paying service tax and interest, a penalty equivalent to the tax amount was imposed, leading to the appeal.2. The appellant's counsel argued that the taxability under reverse charge mechanism had been disputed by various sectors until settled by the Supreme Court in a specific case. He contended that penalties under section 78 should not apply based on established legal precedents from various tribunal decisions involving different banks. The counsel emphasized the applicability of section 80 of the Finance Act due to the interpretational nature of the taxability issue and absence of wilful evasion by the appellant, who had paid substantial service tax amounts promptly during the relevant period.3. The respondent's representative supported the Commissioner (Appeals)'s decision, citing previous judgments to reject the appellant's plea of bonafide belief. The representative argued against intervention, considering the appellant's familiarity with indirect tax laws as a large company. Upon reviewing the case record and relevant laws, it was noted that SWIFT charges were paid for international message transmission services, falling under banking and financial services' definition during the relevant period. While the appellant accepted tax liability and paid the dues, the imposition of penalties under sections 77 and 78 was deemed inappropriate given the prevailing legal interpretations and absence of intent to evade taxes.4. The Tribunal, aligning with previous decisions, ruled in favor of the appellant, setting aside the penalties imposed under sections 77 and 78 of the Finance Act. The order passed by the Commissioner (Appeals) was modified accordingly, considering the legal precedents and the appellant's compliance with tax obligations during the contentious period.This judgment highlights the importance of legal precedents, interpretation of tax laws, and the application of penalties in cases of disputed tax liabilities, providing clarity on the consequences of non-payment and the significance of timely compliance with tax regulations.