2024 (11) TMI 286 - AT - Service Tax

State-owned company cannot be penalized for service tax suppression on guarantee fees under reverse charge mechanism

MADHYA PRADESH PASHCHIM KSHETRA VIDYUT VITARAN CO LTD Versus COMMISSIONER OF CENTRAL EXCISE & CGST-INDORE

CESTAT New Delhi held that a State-owned company liable for service tax on guarantee fees under reverse charge mechanism could not be penalized for ... Suppression of Service tax on 'Guarantee Fee' - liability of the appellant had came to notice of the Department only pursuant to the investigation, appellant kept suppressed his liability till then - Imposition of penalty has also been proposed for the aforesaid alleged suppression HELD THAT:- As observed to be an admitted fact that the appellant is fully State owned company and that is registered under Service Tax liability. The appellant is not disputing that they were liable under reverse charge mechanism to pay service tax on the amount of ‘Guarantee Fee’ as has been paid by them to the State Government of Madhya Pradesh during the impugned period. It is the contention that till it was brought to their notice by the Department, the appellant was completely ignorant about their liability on the said amount of ‘Guarantee Fee’ paid. Hon’ble Supreme Court in the case of M/s. Cosmic Dye Chemical Vs. Collector of Central Excise, Bombay[1994 (9) TMI 86 - SUPREME COURT] wherein it has been held that there can be no suppression or mis-statement of fact for the purposes of invoking extended period of limitation, if the same is not willful. From the record it is observed that except the verbal allegations for the reason that the tax was not paid prior the investigation got conducted by the Department. Proof of conscious and deliberate withholding of the information is necessary to involve the extended period of limitation. There is no evidence to prove the alleged suppression. Otherwise also appellant admittedly being a Government authority there seems no reason with the appellants to evade the tax causing loss to the Government Exchequer nor any reason to withhold the information consciously. Penalty imposed - In the present case, the moment appellant was informed about its liability vide letter dated 17.03.2020, the entire amount demanded was paid by the appellant in three installments dated 30.05.2020, 06.06.2020 and 29,06,2021 on 29.06.2021. it is a meager amount of Rs.14,332/- out of Rs.1,12,18,568/- as was not paid by the appellant. In view thereof, hold that the impugned Show Cause notice itself should not have been issued. No circumstances, arise for imposition of penalty upon the appellants. Hon’ble Supreme Court in the case of Union of India Vs Rajasthan Spinning and Weaving Mills [2009 (5) TMI 15 - SUPREME COURT] has held that penalty under section 11 AC of the Act is punishment for an act of deliberate deception by the assessee with the intent to avoid duty by adopting any of the means as mentioned in the section. Section 11 AC is paramateria to section 73 of the Service Tax Act. It has been held that penalty can be imposed only if the Department has proved that the tax has not been paid or short paid by the reason of fraud, collusion etc. As already observed above, the appellant being a State owned company cannot have the malafide intent and that the department has not produced any other evidence except the oral allegations that the appellant has suppressed the relevant facts with a willful intent to not to pay the Service Tax. Hence, it is held that penalty has wrongly been imposed upon the appellant. The Presumption of bonafide is in favour of the Government Company. There is nothing on record produced by the Department to rebut the said presumption. Hence hold that the case law quoted in para 19 of the Order-in-Original are not applicable to the facts of the present case. With the entire above discussion, hereby hold that the penalty upon the appellant has wrongly been confirmed. The Show Cause Notice has wrongly involved the extended period of limitation. However, appellant has acknowledged its liability towards the impugned demand, and has deposited the entire amount of service tax, as demanded, refrain myself from ordering any consequential relief. Resultantly, the order under challenge is set aside to the extent of imposing of penalty. Rest of the order stands upheld. Issues:1. Liability of the appellant to pay service tax on 'Guarantee Fee'.2. Invocation of extended period for issuing Show Cause Notice.3. Allegation of suppression of liability by the appellant.4. Imposition of penalty on the appellant.Analysis:Issue 1: Liability to pay service tax on 'Guarantee Fee'The appellant, a State Government Company engaged in electricity distribution, procured services from M.P. Power Management Company Ltd. The Department alleged non-payment of service tax on 'Guarantee Fee' paid by the appellant to the State Government. The appellant acknowledged the liability under reverse charge mechanism and paid the demanded amount with interest. The primary issue is the liability of the appellant to pay service tax on the 'Guarantee Fee'.Issue 2: Invocation of extended period for Show Cause NoticeThe Department invoked the extended period for issuing the Show Cause Notice, alleging suppression of liability by the appellant. The appellant argued that the Notice was void under Section 73(3) of the Finance Act, 1994, as they promptly paid the demanded amount upon notification. The Tribunal examined whether the extended period was rightfully invoked based on the circumstances of the case.Issue 3: Allegation of suppression of liabilityThe Department contended that the appellant willfully suppressed their liability to evade duty, justifying the extended period and penalty imposition. The appellant, a State-owned entity, argued ignorance rather than intent to evade tax, citing precedents. The Tribunal analyzed whether there was willful suppression of facts by the appellant and if the penalty was justified.Issue 4: Imposition of penaltyThe Department imposed a penalty on the appellant for alleged suppression of liability. The appellant contested the penalty, citing prompt payment upon notification as evidence of good faith. The Tribunal referred to legal precedents emphasizing the intent to evade duty for penalty imposition. It assessed whether the penalty was justified given the circumstances of the case and the appellant's status as a Government Company.In the judgment, the Tribunal held that the penalty imposed on the appellant was unwarranted, the Show Cause Notice wrongly invoked the extended period, and the appellant had acknowledged and paid the demanded amount promptly. The appeal was partly allowed, setting aside the penalty but upholding the rest of the order.