👍👍👍👍👍No penalty if no intention to evade service tax & for tax paid before issue of notice

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Assam Company India Limited Vs Commissioner of Service Tax (CESTAT Kolkata)

Revenue has not brought any evidence to prove that the Appellant has not paid service tax with an intention to evade payment of service tax. On the contrary, the records clearly shows that the moment the liability was pointed out, the Appellant has paid the service tax along with interest on their own, even before issue of the notice. Thus, as per section 73(3), Show Cause Notice need not have been issued in this case.

CESTAT also find the provisions of section 80 of the Finance Act 1994 are also applicable in this case. For the sake of ready reference the said section 80 of the Finance Act 1994 is reproduced below:

80. Penalty not to be imposed in certain cases . — Notwithstanding anything contained in the provisions of section 76, section 77, section 78 or section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the  said failure.

10. We find that the Appellant is liable to pay service tax under the category of Import of services, with the introduction of section 66A in the Finance Act 1994, w.e.f. 18/04/2006.

The Appellant stated that the Service Tax liability under this category was not known to them at the time of payment of various fees to the non-resident institutions abroad. When the same was pointed out to them, they agreed their liability and voluntarily came forward and discharged their Service Tax liability along with interest. Thus the Appellant has clearly established that there was no intention to evade payment of service tax. Accordingly, the provisions of section 80 is also applicable in this case. Hence, no penalty under section 76, 77 or 78 imposable in this case.

In view of the above, we hold that the penalty imposed under Section 78 of the Finance Act is not warranted in this case and liable to be set aside.

FULL TEXT OF THE CESTAT KOLKATA ORDER

Briefly stated facts of the case are that the Appellant has not paid Service Tax on ‘Banking and Other Financial Service’ amounting to Rs.1,21,93,219/-. They have also not taken Registration and filed ST-3 returns for the said service. Accordingly, DGCEI initiated investigation to recover the tax due. The Appellant has not disputed the Service Tax liability. During the course of investigation by DGCEI, they have discharged their entire Service Tax liability along with interest. Vide their letter dated August 27, 2007, the Appellant informed DGCEI that the service tax was not deposited earlier owing to non-comprehension of its chargeability and there was no intention to evade payment of service tax. They also stated that Foreign Currency Convertible Bonds (FCCB) were raised in November 2006 and the payment of service tax was made in August 2007, as soon as the issue was pointed out to them. Since they have made the payment within one year from the date of raising the Foreign Currency Convertible Bonds (FCCB), they have requested for waiver of Show Cause Notice under section 73(3) of the Finance Act, 1994. But their request was not considered and Notice was issued and the demand was confirmed vide the impugned order. The Appellant is before us against the Impugned Order.

2. We observe that Banking and Financial Service was a new service introduced w.e.f. 16/07/2001 .’Merchant Banking Services’ which include advisory service on Corporate restructuring, debt or equity restructuring, Loan restructuring etc fall within the ambit of these services. The fee charged by the merchant banker for rendering these services will be the taxable value for the purpose of payment of service tax. In the present case, the Appellant has entered into agreement with various non-resident financial institutions and availed External Commercial Borrowings (ECB) by way of raising the Foreign Currency Convertible Bonds (FCCB) and paid various professional charges, in the Financial Year 2006-07. The above fees paid by them to various non­resident financial institutions become taxable under the Banking and Financial Service by virtue of Section 65(12) of Chapter-V of the Finance Act, 1994. As these financial institutions does not have their office in India, the services received by the Appellant fall under the category of ‘Import of Services’ and chargeable to service tax w.e.f.18/04/2006, with the introduction of section 66A in Finance Act 1994.

3. The Appellant stated that the Service Tax liability under this category was not known to them at the time of payment of various fees to the non-resident institutions abroad. When the same was pointed out to them, they agreed their liability and voluntarily came forward and discharged their Service Tax liability along with interest. Accordingly, they contended that there is no willful suppression or mens rea involved in this case to evade payment of Service Tax. They have paid the Service Tax before the issue of the Show Cause Notice and hence the provisions of Section 73(3) of the Finance Act, 1994 are applicable to them and no Notice need to be issued in this case.

4. The Departmental Representative reiterated the findings of the Adjudicating Authority in the Order-in-original.

5. Heard both sides and perused the relevant documents.

6. We find that the services received by the Appellant from the financial institutions abroad became taxable with the introduction of section 66A in the Finance Act 1994, w.e.f.18/04/2006. The Appellants raised FCCBs from abroad in November 2006 and paid the charges for the When the service tax liability on these fee payments was pointed out to them, they have accepted their liability and made payment of service tax along with interest in August 2007. Thus, we find that there was no intention to evade payment of service tax on the part of the Appellant. The Appellant claimed waiver of Notice under section 73(3) of the Finance Act 1994,vide their letter dated August 27, 2007, but their request was not considered.

7. For the sake of ready reference the said section 73(3) is reproduced below:

73(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the 6[Central Excise Officer] of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid

8. We find that the provisions of section 73(3) are applicable in this case. The Revenue has not brought any evidence to prove that the Appellant has not paid service tax with an intention to evade payment of service tax. On the contrary, the records clearly shows that the moment the liability was pointed out, the Appellant has paid the service tax along with interest on their own, even before issue of the notice. Thus, as per section 73(3), Show Cause Notice need not have been issued in this case.

9. We also find the provisions of section 80 of the Finance Act 1994 are also applicable in this case. For the sake of ready reference the said section 80 of the Finance Act 1994 is reproduced below:

80. Penalty not to be imposed in certain cases . — Notwithstanding anything contained in the provisions of section 76, section 77, section 78 or section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the  said failure.

10. We find that the Appellant is liable to pay service tax under the category of Import of services, with the introduction of section 66A in the Finance Act 1994, w.e.f. 18/04/2006.

The Appellant stated that the Service Tax liability under this category was not known to them at the time of payment of various fees to the non-resident institutions abroad. When the same was pointed out to them, they agreed their liability and voluntarily came forward and discharged their Service Tax liability along with interest. Thus the Appellant has clearly established that there was no intention to evade payment of service tax. Accordingly, the provisions of section 80 is also applicable in this case. Hence, no penalty under section 76, 77 or 78 imposable in this case.

10. In view of the above, we hold that the penalty imposed under Section 78 of the Finance Act is not warranted in this case and liable to be set aside.

11. We find that the Department has preferred Appeal for non-imposition of penalty under Section 76 of the Finance Act. In view of the discussions above, we observe that none of the conditions mentioned in Section 76 are applicable in this case and hence the penalty under Section 76 has not been rightly imposed by the Adjudicating authority. Hence, the Department’s appeal for imposition of penalty under section 76 of the finance act 1994 is rejected.

12. In view of the above, we allow the Appeal filed by the Appellant and reject the Appeal filed by the Revenue.

(Dictated and pronounced in the open Court.)

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