Revenue neutral cases cannot attract Penalty

CLR Editorial Note: Assessee was a 100% EOU and had disputed the service tax related to import of services from an overseas commission agent. As per the terms of Section 66A of Finance Act, the assessee was required to pay taxes as a deemed service provider. The Revenue charged them with evasion of Service Tax and a penatly was imposed.

In case the assessee had paid the taxes for what was clearly an input service for the them, the assessee would have been eligible for Service tax credit. Moreover, being a 100% EOU, they were also eligible to be refunded the service tax credit as per terms under Rule 5 of the CENVAT Credit Rules, 2004. The assessee thus claimed that this was a revenue neutral transaction and hence there was no question of evading service tax.

Based on these known circumstances and facts, the CESTAT ruled that the claim of revenue neutrality is acceptable and intention to evade service tax is not applicable and out of the purview of this case. Hence, there was in fact, no justification for imposition of any penalty under Section 78.  CESTAT ruled and the party™s appeal challenging the penalty under Section 78 succeeded. As per the revenue neutrality of this case, where there was no intention to evade service tax, the penalty under Section 76 was waived in the light of provisions of Section 80 of the Finance Act, 1994.

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CESTAT, BANGALORE BENCH

CCL Products (India) Ltd.

v.

Commissioner of Central Excise & Service Tax (Appeals)

FINAL ORDER NOS. 319 & 320 OF 2012

APPEAL NOS. ST/2295 OF 2010 & E/1974 of 2010

MAY 18, 2012

ORDER

1.1 Appeal No. ST/2295/2010 is by M/s. CCL Products (India) Ltd. against order of the Commissioner (Appeals) dated 9.10.2006. Appeal No. E/1974/2010 is by the Commissioner against the very same order. The relevant facts in brief are as follows.

1.2 A show-cause notice was issued proposing recovery of service tax of Rs. 2,66,924/- along with interest and proposing imposition of penalties. Original authority vide order dated 30.9.2009 upheld the demand of Rs. 2,66,924/- and also appropriated the amount of service tax paid by the appellant and also an amount of Rs. 86,651/- paid towards interest. He imposed a penalty of Rs. 66,731/- under Section 78 on the ground that service tax and interest were paid before the order was issued.

1.3 It is noticed that the order of the original authority is dated 30.9.2009. However, it acknowledges payments made on 5.10.2009 and also refers to communication from the assessee dated 13.10.2009. Obviously, there is a mismatch between the date of the order and the dates mentioned in the order-in-original.

1.4 The department as well as the party filed appeals before the Commissioner (Appeals). The Commissioner (Appeals) vide impugned order dated 9.6.2010 enhanced the penalty from Rs. 66,731/- to Rs. 2,66,924/-. Party™s appeal before Commissioner (Appeals) for setting aside the penalty stands rejected.

2. Heard learned Superintendent (AR). None appears for the party inspite of notice. However, they have filed written submissions which have been taken into account.

3. Learned Superintendent (AR) submits that the assessee has received the input services from foreign based commission agent and ought to have paid the service tax. They not only failed to pay the service tax but even after commencement of the investigation they did not cooperate and that they paid the service tax and interest only on 5.10.2009. She fairly submits that there appears to be a mistake in the date of the order-in-original which is mentioned as 30.9.2009 inasmuch as the payment made on 5.10.2009 is recorded in the order-in-original, apparently the order-in-original has been passed at a date latter than 30.9.2009. She further submits that revenue neutrality is not the criteria in not imposing penalties under Section 76 and 78. Relying on the decisions of the Hon™ble High Court of Kerala in the case of Asstt. CCE v. Krishna Poduval[2006] 3 STT 96 and decision of the Hon™ble High Court of Delhi in the case of Bajaj Travels Ltd. v. CST [2011] 33 STT 346, she submits that prior to amendment dated 16.5.2008, penalties under Sections 76 and 78 are separately imposable.

4.1 I have carefully considered the submissions from both sides and perused the records. The original authority in his order did not impose any penalty under Section 76 and imposed penalty of only 25% under Section 78 apparently on the ground that the service tax and the interest stand paid before issuance of the order-in-original. The assessee challenged the imposition of penalty of 25% before Commissioner (Appeals) and the department sought for enhancement of the penalty equal to the amount of service short-paid/evaded and also sought for penalty under Section 76. Commissioner (Appeals) has enhanced the penalty to the amount equal to the amount of service tax short-paid/evaded.

4.2 I find that the assessee is a 100% EOU and the disputed service tax related to import of services from foreign based commission agent. The assessee was required to pay the tax as a deemed service provider in terms of Section 66A of the Finance Act. Since the services were clearly input services for the appellant, the assessee was eligible for credit of service tax if the same had been paid by them. As a 100% EOU, they are also eligible to get refund of service tax credit in terms of Rule 5 of the CENVAT Credit Rules, 2004. Under these circumstances, their claim for the revenue neutrality and consequently absence of intention to evade service tax is acceptable. Therefore, there is no justification for imposition of any penalty under Section 78 at all. Therefore, the party™s appeal challenging the penalty under Section 78 has to succeed. As it is a clear case of revenue neutrality and a case where intention to evade service tax is absent, the penalty under Section 76 which is imposable deserves to be waived in the light of provisions of Section 80 of the Finance Act, 1994.

5. In view of the above, appeal of the assessee succeeds and appeal of the department fails. Ordered accordingly.