1. This appeal has been filed against Order-in-Appeal No. 195/2007 CE dated 29.8.2007 passed by the Commissioner of Central Excise (Appeals), Mangalore.
2. In this case, the appellant paid certain commission to the foreign agents to procure export orders for their goods. Since the commission was paid in foreign exchange, the appellants were under misconception that they are not liable to pay Service Tax. However, when the departmental authorities informed that they are liable to pay Service Tax, they immediately paid the Service Tax along with interest much before the issue of show cause notice. The period involved in this case is from 09.07.2004 to 31.3.2006. The show cause notice was issued on 9.10.2006. But even before the issue of the show cause notice, the Service Tax along with interest liability was paid. The appellants invited our attention to Section 73(3) of the Finance Act by which there was no need for issue of show cause notice in view of the discharging of Service Tax liability along with interest by the appellant, the moment the non-payment was pointed out to them. In spite of the above fact, Revenue authorities proceeded against the appellants. The lower authority apart from confirming the demands imposed a penalty of Rs. 2,80,000/- under Section 78 of the Finance Act. The appellants strongly challenged the imposition of the penalty.
The Commissioner (A) has also upheld the order of the lower authority holding that there was suppression of fact and in view of that longer period can be invoked and the appellants are liable for penalty.
3. Shri K. Parameswaran, learned advocate appeared on behalf of the appellants and Mrs. Sudha Koka, learned departmental representative appeared for the Revenue.
4. We heard both sides. The learned advocate urged the following points.
(i) The Service Tax involved has been demanded on the commission paid to foreign agents who had procured orders for export of goods thereof. Further, even if Service Tax is to be paid, the same would be allowable as credit of input services and hence intention to evade payment of Service Tax cannot be prima facie alleged or attributed thereor.
(ii) Since the services were rendered abroad, they cannot be taxed in the hands of service recipient until Section 66A of the Finance Act came into force w.e.f. 18/04/2006, which principle is accepted in several decisions rendered including inter alia, in the following cases: (iii) Thus for the above reason alone, the Service Tax could not have been demanded from the service recipient prior to 18/04/2006 and hence for this reason alone, the Service Tax deposited with interest would become refundable and further no penalty could be imposed at all thereto.
(iv) Further, in the facts and circumstances herein, there was a bona fide doubt regarding the activity being subject to levy of Service Tax in the hands of service recipient and thus would constitute reasonable cause for not imposing penalty under Section 80 of the Finance Act, as laid down in several cases including Larger Bench decision rendered in the case of ETA Engineering v. CCE, and (v) Even otherwise, the mere reason of payment of Service Tax with interest after communication from the department cannot be equated with suppression of facts with intention to evade payment of tax and thus the benefit of Section 73 read with the Board's Circular Letter F. No. 137/167/2006-CX-4, dated 3.10.2007 - 2007 (8) SW CII, should have been granted in toto thereof.
(vi) Moreover, there is no basis or justification for invoking the extended period and hence for this reason also penalty under Section 78 cannot be imposed at all, as the ingredients stipulated therein cannot be said to have been established in any manner thereto.
(vii) As a sequel, it is prayed that the said impugned order would deserve to be set aside, particularly in relation to imposition of penalty under Section 78 of the Finance Act thereto.
5. The learned Departmental representative reiterated the impugned order.
6. On a very careful consideration of the entire issue, we find that the contention of the learned advocate is that the Service Tax itself is not liable to be paid in respect of the services rendered by the foreign agent abroad for procuring orders for export prior to insertion of Section 66A which came into force only w.e.f. 18.4.2006. He also relied on number of case laws which are cited supra. In any case, in this appeal, the main contention is with regard to the penalty imposed.
Therefore, we are not going into the question of leviability to Service Tax as the appellants had already paid the same and they are mainly challenging the imposition of penalty. The appellants have drawn our attention to Section 73(3) of the Finance Act which is reproduced herein below: Section 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 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: Explanation: For the removal of doubts, it is hereby declared that the interest under Section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of Service Tax or erroneously refunded Service Tax, if any, as may be determined by the Central Excise Officer, but for this sub-section.
In this case, it is not in dispute that the Service Tax along with interest had been paid on 30.8.2006 and 12.9.2006 but the show cause notice itself had been issued much latter only 9.10.2006, hence, the issue is squarely covered by Section 73(3) of the Finance Act and therefore, there would not have been any necessity even to issue the show cause notice. This is also in consonance with the Board's Circular Lr. dated 3.10.2007 cited supra by the learned advocate. In any case, the appellant was also having a bonafide doubt in the activity being subject to levy of Service Tax. In our opinion, this is a reasonable cause for not imposing penalty under Section 78 of the Finance Act. In these circumstances the impugned order has no merit and therefore, we set aside the same and allow the appeal with consequential relief.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)