The Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) set aside the penalty imposed under section 78 of the Finance Act, 1994 in the absence of evidence to prove non-payment of service tax to evade tax.
M/s.Assam Company India Limited, 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 an investigation to recover the tax due. The Appellant has not disputed the Service Tax liability.
Duringthe investigation by DGCEI, they discharged their entire Service Tax liability along with interest. 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 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. The Notice was issued and the demand was confirmed vide the impugned order.
It was evident that Banking and Financial Service was a new service introduced w.e.f. 16/07/2001.’Merchant Banking Services’ which include advisory services 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 payment of service tax.
The Appellant has entered into agreements 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 fees paid by the assessee to various non-resident financial institutions become taxable under the Banking and Financial Service by Section 65(12) of Chapter V of the Finance Act, 1994. As these financial institutions do not have their office in India, the services received by the Appellant fall under the category of ‘Import of Services’ and are chargeable to service tax w.e.f.18/04/2006, with the introduction of section 66A in Finance Act 1994.
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. It was contended that there is no wilful suppression or mens rea involved 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 apply to them.
A two-member bench Comprising Shri P K Choudhary, (Judicial) and Shri K Anpazhakan,(Technical) observed that the Revenue has not brought any evidence to prove that the Appellant has not paid service tax intending to evade payment of service tax.
The Appellant has established that there was no intention to evade payment of service tax. The CESTAT held that “no penalty under section 76, 77, or 78 is imposable.”Further set aside the penalty imposed under Section 78 of the Finance Act.
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