Section 80 No penalty if no mala fide intension for non payment of service tax

Facts of the Case :-

The appellant entered in royalty agreement with M/s. Shree Arvind Finishers, Ichalkaranji for using the goodwill “Finished by Shri. Arvind processors Pvt. Ltd” for which they were receiving an amount as per the said agreement., The appellant was under bona fide belief that since the VAT has been paid on the entire amount of agreement the said use of goodwill shall not be liable for service tax. On this fact, appellant was under bona fide belief that the services is not taxable. He submits that appellant bona fidely entered into agreement and recorded the payment transaction in their books of account which clearly shows that appellant had no mala fide intention to evade service tax on the services of Intellectual property. In view of this , fact, The Appellant prays that penalty of an amount of Rs. 1,91,924/- imposed under Section 78 may be waived by invoking Section 80 of the Finance Act, 1944.

Held :-

The agreement does not bear any clause for levy of service tax and payment thereof. The royalty amount has been accounted for in books of account of both the companies i.e. royalty holder and royalty payee. The service tax and interest have been paid by the appellant and they are not contesting such liability. In view of this position, appellant have not tried to hide any transaction of the royalty and for which legal agreement was singed by both the parties. The submission of the appellant that they entertained bona fide belief that the said service is not taxable and therefore they could not pay service tax on time, I find force in the submission of appellant that had they have mala fide intension they would not have entered into any agreement and would not have accounted for transaction of the royalty in their books of account. Therefore in view of the facts and circumstances as discussed above, I find that appellant have shown reasonable cause for non payment of service tax on time, however the same along with interest has been paid by them. In view of the above position, I am of the view that appellant have made out the case of waiver of penalty under Section 78 by invoking Section 80. I therefore set aside the penalty imposed under Section 78 in respect of intellectual property services under the provisions of Section 80 of Finance Act 1994.

CESTAT, MUMBAI BENCH

Arvind Processors (P.) Ltd.

v.

Commissioner of Central Excise & Service Tax, Kolhapur

ORDER NO. A/2078/2015/SMB
APPEAL NO. ST/88548/2014-MUM.

JUNE  17, 2015

Ganesh K.S. Iyer , Adv. for the Appellant. S.R. Nair, Eraminar (A.R.) for the Respondent.

ORDER

1. This appeal is directed against Order-in-Appeal No. PUN-EXCUS-002-APP-012-14-15 dtd. 7/5/2014 passed by the Commissioner (Appeals), Central Excise, Pune-II, wherein Ld. Commissioner (Appeals) modified the Order-in-Original dated 22/2/2013 and held as under:

2. The appellant filed present appeal for setting aside the impugned order but during the hearing it was categorically stated by the Ld. Counsel Shri. Ganesh K.S. Iyer that they are not contesting the service tax demand and interest thereon confirmed by the Ld. Commissioner and payment thereof already made by the appellant. The appellant now contesting only penalty of Rs. 1,91,924/- imposed under Section 78 which relates to the demand of equal amount of Service tax on intellectual property services for the period November, 2007 to March, 2011.

3. Shri. Ganesh K.S. Iyer, Ld. Counsel for the appellant submits that aforesaid penalty was confirmed by the Ld. Commissioner (Appeals) only on the ground that appellant have not contested imposition of penalty under Section 78 in respect of intellectual property services. He submits that para 3 of the impugned order discussed about the ground of appeal of the appellant, point no. 7 of para No. 3 mentioned that “As the appellant were under bona fide belief of their activities being non taxable due to the confusion prevailing in field, they claimed immunity under Section 80 of the Act in respect of the penalties imposed”. He further submits that appellant have specifically sought for in para 15.1 of the ground of appeal before the Commissioner (Appeals) waiver of penalty under Section 80 as they were under bona fide belief about their activity were not taxable. It is his submission that in view of this undisputed facts Ld. Commissioner (Appeals) finding that for not considering waiver of penalty as not being contesting penalty is not correct. He submits that appellant entered in royalty agreement with M/s. Shree Arvind Finishers, Ichalkaranji for using the goodwill “Finished by Shri. Arvind processors Pvt. Ltd” for which they were receiving an amount as per the said agreement., The appellant was under bona fide belief that since the VAT has been paid on the entire amount of agreement the said use of goodwill shall not be liable for service tax. On this fact, appellant was under bona fide belief that the services is not taxable. He submits that appellant bona fidely entered into agreement and recorded the payment transaction in their books of account which clearly shows that appellant had no mala fide intention to evade service tax on the services of Intellectual property. In view of this , fact, he prays that penalty of an amount of Rs. 1,91,924/- imposed under Section 78 may be waived by invoking Section 80 of the Finance Act, 1944.

4. Shri S.R. Nair, Ld. Examiner (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He further submits that the appellant had not contested the penalty in. respect of intellectual property service, as can be seen from the para 8 of the order in appeal. He submits that appellant has made ground of appeal before the Commissioner (Appeals) only for waiver of penalty in respect of ‘renting of immovable property services’ and not in respect of ‘intellectual property services’, therefore since the’ appellant have not contested the penalty under Section 78 in respect of intellectual property services before the Commissioner (Appeals), the Commissioner (Appeals) has rightly confirmed penalty. He placed reliance in the case of Balaji Society v. CCE [2015] 59 taxmann.com 20 (Mum. – CESTAT). He also submits that in the present case extended period is invokable as appellant has neither informed to the department nor taken registration, therefore department not in knowledge of activity of the appellant.

5. I have carefully considered the submissions made by both sides and perused the record.

6. As regard the dispute whether appellant have made out their case before the Commissioner (Appeals) for waiver of penalty under Section 78. I have carefully gone through the record as submitted-by both sides. I find in the impugned order in sub para 7 of para 3 appellant’s submission was recorded which is as under:

“As the appellant were under bonafide belief of their activities being non taxable due to the confusion prevailing in field, they claimed immunity under Section 80 of the Act in respect of the penalties imposed”.

The appellant in para 15 of their ground of appeal before the Commissioner (Appeals) stated as under:

15.0 Waiver under Section 80

15.1 Notwithstanding and without prejudice to the grounds as above it is submitted that the appellant is entitled for waiver of penalty under Section 80 of Finance Act, 1994. Section 80 is invokable since the appellant was always under the bonafide belief that their activities are not subject to service tax. Bonafide belief has been held to be fit reason for setting aside penalty under Section 80 in the following case laws.

ETA Engg. Ltd. v. CCE 2004 (174) ELT 19 (Tri. – LB) and Ada Rangamandira Trust v. CCE [2007] 8 STT 206 (Bang. – CESTAT)

From the above recording in the impugned order as well as grounds made before the Commissioner (Appeals), it is clear that appellant has indeed contested the penalty as whole and waiver thereof was sought for under Section 80, therefore I find that the Commissioner (Appeals) is not correct in holding that the appellant have not contested penalty under Section 78 in respect of intellectual property services. Now whether the appellant have made out the case for reasonable cause for waiver of penalty invoking Section 80 of the Act. On going through the records and the submissions, I find that as regard the intellectual property services appellant have entered into agreement for royalty. The agreement does not bear any clause for levy of service tax and payment thereof. The royalty amount has been accounted for in books of account of both the companies i.e. royalty holder and royalty payee. The service tax and interest have been paid by the appellant and they are not contesting such liability. In view of this position, appellant have not tried to hide any transaction of the royalty and for which legal agreement was singed by both the parties. The submission of the appellant that they entertained bona fide belief that the said service is not taxable and therefore they could not pay service tax on time, I find force in the submission of appellant that had they have mala fide intension they would not have entered into any agreement and would not have accounted for transaction of the royalty in their books of account. Therefore in view of the facts and circumstances as discussed above, I find that appellant have shown reasonable cause for non-payment of service tax on time, however the same along with interest has been paid by them. In view of the above position, I am of the view that appellant have made out the case of waiver of penalty under Section 78 by invoking Section 80. I therefore set aside the penalty imposed under Section 78 in respect of intellectual property services under the provisions of Section 80 of Finance Act 1994. However, the demand of Service tax amounting to Rs. 6,20,019/- and interest thereof and payment of the same already made stand upheld. Appeal is partly allowed in above terms.