TMI Blog2017 (7) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... a reverse charge mechanism basis, as soon as it received a communication dated 15.03.2007. The assessee did not wait for issuance of the SCN. Not only did the assessee pay the service tax, but it also paid interest, albeit, after the demand was confirmed. The assessee, it appears, therefore, verily believed that since, arrangement fee had been paid to ICICI Bank, which is an entity incorporated in India, it is that entity which would be required to pay service tax. The assessee continued to hold this belief and, as a matter of fact took a specific ground, in that behalf, even in the appeal filed with the Tribunal - merely because service tax was paid prior to SCN, therefore, penalty ought to be waived. What is required to be looked at is, the cumulative set of facts obtaining in each case, and then, assessing as to whether non-payment of service tax was a conscious and/or deliberate act of wrong doing and/or deception. Our sense of the matter is that, it was not, and, therefore, the conclusion reached by the Tribunal, in our view, is correct. Since, it is a civil obligation emanating from a statutory offence, imposition of penalty would follow, if, once it is established that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to adjudicate upon the appeal and to answer the questions of law, which have been set out hereinabove, the following broad facts are required to be noticed. 3.1. The assessee before us is a company by the name of M/s.JSW Steel Ltd. (formerly known as M/s.Southern Iron Steel Company Ltd.). The assessee appears to be in the business of manufacturing iron and steel bars and rods in their factory situate at Pottaneri. The assessee, admittedly, stands registered with the Central Excise Department for the purpose of service tax and has, accordingly, been accorded a registration number. 3.2. It appears that the Government of India (GOI), in 1992, introduced a Scheme which allowed Indian companies to access global capital markets through External Commercial Borrowings (ECBs). The ECBs, apparently, operated under Global Depository Mechanism (GDR) and American Depository Mechanism (ADR). Thus, under the Scheme formulated by GOI, the Indian companies having good track record, which included good financial performance generally, could access International Banks / Financial Institutions for ECBs. The manner in which ECB operated was that every borrower, who was based in India, was req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the relevant point in time. We may indicate here that as a matter of fact, the assessee did raise this submission before the Tribunal, which has been taken note of in paragraph 5 of the impugned judgment and order. We are informed that cenvat credit was subsequently availed of by the assessee post payment of service tax, which has not been questioned to-date by the Revenue. 4.3. It is because service tax was not paid by the assessee on the arrangement fee, at the relevant point in time, that the Revenue, upon obtaining information via the Director General of Central Excise Intelligence, called upon the assessee to furnish details with regard to payments made to foreign companies for arranging ECB. Apparently, information in that behalf was sought by the Revenue from the assessee vide its communication dated 15.03.2007, in exercise of powers under Section 14 of the Central Excise Act, 1944 (in short 'the CE Act') read with Section 83 of the Finance Act. Apparently, the information, as sought by the Revenue, was supplied by the assessee under the cover of its letter dated 24.03.2007. As indicated hereinabove, the assessee, apart from anything else, also furnished copie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the tax ought to have been paid till it was paid, i.e. 17.04.2006 and thereafter, at the rate of 2% of the quantified service tax amount or ₹ 200 per day whichever was higher on the tax amount to be paid from 18.04.2006, till the date of payment, under Section 76 of the Finance Act; iii.penalty amounting to ₹ 1,000/- under Section 77 of the Finance Act for failure to obtain registration and file ST 3 Return and; iv.penalty in a sum of ₹ 67,62,355/-, which was equivalent to the amount of tax paid, under Section 78 of the Finance Act, for suppression of value of taxable service with an intent to evade payment of service tax on the said service and for failure to pay service tax. 5.2. The assessee, it appears, was not inclined to resist the payment qua interest on account of delayed payment of service tax and accordingly, remitted the requisite amount, i.e. a sum of Rs,5,73,225/-, to the Revenue on 25.11.2008. 5.3. The assessee, being aggrieved by the order-in-original dated 10.03.2008 qua the penalties imposed under various Sections, preferred an appeal to the Tribunal. 5.4. As indicated above, the Tribunal sustained the order-in-original t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 281) ELT 665 (Del-DB) 8. As against the aforesaid, Mr.Venkatagiri largely relied upon the judgment of the Tribunal and submitted that no interference is called for in the matter. In addition thereto, the learned counsel contended that the assessee was under a bona fide belief that ICICI Bank Limited, being a corporate entity registered in India, it was not required to pay service tax on the arrangement fee paid to its Singapore Branch. In this context, the learned counsel emphasized that this belief was strengthened as in so far as the processing fee was concerned, the service provider which was the Vadodara / Bangalore branch of the ICICI Bank Limited, had paid the requisite service tax. 8.1. The learned counsel further submitted that the bona fides of the assessee could not be doubted, in view of the fact that the moment the Revenue, in a sense, raised a red flag with regard to the assessee's failure to pay service tax on the arrangement fee, the said tax was paid on 31.05.2007. The learned counsel also highlighted the fact that the assessee had also paid the interest demanded by the Revenue with regard to delayed payment of service tax. It was also brought to our noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the provisions of Section 66A of the Finance Act and the Rules framed thereunder. (g) Though the Revenue has raised a ground in the instant appeal with regard to the tenability of the cenvat credit claimed by the assessee, nothing has been placed on record to demonstrate that the Revenue has agitated the said issue by taking recourse to an appropriate proceeding. 10. It is, in the background of the aforesaid facts and circumstances that, the assessee had assailed the order-in-original dated 10.03.2008 raising several issues with regard to its liability to pay service tax, which, in a sense, led it to carry a bona fide belief that it was not liable to pay service tax on the arrangement fee, in view of the fact that it was a recipient of the service, provided by the Singapore branch of ICICI Bank Ltd. This aspect emerges on perusing the averments made in the appeal filed by the assessee with regard to its interpretation of the provisions of Section 65 (12) and Explanation 2 of Section 66 of the Finance Act, in the foreground of the transaction which stood consummated between itself and the Singapore branch of ICICI Bank Limited. 11. The sum and substance of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... readily accepted and discharged their liability in full, which is not in dispute. Having regard to the facts and circumstances of this case, which show that the appellants were eligible for cenvat credit on the service tax paid on the reverse charge mechanism, we find that there is bonafide reason for invoking sec.80. Further, we also find that this is a case where the appellants have been able to show reasonable cause for delayed payment under bonafide belief as to taxability of service and in view of the revenue neutral situation, we find that the penalties imposed on the appellants cannot be sustained and has to be set aside. In the result, the amount paid towards service tax and interest thereon and appropriated is sustained and penalties imposed on the appellants are set aside. The appeal is partially allowed in the above terms.'' 11.3. A perusal of the impugned judgment of the Tribunal would show that the Tribunal has, in effect, accepted the plea of the assessee with regard to the challenge laid to the penalties levied by invoking the powers under Section 80 of the Finance Act. During the relevant period, Section 80(i) of the Finance Act, read as follows: 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valent to 100% of the amount of such service tax demanded thereof. 12. The record shows that in the order-in-original the only reasoning, which has been provided (after a long discussion with regard to the contentions advanced by parties, the provisions of the Act, and the reference to judgments), is that, penalty was being imposed on account of non-registration and non-payment of tax by the assessee in contravention of the Finance Act. 12.1. For the sake of convenience, the relevant paragraphs, i.e. 19.01 and 19.02, of the order-in-original is set forth hereinafter: 19.01 It is clearly established that the assessee had not disclosed the fact of paying commission to the ICICI Bank at Singapore and hand not registered themselves with the department and failed to pay service tax in contravention of provisions of Finance Act, 1994. It is held in the following decisions that person who is guilty of suppression are liable to penalty under both Section 76 and 78 of Finance Act, 1994....... 19.02 Non-registration and non-payment of tax in contravention of provisions of Finance Act itself clearly shows their intention to suppress the fact in order to evade tax. Penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be confined to one year and in the absence of such a finding in the order passed under section 11A (2) there would be no application of the penalty provision in section 11AC of the Act. On behalf of the assessees it was also submitted that sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of section 11AC would come into play only after an order is passed under section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in section 11AC. 19. From the aforesaid discussion it is clear that penalty under section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section. 20. At this stage, we need to examine the recent decision of this Court in Dharamendra Textile (supra). In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non-payment or short payment of duty the penalty clause would automatically get attracted and the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given. 27. Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case (supra) was not correctly decided but Chairman, SEBI's case (supra) has analysed the legal position in the correct perspectives. The reference is answered......... . 21. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application. 22. There is another very strong reason for holding that Dharamendra Textile could not have interpreted section 11AC in the manner as suggested because in that case that was not even the stand of the revenue. In paragraph 5 of the decision the court noted the submission made on behalf of the revenue as follows: 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the conclusion that non-payment of service tax was a conscious and/or deliberate act of wrong doing and deception. 12.6. Furthermore, in the facts and circumstances of the instant case, what is also required to be kept in mind is, the provisions of Section 80 of the Finance Act, which obtained on the Statute book, during the relevant period. We may note that Section 80 was omitted from the Statute, with effect from 14.05.2015, vide Finance Act, 2015 (20 of 2015). 13. Thus, having regard to the fact that no such finding of deliberate and/or conscious wrong doing and deception has been returned in the Order-in-original dated 10.03.2008 and given the fact that the assessee has claimed Cenvat Credit in respect of service tax paid by the assessee, qua which, the Revenue has raised no objection, [at least nothing suggestive of this fact was shown to us during the course of hearing], the Tribunal, in our view, was justified in coming to the conclusion that the assessee had been able to show reasonable cause for waiver of imposition of penalty under Section 76, 77 and 78 of the Finance Act. 14. We must, at this juncture, note that Mr.Sundareswaran submits that the mere fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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