CESTAT New Delhi: No Penalty if Tax Not Paid Due to Bona Fide Belief

The New Delhi CESTAT ruled that when a taxpayer fails to fulfil their tax obligation under the bona fide belief that tax is not required to be paid, no penalty shall be imposed.

The Bench of Dr Rachna Gupta (Judicial) and Ms Hemambika R. Priya (Technical) has noted that “even if payment is made through CENVAT for GTA services, which is impermissible, it cannot be stated that the assessee had misstated or suppressed any information or evaded tax in as much as the details of the payment were available in the return.”

The taxpayer, in this case, is engaged in the business of manufacturing, procurement, and commissioning of ash-handling equipment. The taxpayer released the Service Tax under Reverse Charge and Works Contract Services.

In the search, the department alleged that the taxpayer was underqualified to claim the benefit of abatement as they are availing CENVAT Credit on input services, resulting in payment of service tax.

The demand was validated by the adjudicating authority. The taxpayer dissatisfied with the adjudicating authority’s decision submitted a plea before the commissioner who kept the order of the adjudicating authority. The taxpayer has contested the order passed via the commissioner before the tribunal.

The taxpayer claimed that as the services obtained via the taxpayer are not categorized under the business auxiliary services, therefore, the receiver of the same could not be cited to be the import of services. Indeed the taxpayer has filed the payments in the convertible foreign exchange under the head selling commission.

The taxpayer asserted that additionally the service has been undertaken outside India and no part of the service has been directed in India. Therefore the taxpayer was not obligated to file any service tax.

It was ruled by the department that the taxpayer had indisputably filed the consideration to the mentioned overseas company in lieu of the cited services. These services come beneath the business auxiliary service rather than the Business Support Service as claimed by them.

The tribunal marked that the services furnished via a commission agent are comprised of the class of taxable service termed as “business auxiliary service”, where ‘service’ is provided by a service provider who is based outside India to a service recipient who is based in India. Therefore, the taxpayer as the recipient of taxable service from offshore service providers is accountable to pay the service tax.

“If an Assessee fails to discharge tax liability under the Bonafide belief that no tax need be paid due to Revenue neutrality, then as the judgement stated that as the issue involved in this case was purely of interpretation, no penalty is leviable on the Assessee” the Tribunal cited.

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The tribunal in the aforesaid view has permitted the plea partially.