By TIOL News Service

MUMBAI, NOV 10, 2015: AGAINST O-in-A the appellant is before the Tribunal.

While not contesting the service tax demand and interest the appellant emphasized that they are aggrieved with the penalty imposed of Rs.1.91 lakhs u/s 78 which relates to the demand of equal amount of service tax on Intellectual Property Services for the period November 2007 to March 2011.

It is submitted that while confirming this penalty the Commissioner (A) viewed that the appellant had not contested the imposition and which factually is incorrect as in paragraph 15.1 of their ground of appeal they had sought waiver of penalty in terms of s.80 of the FA, 1994.

The appellant further mentioned that they entered into a 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; thattheywere under the bonafide 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; that they recorded the payment transaction in their books of account which clearly shows that appellant had no malafide intention to evade service tax on the services of Intellectual property.

The AR reiterated the findings contained in the impugned order and submitted that the appellant had neither informed the department about their activities which were liable to tax nor taken registration and, therefore, extended period is invokable and so are penalties.

The Bench observed that from the facts it is apparent that the appellant had indeed contested the penalty as a whole and waiver thereof was sought for under Section 80and, therefore,the findings of the Commissioner(A) were not correct to that extent.

In the matter as to whether the appellant had a reasonable cause for waiver of penalty, the CESTAT observed -

"…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 signed by both the parties. The submission of the appellant that they entertained bonafide 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 malafide intention they would not have entered into any agreement and would not have accounted for transaction of the royalty in their books of account…."

Holding that the appellant has shown a reasonable cause for non-payment of service tax on time, but the same alongwith interest has been paid by them later, the Bench set aside the penalty imposed under Section 78 in respect of IPRservices by invoking section 80 of the FA, 1994.

The appeal was partly allowed.

(See 2015-TIOL-2398-CESTAT-MUM)