No Mala Fide Intent To Evade Service Tax: CESTAT Quashes Penalty

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has deleted the penalty and held that the service provider receiving a commission in lieu of providing "business auxiliary services" from Adarsh Credit Cooperative Society did not have a mala fide intention to evade service tax.

The bench of Rachna Gupta (Judicial Member) has held that the entire amount of commission was shown by the appellants in their income tax returns and the tax liability under direct taxes was duly discharged by the appellants. There was no mala fide intent on the part of the appellants to evade the payment of service tax.

The appellants/assessee were receiving commissions from Adarsh Credit Co-operative Society Ltd. (ACCSL) for providing various services, including that of "consultants." A specific intelligence was gathered by the officers of DGGI, Jaipur Zonal Unit, about appellants who had received commissions from ACCSL in lieu of providing "business auxiliary services" to ACCSL. But the service tax was not being paid by the appellants on the amount of the commission received.

The appellants submitted that there was much confusion about the nature of the services provided by the appellants as far as their taxability was concerned. The appellants were under the bona fide belief that the service tax was not applicable to the services they provided. The strong reason for this belief is mentioned as being the agents of LIC of India, who were also not paying any service tax for providing the services to LIC in exchange for receiving a commission from LIC.

The appellants contended that they had no intention to evade their tax liability; otherwise, they did not charge any service tax to M/s. ACCSL. They had rather made full disclosure of their entire commission received by them in their respective income tax returns filed with the Income Tax Department.

The department contended that the appellants had never taken the service tax registration despite the fact that "business auxiliary services" have been made taxable w.e.f. July 1, 2012, for the sole reason that these services are not covered under the negative list of Section 66B of the Service Tax Act. The registration was taken only after the investigation in the case was initiated, and the registration was under the "non-assessee" category. Consequently, there has been no registration to date.

The CESTAT observed that mens rea, or the intent to evade tax liability, is the core reason for invoking the extended period over the normal period. Appellants apparently have mentioned themselves as being under the bona fide belief of still not being liable under service tax.

The Tribunal set aside the penalty by invoking Section 80 of the Finance Act, 1994.

Case Title: Dinesh Chandra Dubey Versus & Service Tax, Excise and Customs

Citation: Service Tax Appeal No. 51585 of 2019

Date: 28.10.2022

Counsel For Appellant: Advocates Bipin Garg, Kainaat & Shalini

Counsel For Respondent: Authorised Representative Mahesh Bhardwaj

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