DAURALA ORGANICS Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE appellant in the year 2001 entered into a licence agreement with M/s. Gerard Kessels Sociedad Anonima, Spain for use of the technology developed by them for manufacture of an organic chemicals - D ( -) - para -hydroxyphenylglycine (hereinafter referred to as PHPG) for which royalty per annum was being paid @ 2.5% on the annual sales turnover. The intellectual property rights service became taxable in the year 2004. Since, the appellant were not paying service tax on the royalty amount being paid by them to their foreign collaborator whose technology was being used for manufacture of PHPG under licence, two show cause notices, dated 7 -1 -2008 and 11 -3 -2008 were issued to them for payment of service tax amounting to Rs. 14,98,776/ - along with interest for the period from October, 2004 to December, 2007 and also for imposition of penalty. The above show cause notices were ad -judicated by the Additional Commissioner vide order -in -original, dated 26 -2 -2009 by which she confirmed the above -mentioned service tax demand along with interest and appropriated the amount of Rs. 14,98,776/ - and Rs. 53,976/ - already paid by the appellant towards service tax demand and interest. This demand was confirmed by the Additional Commissioner by invoking extended period under proviso to Section 73(1) of the Finance Act, 1994. The Additional Commissioner while confirming the service tax demand along with interest did not impose any penalty on the appellant under Sections 76, 77 and 78 by invoking the provisions of Section 80 of the Finance Act, 1994, holding that she is satisfied that there were valid reasons for the appellant's failure to discharge their service tax liability. The portion of the Additional Commissioner's order, dropping the penalty proceedings, was reviewed by the Jurisdictional Commissioner of Central Excise under the provisions of Section 84 of the Finance Act, 1994 and vide Order -in -Revision No. 05/Commr/MRT -I/2011, dated 17 -2 -2011 he modified the Additional Commissioner's order by imposing penalties on them under Sections 76, 77 and 78. While penalty of Rs. 12,87,153/ - was imposed under Section 76, penalty of Rs. 1,000/ - was imposed under Section 77 and Rs. 14,98,776/ - was imposed under Section 78. Against this order of the Commissioner, this appeal has been filed. Heard both the sides.

(2.) SHRI S.C. Kamra, Advocate, the learned Counsel for the appellant, pleaded that the service tax is being charged from the appellant as recipient of the service provided by a service provider abroad, that provisions in this regard had been introduced w.e.f. 18 -4 -2006 by introducing Section 66A and that in view of judgment of Hon'ble Bombay High Court in the case of Indian National Shipowners Association v. Union of India, reported in : 2009 (13) S.T.R. 235 (Bom.), during the period prior to 18 -4 -2006, service tax could not be charged from the service recipients in India in respect of the service provided to them by off -shore service providers, that in spite of this, the appellant paid the service tax for the entire period including the period prior to 18 -4 -2006 along with interest thereon, that the entire amount of service tax paid by the appellant was available to them as Cenvat credit, and, hence, there could not be any intention on their part to evade the tax, that non -payment of service tax was only on account of confusion prevailing on the issue of levy during the period of dispute, that in view of this, the Additional Commissioner had correctly waived the imposition of penalty under Sections 76, 77 and 78 of the Finance Act, 1994 by invoking Section 80 ibid and, therefore, the impugned order of the Commissioner imposing penalty on the appellant under Sections 76, 77 and 78 ibid is not correct.

(3.) WE have considered the submissions from both the sides and perused the records. It is seen that the original Adjudicating Authority has confirmed the service tax demand by invoking extended period under proviso to Section 73(1) on the basis of finding that the non -payment of the service tax was attributable to their intention to evade the tax. This finding of the Additional Commissioner has not been challenged by the appellant. Once such finding is given, there would be no scope for the conclusion that the appellant did not discharge the service tax liability due to bona fide reasons. Confirmation of service tax demand by invoking proviso to Section 73(1) and waiver of penalty by invoking Section 80 do not go hand in hand. In view of this, we do not find any infirmity in the impugned order. The appeal is dismissed.