Commissioner of Service Tax, Service Tax Commissionerate vs Booz Allen and Hamilton Inc.

N. Kumar, J.—This appeal is by the revenue challenging the order passed by the Tribunal which has set aside the order passed by the Revisional Authority imposing penalty under the Finance Act of 1994 (hereinafter referred to as ''the Act''). The assessee, M/s. Booz Allen & Hamilton Inc. having their corporate headquarters at 8283, Grensboro Drive, Mclean, Virginia, USA, had their office in Bangalore at No. 202, ground floor, La Citadel Apartment, Cunningham Crescent Road, They entered into an agreement with Chief Engineer, National Highways, K.R. Circle, Bangalore-1 for Institutional Development Strategy Study for Karnataka State Highways Improvement Project on 15-5-2000. They provided Consultancy services. Therefore, they were liable to pay service tax. In fact, they had not registered themselves as service providers under the Act. A show-cause notice came to be issued to the assessee for recovery of service tax, interest and penalty. On receipt of the notice, the assessee appeared before the Original authority, firstly contending that the services with which they are providing do not fall within the ambit of the Finance Act, 1994 and they are not liable to pay any service tax. In the alternative, they agree to pay the tax payable but also interest on the said tax payable. The assessee further contended that under the agreement entered with the customer, the customer was expected to pay the service tax. Under these circumstances, it did not pay the tax and therefore penalty imposed should be waived. The assessing authority held that the service tax was payable. The assessing authority appreciated the conduct of the assessee in offering the tax with interest. He accepted the offer made by the assessee that under the agreement the customer had to pay the tax in India and therefore, waived the penalty. However, revisional authority initiated suo motu proceedings on the assumption that the assessing authority has not given reasons for exercising his discretion which has vested u/s 80 of the Act and after hearing the assessee, proceeded to impose penalty. In the appeal the Tribunal has set aside the order and restored the order of the assessing authority. It is against that order, the present appeal is filed.

The appeal was admitted to consider the following substantial question of law:

(1) "Whether in the facts and circumstances of the case, the CESTAT, SZB Bangalore was legal and correct in setting aside penalty imposed u/s 76, section 77 and section 78 of the Act, when the case involved suppression of facts and contravention of provisions of the Act, with intent to evade payment of service tax?

(2) Whether the contract contrary to statute would absolve the liability of the respondent from payment of penalty?

(3) Whether a term of contract when opposed to public policy u/s 23 of the Contract Act, would absolve the respondent from payment of Service Tax?

However, from the material on record, we notice that when once the assessing authority gave reasons for exercising his discretion vested u/s 80 of the Act., the revisional authority could have found fault with the exercise of discretion but he could not have interfered on the ground that he has not given any reasons for invoking the said jurisdiction. Therefore, the very initiation of the proceedings by the revisional authority is improper. Even otherwise, the material on record shows that under the agreement entered into between the assessee and its customer, as the assessee-company was based in America, its customer at Bangalore was expected to pay service tax and then claim from the assessee. Admittedly, the customer at Bangalore, which is instrumentality of the State, has not paid any tax. It is in those circumstances the notice came to be issued realizing the mistake. In the facts of this particular case, we are satisfied that assessing authority was justified in exercising discretion and taking lenient view in the matter and there was no case for interference by the revisional authority and the Tribunal was justified in setting aside the order passed by the revisional authority. In the light of what we have stated on the facts of this case, we are of the view that the substantial questions of law framed do not arise for consideration in this appeal. Therefore, they are not answered.

Accordingly, the appeal is dismissed.