Business auxiliary services of production of goods on behalf of client — Activity of applying fusion-bonded epoxy coating on reinforced steel bars supplied by customers — Liability arose only w.e.f. 10-9-2004 when clause (v) of section 65(19) of Finance Act, 1994 inserted — Period prior to 10-9-2004 excluded as services prior to 10-9-2004 excluded — Assessee eligible for CENVAT credit of duty paid on coating material and on input services. Penalty — Non-payment of tax — Revenue never advised as<

The respondent was engaged in the activity of applying fusion bonded epoxy coating (FBE Coating) on reinforced steel bars supplied by its customers. The respondent failed to register themselves with the Department under the head ‘Business Auxiliary Service’ and service tax was demanded for the activity. Penalty also was imposed along with the interest on the demand of service tax. Tribunal set aside the penalty. On appeal before the High Court, the Revenue inter alia submitted that the Tribunal was not justified in setting aside the penalties inasmuch as the assessee failed to prove the presence of a reasonable cause for not paying the service tax. Also, the respondent failed to get registered with the Department.

Held:

The Court observed that though according to the Revenue the said activities were taxable as ‘Business Auxiliary Service’, they never advised the respondent to pay service tax on the said activity. Further, the Tribunal was justified in setting aside the penalties imposed u/s.80 of Finance Act, 1994 keeping in consideration the bona fide litigation going on as regards the nature of the activity carried on by the respondent. Accordingly, it was held that the order of the Tribunal does not suffer from any legal infirmity so as to warrant interference.