2010 (8) TMI 198 - AT - Service Tax

Erection, Commissioning and Installation - short payment was detected in course of audit of records of the Appellant company when they submitted their financial records to the audit for inspection - service tax demand under Section 73 of the Finance Act, 1994 alongwith interest - Held that - imposition of penalty under Section 78 some positive evidence of deliberate misdeclaration of value of taxable service with intent to evade the service tax, other than mere failure to declare the full value of taxable service in ST-3 returns must be produced - no dispute that in the books of accounts and other financial records, all the transactions had been disclosed and those records had been produced - no justification for imposition of penalty under Section 78 - Appeal is dismissed

Summary

Issues:
1. Imposition of penalty under Sections 76 and 78 of the Finance Act, 1994.

Analysis:
The case involved two appeals - one filed by the Appellant and the other by the Revenue. The Appellant, engaged in taxable services, was alleged to have not paid service tax on certain value of services and not declared the entire value in their returns. A show cause notice was issued, leading to confirmation of service tax demand, interest, and imposition of penalties under Sections 76 and 78 by the Jt. Commissioner. On appeal, the Commissioner (Appeals) upheld the service tax demand and penalty under Section 78 but set aside the penalty under Section 76. The Department appealed against setting aside the penalty under Section 76, while the Appellant challenged the penalty under Section 78.

The Appellant's representative argued that the non-payment of service tax on certain amounts was due to a misunderstanding regarding the applicability of service tax on charges for fabrication and dismantling. They contended that they had paid the disputed tax amount with interest before the show cause notice was issued, and thus, no penalty should be imposed. On the other hand, the Revenue argued that the Appellant intentionally evaded service tax by not disclosing the full value of taxable services, justifying the penalties under Sections 76 and 78.

The tribunal found merit in the Appellant's contention that the non-payment was due to a misunderstanding about the tax liability on fabrication and dismantling charges. It was noted that all transactions were disclosed in the financial records provided to auditors, indicating no deliberate misdeclaration to evade taxes. Consequently, the tribunal held that there was no justification for imposing penalties under Section 78. The tribunal also referred to Supreme Court judgments emphasizing the need for positive evidence of deliberate misdeclaration to impose penalties under such provisions.

In conclusion, the tribunal dismissed the Department's appeal and allowed the Appellant's appeal, highlighting that penalties under Section 78 were not warranted in the circumstances of the case.