2010 (7) TMI 387 - AT - Service Tax

Appeal to Appellant Tribunal Assessee was engaged in mining of iron ores Deputy Commissioner confirmed demand of service tax on assessee but did not imposed any penalty Commissioner revised said order under section 84 and imposed penalties under section 76, 77 and 78 on ground that assessee had failed to show that there was reasonable for its failure to pay service tax in due time - in relation to the issue pertaining to tax liability of the assessee, there was no merger between the Dy. Commissioner s decision and the Commissioner s order and consequently it is not open to the assessee to agitate the issue before this Tribunal

Issues Involved:
1. Demand of service tax and interest.
2. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.
3. Applicability of the doctrine of merger.
4. Claim of benefit under section 80 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Demand of Service Tax and Interest:
The appellant was engaged in mining iron ores and did not pay service tax on the amount collected from M/s. Sri Santhipriya Minerals Ltd. for the period from 16-6-2005 to 31-12-2005. Upon instruction from the Superintendent of Service Tax, the appellant paid Rs. 3,56,460 towards service tax and education cess, and Rs. 52,255 towards interest on 23-12-2006. The Dy. Commissioner confirmed the demand of Rs. 3,56,460 under "Business Auxiliary Services" and appropriated the payments made. The appellant initially had no grievance against this order.

2. Imposition of Penalties:
The Dy. Commissioner refrained from imposing any penalty considering the appellant's acceptance of their lapses and immediate payment of service tax with interest. However, the Commissioner issued a fresh show-cause notice under section 84 of the Finance Act, 1994, proposing to impose penalties under sections 76, 77, and 78, alleging that the appellant failed to show reasonable cause for delayed payment. The Commissioner imposed penalties of Rs. 1,48,238, Rs. 1,000, and Rs. 3,56,460 under sections 76, 77, and 78, respectively.

3. Applicability of the Doctrine of Merger:
The appellant argued that the Dy. Commissioner's order should be deemed to have merged with the Commissioner's order, thus entitling them to challenge the tax demand. They relied on the Supreme Court's judgment in Kunhayammed v. State of Kerala, which examined the doctrine of merger. The Tribunal noted that the Commissioner, in exercising revisionary jurisdiction under section 84, did not disturb the Dy. Commissioner's decision on tax liability but only addressed the penalty-related issue. Hence, the doctrine of merger did not apply to the tax liability issue, which was settled at the Dy. Commissioner's level and attained finality.

4. Claim of Benefit under Section 80:
The appellant claimed the benefit of section 80 of the Finance Act, 1994, arguing that they paid the service tax with interest promptly upon instruction and that service tax on mining of minerals was not leviable prior to 1-6-2007. They cited the Board's Circular No. 232/2/2006-CX.4 and the decision in CCE v. Darmania Telecom, where the benefit of section 80 was given in the absence of fraud or misstatement findings by the original authority. The Tribunal noted that the Dy. Commissioner exercised discretion in not imposing penalties, and the Commissioner's revisionary jurisdiction did not empower him to substitute his discretion for that of the original authority. The Tribunal found that the circumstances constituted reasonable cause under section 80, thus setting aside the penalties imposed by the Commissioner.

Conclusion:
The Tribunal held that the doctrine of merger did not apply to the tax liability issue, and the appellant could not challenge the tax demand settled at the Dy. Commissioner's level. However, considering the reasonable cause for delayed payment and the non-leviability of service tax on mining of minerals prior to 1-6-2007, the Tribunal set aside the penalties imposed by the Commissioner. The appeal was allowed, and the penalties were vacated.

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