2011 (3) TMI 251 - AT - Service Tax

Demand - Storage and Warehousing charges - The appellant as a Public Sector Undertaking and its conduct after the matter had been pointed out to it and the fact that the audit by the department on previous occasions did not point out this issue, they were though, it was collecting charges during such period also, are satisfied that instant appellant did not have any intention to evade the impugned tax - Therefore the demand would be sustainable only to the extent of demand would covered by the normal period of time of one year - Interest u/s 75 is be paid on the sustainable portion of the demand - Penalty u/s76 will be maintainable in respect of the period within normal period. Penalty under section 78 will not be maintainable.

Issues:
1. Tax liability on supervising charges collected by the appellant.
2. Applicability of extended period for tax demand.
3. Imposition of penalties under various sections of the Finance Act, 1994.

Analysis:

Issue 1: Tax liability on supervising charges
The appellant, a public sector undertaking engaged in warehousing, was registered for service tax on "Storage and Warehousing" charges. Upon audit, it was found that the appellant was also recovering supervising charges from customers based on handling and transportation charges. These charges were collected at a certain percentage and paid to handling and transportation contractors. The department demanded tax on these charges under "Cargo Handling Service." The appellant, upon being informed by the department, began paying tax on these services. The appellant argued that they did not realize they were a "cargo handling agency" and that the charges were collected from customers using the services of contractors. They contended that they had no intention to evade tax and started paying tax once the issue was highlighted.

Issue 2: Applicability of extended period
A show cause notice was issued demanding tax on "Cargo Handling Service" under the extended period specified in section 73 of the Finance Act, 1994. The appellant contended that since they had no intention to evade tax and promptly started paying tax upon being informed, the demand invoking the extended period was not justifiable. The Tribunal considered the appellant's status as a Public Sector Undertaking, their immediate compliance upon notification, and the lack of previous audit findings on this issue. It was concluded that the demand would only be sustainable for the normal one-year period, with interest payable on the sustainable portion of the demand. Penalty under section 76 was deemed applicable for the normal period, while penalty under section 78 was not maintainable.

Issue 3: Imposition of penalties
The adjudication order confirmed the tax amount with interest and imposed penalties under sections 76 and 78 of the Finance Act, 1994. However, the Tribunal ruled that penalty under section 76 would be maintainable only for the normal period, considering the appellant's lack of intent to evade tax and their prompt compliance upon notification. Penalty under section 78 was deemed not maintainable in this case.

In conclusion, the appeal was disposed of in favor of the appellant, with the demand sustained for the normal one-year period, interest payable on the sustainable portion, and penalties under section 76 applicable for the normal period while penalty under section 78 was not upheld.

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