2010 (3) TMI 784 - HC - Service Tax

Demand - Business Auxiliary Service - Extended period of limitation - suppression of facts - benefit of CENVAT Credit - penalty - HELD THAT - It is an admitted position that the liability arose only with effect from 10-9-2004 when clause (v) came to be inserted in the definition of business auxiliary services so as to include production of goods on behalf of the client . Hence it cannot be gainsaid that the services rendered prior to the said date were required to be excluded while computing the tax liability. Benefit of CENVAT Credit - duty paid on coating material etc. used in epoxy coating and to avail credit on all input services - HELD THAT - Both the Commissioner as well as the Tribunal have concurrently found as a matter-of fact that the respondent was entitled to the me. In the circumstances no infirmity is found in the order of the Tribunal in remanding the matter to the original adjudicating authority for re-quantification of the demand by extending the above benefits to the respondent. Penalty - Applicability of section 80 - HELD THAT - Whether the activity carried on the by respondent would amount to production so as to be covered under the category of Business Auxiliary Services was a debatable issue - there was reasonable cause for the failure referred to in the provisions of Section 76 Section 77 or Section 78 of the Act. Appeal dismissed - Decided in favor of the assessee

Summary

Issues:
1. Remanding the matter for re-quantification of demand by extending benefits to the respondent.
2. Setting aside the penalty in terms of Section 80 of the Finance Act, 1994.

Analysis:
1. The appellant, the Commissioner of Central Excise & Customs, Daman, raised two substantial questions of law regarding the Tribunal's decision to remand the matter for re-quantification of the demand and extending benefits to the respondent. The respondent, engaged in applying Fusion Bonded Epoxy Coating on Reinforced Steel Bars, was found to have collected a significant amount from customers for the service but failed to pay service tax. The Tribunal held the respondent liable for service tax but required re-quantification by extending Cenvat credit benefits. The Commissioner contended that penalties were rightly imposed as the respondent failed to register and pay service tax. However, the Tribunal deemed it fit to remand the matter for re-quantification, considering the benefit entitlement and exclusion of services pre-amendment.

2. The Tribunal set aside the penalties imposed on the respondent under Section 80 of the Finance Act, 1994. The appellant argued that penalties were justified as the respondent did not prove reasonable cause for not paying service tax. The Tribunal, however, found no suppression or intent to evade tax, as the revenue was aware of the activities and did not advise the respondent to pay tax. The Tribunal concluded that there was no reasonable cause for penalties under Section 80, considering the ongoing litigation regarding the nature of the activity. The Tribunal's decision to set aside the penalty was based on the lack of suppression, misstatement, or intent to evade tax by the respondent.

In summary, the High Court upheld the Tribunal's decision, dismissing the appeal with no costs, as it found no legal infirmity in the Tribunal's order. The judgment highlighted the importance of considering reasonable cause and awareness of activities by the revenue authorities in determining penalties under the Finance Act, 1994.