2011 (2) TMI 682 - AT - Service Tax

Demand - Security Agency Services - show cause notice had proposed to demand service tax invoking a provision, namely Section 72 of the Act, which was not in existence on the date of issue of the show cause notice - Since the demand was confirmed by invoking a non-existing provision, the demand cannot survive - the penalty liability of the assessee is remanded for a fresh decision by the Commissioner (Appeals) after following principles of natural justice - Appeal is allowed by way of remand

Summary

Issues:
Non-payment of service tax, failure to follow statutory formalities, imposition of penalties without proper justification.

Analysis:

1. Non-payment of Service Tax and Failure to Follow Statutory Formalities:
The case involved M/s. Lion Security Services, which did not follow statutory formalities regarding filing ST-3 returns and payment of service tax for the period October 2003 to September 2005. The original authority confirmed the demand of service tax under Section 73 of the Finance Act, 1994, and imposed penalties under Sections 76, 77, and 78 of the Act. The Commissioner (Appeals) remanded the dispute to the original authority for quantification of duty. The original authority, in the remand proceedings, confirmed the demand of service tax, imposed penalties, and interest. The Commissioner (Appeals) upheld this order, noting the appellant's failure to pre-deposit the amount as ordered and the habit of seeking extensions, leading to the imposition of penalties.

2. Imposition of Penalties without Proper Justification:
The appellant challenged the penalties imposed, arguing that the show cause notice did not allege willful suppression to evade duty, and since the service tax was paid, penalties should not have been imposed. The appellant contended that the penalties were sustained without sufficient explanation by the Commissioner. The JDR argued that penalties were justified due to non-payment of service tax and non-filing of ST-3 returns during the material period. The Tribunal found that while the service tax was correctly paid, the penalties were not justified as the demand was confirmed under a non-existing provision, Section 72 of the Act. The Tribunal held that without a legally sustainable demand, penalties could not be imposed, and remanded the penalty liability decision to the Commissioner (Appeals) for a fresh decision following principles of natural justice.

In conclusion, the Tribunal allowed the appeal by way of remand, emphasizing the importance of a legally sustainable demand for imposing penalties and the need for a proper justification for penalty imposition. The case highlights the significance of following statutory formalities and ensuring that penalties are imposed based on valid legal grounds.