2011 (10) TMI 218 - AT - Service Tax

Penalty - Assessee is a contractors for the construction of residential flats of welfare organization - Confusion arised regarding regarding the taxability on the projects involving non profit/welfare organization - assessee paid dues along with interest in due course - Held - levy of penalty cannot be justified.

Summary

Issues:
Confirmation of demand of service tax, imposition of penalty under section 80 of Finance Act, 1994.

Analysis:
The case involves an appeal filed by the Revenue against the order of the Commissioner of Service Tax, New Delhi confirming the demand of service tax but not imposing any penalty on the respondent under section 80 of the Finance Act, 1994. The respondents were contractors for constructing residential flats for welfare organizations, and the demand of service tax amounting to Rs. 3,65,17,896/- was confirmed by the adjudicating authority. However, no penalty was imposed on the respondents under sections 76, 77 & 78 of the Finance Act, 1994, which was challenged by the Revenue.

The adjudicating authority observed that there was general confusion during the relevant period regarding the taxability of projects involving non-profit/welfare organizations. The respondents promptly responded to investigations, deposited their service tax liability before the show cause notice, and applied for centralized service tax registration. The adjudicating authority considered these actions as constituting a 'reasonable cause' under section 80, leading to the non-imposition of penalties. The Revenue contended that the respondents suppressed material facts to evade service tax payment and that penalties should have been imposed.

After considering both parties' submissions, the Tribunal found that the Commissioner had valid reasons for invoking section 80 of the Finance Act, 1994. The Tribunal noted that confusion existed regarding the taxability of projects for non-profit organizations during the relevant period, which could reasonably lead to a belief that no service tax liability arose. The Tribunal upheld the Commissioner's reliance on circulars and clarifications by the Ministry, stating that once service tax dues were paid along with interest and intimated to the department, proceedings were deemed concluded. The Tribunal rejected the Revenue's appeal, affirming the Commissioner's decision not to impose penalties on the respondents.

In conclusion, the Tribunal upheld the adjudicating authority's decision not to impose penalties on the respondents under section 80 of the Finance Act, 1994, considering the confusion surrounding the taxability of projects for non-profit organizations during the relevant period and the respondents' prompt actions in responding to investigations and paying service tax dues.