2011 (2) TMI 1197 - AT - Service Tax

Manpower Recruitment and Supply Agency Services - Stay petition - They have not registered themselves for rendering the said services and have not paid the service tax - findings of the original authority that the appellant was not educated and that the tax demand related to initial stages of levy on manpower recruitment services which got enlarged to include services of manpower supply later on - order of imposition of penalty is set aside and the appeal is allowed with consequential relief as per law, stay petition is also disposed of

Summary

Issues:
1. Liability to pay service tax for services rendered without registration
2. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994
3. Interpretation of Section 80 of the Finance Act, 1994

Issue 1: Liability to pay service tax for services rendered without registration
The appellants provided "Manpower Recruitment and Supply Agency Services" without registering for service tax and not paying the tax from June 2005 to June 2007. Upon realizing their liability, they paid the service tax and interest before the Show Cause Notice was issued. The Department later issued a Show Cause Notice proposing penalties under relevant sections of the Finance Act, 1994. The original authority acknowledged the appellants' prompt payment and dropped the penalty proceedings due to various reasons, including the appellants' lack of knowledge, newness to taxation provisions, and the nature of their business being essential for livelihood and survival in the market. The Department appealed this decision seeking penalties. The Commissioner (Appeals) directed the lower authority to impose penalties, stating that penal proceedings must be invoked for any contravention of the law, rejecting the original authority's reasons for dropping the penalties.

Issue 2: Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994
The original authority waived penalties based on the appellants' circumstances and the discretion provided under Section 80 of the Finance Act, 1994. However, the Commissioner (Appeals) held that penalties should be imposed as the appellants had not registered or paid service tax initially. The appellants argued that the Commissioner (Appeals) erred in not considering the grounds for invoking Section 80 and that the penalties should be dropped. The Tribunal found the Commissioner (Appeals)' interpretation erroneous, emphasizing that Section 80 allows for penalties to be waived if there was a reasonable cause for the failure, and the discretion exercised by the original authority was relevant. The Tribunal set aside the Commissioner (Appeals) direction to impose penalties and allowed the appeal with consequential relief.

Issue 3: Interpretation of Section 80 of the Finance Act, 1994
Section 80 of the Finance Act, 1994 provides for the waiver of penalties if the assessee proves a reasonable cause for the failure referred to in Sections 76, 77, 78, or 79. The Tribunal clarified that the Commissioner (Appeals) incorrectly concluded that there was no provision to drop penalties under Sections 76, 77, and 78 by invoking Section 80. The Tribunal highlighted the relevance of the original authority's discretion in waiving penalties based on the appellants' circumstances and the initial stages of levy on the services provided. The Commissioner (Appeals) failed to consider the factors relied upon by the original authority in exercising the discretion under Section 80. Consequently, the Tribunal set aside the Commissioner (Appeals) order regarding penalty imposition and allowed the appeal in line with the law.

This judgment from the Appellate Tribunal CESTAT, CHENNAI addressed the liability to pay service tax for unregistered services, the imposition of penalties under the Finance Act, 1994, and the interpretation of Section 80 regarding penalty waivers. The Tribunal emphasized the relevance of circumstances and reasonable cause in penalty imposition, overturning the Commissioner (Appeals) decision and providing relief to the appellants based on legal provisions and discretion exercised by the original authority.