2011 (7) TMI 992 - AT - Service Tax

Construction of residential complex - section 65(91A) - proceedings on the basis of circualr - Held that - when the adjudicating authority proceeded basing on a circular, the appellant should have been given an opportunity by the Appellate Authority to lead defence against proposal for taxation of service relating to construction of aforesaid quarters. The appellate order is cryptic and unreasoned. Therefore, we consider it proper to send the matter back to the Appellate Authority who shall have opportunity to reexamine the issue of taxability. Waiver of penalty u/s 80 - deposit of service tax before Show Cause Notice - lot of confusion in law at the inception stage on taxability of the service provided by contractors - held that - Ld. adjudicating authority has rightly considered the defence plea in relation to penalty and waived the same invoking section 80 of the Act for which he did not levy penalty u/s 76, 77 & 78 of the Act on the demand confirmed by him. The appellant has substance in his argument and waiver of penalty imposed by the first appellate authority on the amount of demand confirmed in adjudication is warranted. That is ordered accordingly.

Summary

Issues:
1. Levy of service tax and penalties under sections 76, 77, and 78 of the Finance Act, 1994.
2. Taxability of constructed quarters under section 65(91A) of the Act.
3. Opportunity of defense and fair hearing for the Appellant.
4. Imposition and waiver of penalties by the Adjudicating and Appellate Authorities.
5. Consideration of judicial pronouncements on penalty imposition.

Analysis:

1. Levy of Service Tax and Penalties:
The Adjudicating Authority initially ended with a service tax demand of Rs. 29,12,162, which was discharged by the Appellant. However, penalties under sections 76, 77, and 78 were not levied by the Adjudicating Authority based on certain departmental views. The Appellate Authority, on the other hand, imposed an additional service tax demand of Rs. 2,51,648 and penalties under sections 77 and 78, while waiving the penalty under section 76. The Appellate Authority did not provide an opportunity for the Appellant to defend against the tax levy, leading to a lack of due process.

2. Taxability of Constructed Quarters:
The issue of taxability under section 65(91A) of the Act concerning the construction of quarters was contested. The Adjudicating Authority found the allegation unsustainable, but the Appellate Authority considered the constructed quarters chargeable to tax without adequately testing the conditions prescribed by the section. The Appellant requested a reexamination of this issue and restoration of the adjudication process.

3. Opportunity of Defense and Fair Hearing:
The Appellate Tribunal noted the lack of notice to the Appellant at the appellate stage to explain the satisfaction of conditions under section 65(91A). It emphasized the importance of fair hearings and the right to defense, directing the matter back to the Appellate Authority for a reexamination of the taxability issue with proper opportunity for the Appellant to present a defense and evidence.

4. Imposition and Waiver of Penalties:
The Adjudicating Authority invoked section 80 of the Act to consider the submissions of the Appellant and found no mala fide intention to evade tax, leading to the waiver of penalties. However, the Appellate Authority imposed penalties mechanically without due consideration of the Appellant's circumstances. The Tribunal acknowledged the Adjudicating Authority's reasoned decision to waive penalties and ordered the same.

5. Consideration of Judicial Pronouncements:
The Tribunal highlighted the changing legal landscape due to judicial pronouncements, including the case of Rajasthan Spinning Mills Ltd., which impacted penalty imposition. It emphasized the need for a thorough consideration of legal precedents and fairness in penalty imposition, directing the Appellate Authority to reevaluate the issue of additional tax demand and penalty with a reasoned decision.

In conclusion, the Tribunal disposed of the Stay Application, partially allowed the appeal by waiving the penalty on the initial demand, and instructed the Appellate Authority to reconsider the tax demand and penalties with a fair hearing and reasoned decision-making process.