2013 (5) TMI 538 - AT - Service Tax

Penalty u/s 78 - Changeability of service tax on rent income classifiable under the category of Renting of Immovable Property. Held that - Appellant has discharged the service tax liability and interest which has been appropriated in the order. The matter in this case is related to the service tax liability on the renting of immovable property services. when this taxable service brought under statute, there was dispute and the matter has not yet reached finality as the appeal is pending before the Hon ble Apex Court in the case of Home Sales Retail India Ltd also that the first appellate authority has recorded in impugned order as an issue involving question of interpretation of the provision of the law, as contended by the appellant that it is a question of interpretation for setting aside penalties u/s 76 & 77, the same reasoning would be applicable for penalties u/s 78. Accordingly, the imposition of service tax on renting of immovable properties, by invoking the provisions of Section 80 of the Finance Act, 1994, penalty imposed is set aside.

Summary

Issues:
Service tax liability on renting of immovable property services, imposition of penalties under Section 76, 77 & 78 of the Finance Act, 1994.

Analysis:

Service Tax Liability on Renting of Immovable Property Services:
During an audit, it was discovered that the appellant had collected rent without charging service tax, resulting in a service tax liability. The appellant had paid a part of the service tax under protest before a show cause notice was issued. The matter involved the interpretation of the law regarding the taxability of renting immovable properties. The first appellate authority acknowledged this as an issue of interpretation. The Tribunal noted that the matter was pending before the Hon'ble Apex Court in a related case, indicating the lack of finality in the interpretation of the law. Considering the unsettled nature of the issue and the interpretation involved, the Tribunal found that upholding the penalty under Section 78 of the Finance Act, 1994 was incorrect. Consequently, invoking Section 80 of the Finance Act, 1994, the Tribunal set aside the penalty imposed under Section 78.

Imposition of Penalties under Section 76, 77 & 78 of the Finance Act, 1994:
The lower authorities had confirmed the service tax liability, demanded interest, and imposed penalties under Sections 76, 77 & 78 of the Finance Act, 1994. The appellant appealed to set aside the penalties. The first appellate authority set aside the penalties under Sections 76 & 77 but confirmed the penalty under Section 78. The appellant argued that since the service tax liability was discharged before the show cause notice, no notice should have been issued as per Section 73(3) of the Finance Act, 1994. The Tribunal considered both sides' submissions and found that the penalty under Section 78 was incorrectly upheld due to the interpretation issue surrounding the taxability of renting immovable properties. Therefore, the Tribunal allowed the appeal and set aside the penalties imposed under Section 78.

In conclusion, the Tribunal's judgment focused on the interpretation of the law regarding service tax liability on renting immovable properties and the imposition of penalties under the Finance Act, 1994. The decision highlighted the unsettled nature of the issue and the incorrectness of upholding the penalty under Section 78 in this specific case.