2013 (12) TMI 267 - AT - Service Tax

Penalty u/s 76 & 78 - Service tax liability for four customers discharged after issuing show cause notice - Held that - appellant had paid the service tax from own pocket and none of the four customers who had received this service had paid the amount of service tax even though they were PSUs. The claim of the appellant is that he entertained a bona fide belief that when service is provided to PSUs and service tax is not collected, he may not be liable to pay service tax. It is to be believed having regard to the nature of service, the service provider and the transactions involved - it is appropriate that in this case provisions of Section 80 of Finance Act, 1994 is required to be invoked in favour of the appellant. Accordingly the appeal is allowed by way of setting aside the penalties imposed under Sections 76 and 78 of the Finance Act, 1994 - Following decision of CCE, Mangalore vs. Tiger Service Bureau 2010 (8) TMI 270 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Whether the appellant is liable to pay penalties under Sections 76 & 78 for not collecting and paying service tax to PSUs.

Analysis:
The appellant provided security services to customers from 2001-2002 to 2004-2005 but did not collect or pay service tax to four PSUs. The appellant later paid the entire service tax liability upon being informed of the requirement. The main issue was whether penalties under Sections 76 & 78 should be imposed on the appellant.

The appellant argued that they believed PSUs were not liable to pay service tax, citing BSNL's response that they would not pay service tax without a specific provision in the agreement. The appellant paid the tax from their own pocket due to lack of legal knowledge and requested leniency under Section 80 of the Finance Act, 1994. They referenced a similar case where penalty was not imposed.

The AR contended that since the appellant collected and paid tax for other customers, their belief was not genuine. He emphasized the service provider's liability to pay service tax and the penalty for failure to do so. However, he did not present any contrary case law.

The judge considered both arguments and noted that the appellant paid the service tax themselves, while the PSUs did not. The judge found the appellant's belief reasonable given the circumstances and referred to a relevant High Court case. Based on the facts and the High Court decision, the judge invoked Section 80 of the Finance Act, 1994, setting aside the penalties under Sections 76 and 78.

Additionally, an application for an extension of stay was deemed unnecessary as the appeal had been decided, and it was rejected. The judgment concluded by allowing the appeal and setting aside the penalties imposed on the appellant.