2007 (7) TMI 94 - AT - Service Tax

Penalty (Service tax) Appellant was providing security agency services but did not pay service due to misguidance by the consultant. During the investigation appellant has paid entire service before issuance of SCN. Penalty u/s 76 and 77 confirmed but penalty u/s 78 waived

Summary

Issues:
1. Liability for service tax evasion from April 2000 to March 2004.
2. Imposition of penalties under Sections 76, 77, and 78.
3. Appellant's contention of bonafide error and ignorance of service tax provisions.
4. Revenue's argument on non-payment of dues and necessity of approaching the department for classification.
5. Applicability of penalties under Sections 76, 77, and 78.
6. Misguidance by the Consultant and its impact on non-payment of tax liability.
7. Invocation of Section 80 of the Finance Act, 1994 for setting aside penalties.

Analysis:
1. The case involved a security agency providing services and the subsequent discovery of non-payment of service tax from April 2000 to March 2004. The appellant applied for registration in April 2003 and paid the entire tax liability upon investigation before the show cause notice was issued.

2. The penalties under Sections 76, 77, and 78 were imposed by the adjudicating authority, with the Commissioner (Appeals) upholding the penalties under Sections 76 and 77 but reducing the penalty under Section 78. The appellant contested the penalties, citing a bona fide error and reliance on a legal precedent.

3. The appellant argued that the penalties were excessive as they had paid the entire tax liability and interest before the show cause notice. The Revenue contended that the appellant should have paid dues before registration and approached the department for classification, highlighting the necessity of investigation for detecting the tax liability.

4. The Tribunal acknowledged the appellant's payment of the tax liability for the period in question and the absence of suppression of service value post-registration. The penalties under Sections 76 and 77 were deemed applicable without interference, considering the circumstances.

5. Regarding the penalty under Section 78, the Tribunal considered the appellant's claim of ignorance of service tax provisions and misguidance by the Consultant. It noted the lack of revenue action post-registration and the appellant's case for invoking Section 80 of the Finance Act, 1994 to set aside the penalty under Section 78.

6. Ultimately, the Tribunal upheld the confirmation of tax liability and penalties under Sections 76 and 77 while setting aside the penalty under Section 78 based on the appellant's strong case for invoking Section 80. The appeal was allowed partly, with the impugned order modified accordingly.