2014 (2) TMI 1042 - AT - Service Tax

Levy of penalty for delayed payment of service tax - works contact service - Held that - in view of the on going contract which was entered into prior to 10.09.2004 and the levy of tax being a new levy from 10.09.2004 and the appellant was under the bona fide belief that they do not fall under the Service Tax liability and keeping in mind the conduct of the appellant that he has discharged the Service Tax alongwith interest soon after being pointed out, it is a fit case for setting aside the penalty under Section 78

Summary

Issues:
1. Whether the appellant is liable to pay Service Tax on commercial construction activity.
2. Imposition of penalty under Sections 76, 77, and 78 of the Act.
3. Validity of penalty under Section 78.

Analysis:
1. The appellant, engaged in civil construction, undertook a project for a private party before Service Tax was imposed on commercial construction. The Revenue later found non-payment of Service Tax on this project. The appellant claimed they were unaware of the tax liability due to the pre-existing agreement. They paid the tax upon notification and before any show-cause notice, exceeding the leviable amount. The Commissioner (Appeals) upheld penalties under Sections 78 & 77, citing the appellant's duty to know their tax obligations. The appellant challenged the penalty under Section 78.

2. The appellant argued no deliberate wrongdoing, considering the new tax levy and their first offense. They sought leniency, not contesting the penalty under Section 77. The Revenue supported the penalties based on discovering the evasion through inspection. The Tribunal noted the ongoing contract pre-dating the tax imposition, the appellant's genuine belief of non-liability, and prompt tax payment post-notification. Consequently, the Tribunal set aside the penalty under Section 78, allowing the appeal partially.

3. The Tribunal's decision focused on the appellant's good faith, prompt tax payment upon notification, and lack of contumacious conduct. Considering the circumstances, including the pre-existing contract and the appellant's immediate compliance upon realizing the tax liability, the Tribunal deemed it appropriate to waive the penalty under Section 78. The Tribunal's ruling highlights the importance of genuine belief, timely compliance, and the context of tax imposition in determining penalties under the Act.