2014 (3) TMI 777 - AT - Service Tax

Classification of service - Post construction completion and finishing services - Interior Decorator Service or Commercial or Industrial Construction Service - Extended period of limitation - bonafide belief - The main contention of the learned Advocate is based upon bona fide belief, interpretation of the statute, knowledge of the department and revenue neutrality. - imposition of penalties - Held that - The activities undertaken by the appellant in the present case are almost identical to those in the case of Spandrel 2010 (5) TMI 299 - CESTAT, BANGALORE . Therefore, the ratio of the said decision would squarely apply. - The activity undertaken by the appellant falls under both clauses (c) and (d) of Section 65 (25b). Both these clauses do not specify that they should be undertaken in respect of a new building only and even if they are undertaken in relation to an old building, the provisions of these sections would apply. From 2005 onwards, after the introduction of commercial or industrial construction service , the activities of the appellant are very specifically covered under the said provision and there can be no two opinions about the coverage of the same after 2005 whatever the difference of opinion or anything can be is for the period prior to 2005. Regarding knowledge of the department - held that - The appellant has not shown any evidence whatsoever that the jurisdictional Service Tax officials were informed about the activities of the appellant and, therefore, they were fully aware about them. The jurisdictional Central Excise officials may be aware of the ongoing litigation but there is no evidence to indicate that the Service Tax officials were aware of appellant s activities. Regarding revenue neutral situation - Held that - If such a theory is accepted, it will lead to a situation wherein the final consumer of goods or services only should be taxed or charged and all other irregularities by various manufacturers or service providers would become non-taxable. It is also noted that service tax authorities issued summons in February 2006 but appellant did not co-operate. Extended period of limitation is sustainable in the facts and circumstances of this case. Regarding levy of penalty simultaneously u.s 76 and 78 - Held that - Undoubtedly, the appellant has failed to pay the tax chargeable on the services provided by them. Therefore, the ingredients of Section 76 are satisfied - in view of the Hon ble Kerala High Court judgment in Krishna Poduval 2005 (10) TMI 279 - Kerala High Court , till 2008 when the law was amended, penalty under Section 76 will also be imposable. The appellant has not been able to bring out any reason or proof that there was reasonable cause for failure to take registration and make payment of duty etc. Under the circumstances, penalties under Sections 76, 77 and 78 of the Finance Act, 1994 are imposable. Demand and penalty confirmed - Decided against the assessee.

Issues Involved:
1. Classification of services under "Commercial or Industrial Construction Service."
2. Applicability of service tax on services provided.
3. Invocation of the extended period of limitation for service tax demand.
4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services:
The appellant, M/s. Kala Sagar, undertook renovation/restoration work for a bank, including masonry, plastering, tiling, false ceiling, painting, furniture making, electrical fitting, ducting, and plumbing. The activities were classified under "Commercial or Industrial Construction Service" as per Section 65(25b) of the Finance Act, 1994. The tribunal held that the activities fell under clauses (c) and (d) of Section 65(25b), which cover completion and finishing services and repair, alteration, renovation, or restoration of buildings or civil structures. The tribunal referenced a similar case, Spandrel Vs. CCE, Hyderabad/Kochi, where such activities were classified under "Commercial or Industrial Construction Services."

2. Applicability of Service Tax:
The appellant argued that their activities did not constitute "Commercial or Industrial Construction Service" as they were performed on an already constructed building and only on part of the building. However, the tribunal held that the activities undertaken, whether on a new or old building, attract service tax liability under Section 65(25b). The tribunal dismissed the appellant's argument that only activities on the whole building attract service tax, stating that activities on part of the building also fall under the definition of "building."

3. Invocation of Extended Period of Limitation:
The appellant contended that the demand was time-barred as the department was aware of their activities from earlier show-cause notices demanding excise duty. However, the tribunal found that the earlier notices pertained to periods before the introduction of service tax on "Commercial or Industrial Construction Service" and were related to excise duty, not service tax. The tribunal held that the appellant's failure to obtain service tax registration, file returns, or discharge service tax liability justified invoking the extended period under Section 73(1) of the Finance Act, 1994.

4. Imposition of Penalties:
Penalties were imposed under Sections 76, 77, and 78 of the Finance Act, 1994, and Rule 7C of the Service Tax Rules, 1994. The tribunal upheld the penalties, stating that Section 76 penalties apply for default in payment of service tax, and mens rea is not required. The tribunal referenced the Kerala High Court's decision in Krishna Poduval, which held that penalties under both Sections 76 and 78 can be imposed as they cover different aspects of non-compliance. The tribunal also rejected the appellant's claim of revenue neutrality, stating it applies only when the same entity pays the tax and takes credit.

Separate Judgment by Member (Judicial):
One member differed on the aspects of limitation and penalties. He argued that the extended period of limitation was not applicable as the revenue had prior knowledge of the appellant's activities from earlier excise duty notices. He also contended that the appellant had a bona fide belief that their activities were not taxable due to lack of clarity in the law and the revenue's delayed action. Thus, he proposed setting aside the penalties.

Majority Decision:
The majority upheld the classification under "Commercial or Industrial Construction Service," the service tax demand along with interest, and the penalties under Sections 76, 77, and 78, with the modification that post-10/05/2008, only Section 78 penalties would apply. The appellant was allowed to produce evidence for any abatement towards the supply of movable furniture.

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