2014 (4) TMI 1029 - HC - Service Tax

Penalties under sections 76, 77 and 78 of the Finance Act - Application of Section 80 - Mining Services - CESTAT set aside penalty - Held that - The respondent was bonafidely adjudicating and/or arguing that the services rendered by them was only pre-mining and exploration activity and cannot be covered under Mining Services. The aforesaid was not accepted by the Adjudicating Authority and it was held that the services provided by the respondent is classified as Mining Services liable to pay service tax even prior to 16.05.2008. As stated above, immediately on adjudication proceedings were completed, the Adjudicating Authority held that the service provided by them is Mining Services for which the respondent is liable to pay the service tax, the respondent has immediately paid the service tax along with penalty at the rate of 25% - Under the circumstances and considering section 80 of the Finance Act, 1994 which is reproduced hereinabove, the learned CESTAT has rightly quashed and set aside the penalties under sections 76, 77 and 78 of the Finance Act. No question of law much less substantial question of law arise in the present appeals - Decided against Revenue.

Summary

Issues:
1. Justification of setting aside penalties under various sections of the Finance Act.
2. Validity of the cause shown by the respondent for not paying service tax.
3. Entitlement of benefits under section 80 of the Finance Act despite liability to pay service tax.

Analysis:

Issue 1:
The appeals raised substantial questions of law regarding the justification of setting aside penalties imposed under Sections 70, 76, 77, and 78 of the Finance Act by the CESTAT. The respondent, an International Drilling Contractor, was held liable to pay service tax for services rendered in the mining sector. The Adjudicating Authority imposed penalties under various sections for non-payment of service tax. However, the CESTAT partly allowed the appeals, confirming the service tax demand but setting aside the penalties based on Section 80 of the Finance Act.

Issue 2:
The respondent argued that they were under the impression that their activities did not fall under "Mining Services" and thus were not liable to pay service tax. The Adjudicating Authority disagreed and classified the services as taxable. Despite this, the respondent promptly paid the service tax along with a penalty of 25%. The CESTAT considered the respondent's bona fide belief and compliance with the adjudication order, leading to the deletion of penalties under sections 76, 77, and 78 of the Finance Act.

Issue 3:
Section 80 of the Finance Act provides for the non-imposition of penalties if the assessee proves a reasonable cause for the failure to comply with tax provisions. In this case, the respondent's belief that their activities did not constitute "Mining Services" was considered a reasonable cause. The CESTAT upheld the deletion of penalties under sections 76, 77, and 78 based on the respondent's compliance post-adjudication and the provisions of Section 80. The Court agreed with the CESTAT's decision, emphasizing the respondent's prompt payment of service tax after the Adjudicating Authority's classification of their services.

In conclusion, the Court dismissed the appeals, affirming the CESTAT's decision to delete the penalties under sections 76, 77, and 78 of the Finance Act based on the respondent's reasonable cause and compliance post-adjudication. The judgment highlighted the importance of Section 80 in excusing penalties when a genuine belief or cause is demonstrated by the assessee.