2014 (6) TMI 65 - AT - Service Tax

Waiver of penalty u/s 80 - Penalty u/s 76, 77 & 78 - Banking and Other Financial services - Held that - Respondent is a Government of Madhya Pradesh Undertaking and it is difficult to believe that nonpayment of service tax was on account of their intention to evade the service tax. Moreover, the Respondent s activity became taxable in the budget of 2004-2005 and it is very much possible that they were not aware that their activity would attract the service tax. In view of this, we are satisfied that the non-payment of service tax by the respondent was not due to any mala fide intention on their part and, hence, this is a fit case for invoking the provisions of Section 80. Therefore, we do not find any infirmity in the impugned order setting aside the penalty on Respondent under Sections 76 and 78 of the Finance Act, 1994 - Decided against Revenue.

Summary

Issues:
1. Taxability of service provided by Government undertaking under "Banking and Other Financial services" as per Finance Act, 1994.
2. Imposition of service tax demand, interest, and penalty under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Appeal against the Commissioner (Appeals) order regarding penalty under Sections 76 and 78.

Analysis:

Issue 1: Taxability of service provided by Government undertaking under "Banking and Other Financial services"
The respondent, a Government of Madhya Pradesh Undertaking, provided loans to customers and collected application and upfront fees. The Directorate General of Central Excise Intelligence determined that these activities were taxable under "Banking and Other Financial services" as per the Finance Act, 1994. The respondent submitted details of the fees collected, leading to a service tax liability of Rs. 20,24,787. The dispute arose when a show cause notice was issued for a service tax demand of Rs. 17,29,381 along with interest and penalties under Sections 76, 77, and 78. The Commissioner (Appeals) upheld the demand but set aside penalties under Sections 76 and 78, except for a penalty of Rs. 1,000 for late filing of returns.

Issue 2: Imposition of service tax demand, interest, and penalty
The department contended that penalties under Sections 76 and 78 should not have been set aside. They argued that non-payment of service tax by the due date and failure to file returns warranted these penalties. The respondent, represented by an advocate, defended the order, highlighting that they promptly paid the tax liability upon notification by the department. The Tribunal noted that penalties under Sections 76 and 78 are imposed for non-payment or evasion of service tax. However, considering the respondent's prompt compliance upon notification and their status as a government undertaking, the Tribunal found no evidence of intentional evasion. Therefore, the Tribunal invoked Section 80 of the Finance Act, absolving the respondent of penalties due to reasonable cause for the failure to pay service tax on time.

Issue 3: Appeal against the Commissioner (Appeals) order regarding penalty
After considering arguments from both sides and reviewing the records, the Tribunal concluded that the respondent's lack of mala fide intention and their immediate tax payment upon notification justified setting aside the penalties under Sections 76 and 78. The Tribunal dismissed the Revenue's appeal, upholding the order and disposing of the cross-objection accordingly.

This comprehensive analysis addresses the taxability of services provided by a government undertaking, the imposition of service tax demand, interest, and penalties, and the Tribunal's decision regarding the penalties under Sections 76 and 78.