2014 (8) TMI 337 - AT - Service Tax

Valuation - Photography services - inclusion of cost of material - Invocation of extended period of limitation - Penalty u/s 78 - Held that - respondent were liable to pay service tax on the gross amount charged and the exclusion from the assessable value of the value of paper and other consumables and chemicals used for providing photography service was not permissible - period of demand is from September 2003 to March 2005 and the show cause notice invoking extended period under proviso to Section 73 (1) of the Finance Act, 1994 has been issued only on 23/03/07 and the same would survive only if the conditions for imposing proviso to Section 73 (1) exists. When on a particular issue during a particular period there was divergence of views on account of conflicting judgments of the Tribunal or High Courts and the assessee had paid tax in accordance with one group of judgments in his favour, he would have to be treated on having acted in bonafide belief and longer limitation period for recovery of short paid tax cannot be invoked - longer limitation period under proviso to Section 73 (1) would not be invokable and, as such, the demand is time barred - penalty under Section 78 also would not be imposable - Decided against Revenue.

Issues:
1. Whether service tax is to be charged on the gross amount or the net amount after excluding the cost of paper and chemicals in photography services.
2. Validity of the show cause notice invoking extended period under proviso to Section 73 (1) of the Finance Act, 1994.
3. Imposition of penalty under Section 78.

Issue 1: Service Tax Calculation
The dispute revolved around whether service tax should be levied on the gross amount charged by the respondent for photography services or on the net amount after excluding the cost of paper and chemicals. The department contended that service tax should be on the gross amount, disallowing any abatement for the cost of consumables. The Joint Commissioner upheld this view, resulting in a demand for short paid service tax, interest, and penalty. However, the Commissioner (Appeals) later allowed the appeal, setting aside the order of the Joint Commissioner. The Revenue then filed an appeal challenging this decision.

Issue 2: Validity of Extended Period Notice
The show cause notice invoking the extended period under proviso to Section 73 (1) of the Finance Act, 1994 was issued on 23/03/07. The Tribunal noted conflicting judgments during the period of dispute, leading to a reference to a Larger Bench in a similar case. Citing precedents, the Tribunal held that when conflicting judgments exist, and the assessee has paid tax in accordance with one group of judgments, the longer limitation period cannot be invoked. Consequently, the demand was deemed time-barred, and the penalty under Section 78 was not applicable.

Issue 3: Penalty Imposition
The Tribunal dismissed the Revenue's appeal, emphasizing that due to conflicting judgments during the period in question, the longer limitation period under proviso to Section 73 (1) could not be invoked. As a result, the demand for service tax was considered time-barred, leading to the conclusion that the penalty under Section 78 was not imposable. The decision was based on the principle that in cases of conflicting judgments, the assessee should not be penalized for acting in good faith based on prevailing interpretations.

This judgment highlights the importance of considering conflicting judgments and the impact on the imposition of penalties and extended periods for tax demands. The Tribunal's decision in this case focused on the principle of fairness and bonafide belief, ultimately leading to the dismissal of the Revenue's appeal.

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