2014 (10) TMI 483 - HC - Service Tax

Waiver of penalty u/s 80 - levy of penalty u/s 76 and 77 and 78 - bonafide belief - Business Auxiliary service - House keeping service - Service not taxable therefore, registration surrendered - Later tax imposed under Business Auxiliary service - Held that - assessee has clearly stated that they had originally got a registration certificate for house keeping and realizing that the said service is not taxable, they have surrendered the same. It may be emphasized here that the assessee had, in fact, paid duty even when there was no requirement under law and has not even chosen to claim refund till date. Even in respect of the present demand, on receipt of notice from the department about the liability of service tax in respect of back office work, they have paid the service tax and interest even before adjudication. This only goes to show that the assessee had no intention to evade payment of tax and non payment was due to lack of knowledge and awareness. One another factor which enures to the benefit of the assessee is that there is no finding in the given case as to how the original authority has imposed penalty under Section 78 of the Act. The Original Authority should have applied his mind as to how penalty is leviable under Section 78 of the Act and there should have been some reasons given thereunder, which we find are absent in the original order. order of the Tribunal confirming the deletion of penalty imposed under Section 78 of the Finance Act, 1994 is justified and warrants no interference. Assessee has stated that they were under the impression that the service rendered by them will not be exigible to service tax. On an earlier occasion, the assessee registered and paid service tax on a non taxable service and they did not even seek for refund of the amount. The bona fide confusion in the mind of the assessee as to which service is taxable or non-taxable is apparent and that justifies the plea of failure to pay service tax. This reasoning pari passu applies to non registration of said service rendered by them. Therefore, the demand of penalty under Sections 76 and Section 77 of the Finance Act, 1994 is not tenable - Decided against Revenue.

Issues Involved:
1. Imposition of penalty under Sections 76, 77, and 78 of the Finance Act, 1994.
2. Invocation of Section 80 of the Finance Act, 1994 to waive penalties.

Detailed Analysis:

Issue 1: Imposition of Penalty under Sections 76, 77, and 78 of the Finance Act, 1994

Facts:
- The assessee initially registered for housekeeping services and paid service tax amounting to Rs. 3,86,217/-.
- Later, they provided back office services to BPL and ICICI but did not register or pay service tax for this service.
- The Department issued a letter demanding service tax and educational cess for the back office services rendered.
- The assessee paid the service tax and interest before adjudication.

Adjudication:
- The adjudicating authority imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994, despite the assessee's cooperation and payment of dues.
- The Commissioner (Appeals) upheld penalties under Sections 76 and 77 but set aside the penalty under Section 78, citing lack of evidence for fraud, collusion, willful mis-statement, suppression of facts, or intent to evade tax.

Tribunal's Decision:
- The Tribunal invoked Section 80 of the Finance Act, 1994, noting the assessee's ignorance of legal provisions and their bona fide conduct.
- It waived all penalties, emphasizing that the assessee had shown reasonable cause for their failures.

High Court's Analysis:
- The court examined the applicability of Section 78, which requires fraud, collusion, willful mis-statement, suppression of facts, or intent to evade tax for penalty imposition.
- It noted the assessee's proactive payment of service tax and interest, lack of intent to evade tax, and absence of findings by the original authority justifying the penalty under Section 78.
- The court upheld the Tribunal's decision to waive penalties under Sections 76 and 77, referencing Section 80, which allows for non-imposition of penalties if reasonable cause is shown.

Issue 2: Invocation of Section 80 of the Finance Act, 1994 to Waive Penalties

Legal Provision:
- Section 80 states that no penalty shall be imposable if the assessee proves there was reasonable cause for the failure.

High Court's Consideration:
- The court emphasized that Section 80 starts with a non-obstante clause, overriding Sections 76 to 79.
- It highlighted the Supreme Court's stance in Pratibha Processors v. Union of India, where penalties are for contumacious conduct or deliberate violation.
- The court found the assessee's conduct, including prior payment of service tax on non-taxable services and non-claiming of refunds, demonstrated reasonable cause and bona fide confusion regarding taxability.

Conclusion:
- The High Court concluded that the Tribunal was justified in invoking Section 80 to waive penalties, as the assessee had shown reasonable cause for their failures.
- The appeals were dismissed, and the substantial questions of law were answered in favor of the assessee.

Summary:
The High Court upheld the Tribunal's decision to waive penalties under Sections 76, 77, and 78 of the Finance Act, 1994, by invoking Section 80, which allows for non-imposition of penalties if reasonable cause is shown. The court recognized the assessee's bona fide conduct, lack of intent to evade tax, and reasonable confusion regarding service tax liability. The appeals by the Department were dismissed, affirming the Tribunal's application of Section 80 and the assessee's demonstrated reasonable cause.

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