2014 (11) TMI 714 - AT - Service Tax

Manpower Recruitment or Supply Agency s services - Penalty u/s 76 & 78 - Held that - Period in dispute is initial period when the service tax was imposed on Manpower Recruitment or Supply Agency s Services and when the Revenue pointed out the same deficiency in payment of service tax, respondents immediately paid the same with interest and subsequently paying regularly the service tax. In these circumstances, in view of Section 80 of the Finance Act, 1994 we find that it is not a case for imposition of any penalty - Decided against Revenue.

Summary

Issues:
- Imposition of penalty under Sections 76 and 78 of the Finance Act, 1994 based on intent to evade payment of service tax.
- Interpretation of Section 80 of the Finance Act, 1994 regarding the imposition of penalty in certain cases.

Analysis:

Issue 1: Imposition of Penalty under Sections 76 and 78
The Revenue filed an appeal challenging the adjudication order that did not impose a penalty under Sections 76 and 78 of the Finance Act, 1994. The Revenue contended that service tax should be paid on the gross amount charged by the service provider as per Section 67 of the Act. Sections 77 and 78 provide for penalties in case of contravention or evasion of service tax payment. The Revenue argued that the adjudicating authority's failure to impose a penalty was incorrect, as the demand for service tax implied non-payment with intent to evade payment. The Revenue cited a letter as evidence of the assessee's knowledge of the liability, supporting the imposition of a penalty. Additionally, the Revenue referred to a High Court decision stating that depositing duty does not negate penalty imposition under Section 78, especially when evasion is detected before a Show Cause Notice is issued.

Issue 2: Interpretation of Section 80 of the Finance Act, 1994
The respondents, a manpower recruitment agency, contended that they paid service tax with interest upon realizing the deficiency pointed out by the Revenue, even before receiving a Show Cause Notice. They argued that they believed the reimbursement by service recipients was not taxable. The respondents relied on Section 80 of the Finance Act, 1994, which states that no penalty shall be imposed if there was a reasonable cause for the failure. The Tribunal found that the dispute pertained to the initial period of service tax imposition on their services and that the respondents promptly rectified the deficiency upon notification by the Revenue. Considering Section 80, the Tribunal held that no penalty should be imposed in this case.

In conclusion, the Tribunal dismissed the Revenue's appeal, stating that the respondents were not liable for a penalty under Section 80 of the Finance Act, 1994, as they rectified the deficiency promptly upon notification by the Revenue during the initial period of service tax imposition on their services. The cross objections were also disposed of on the same grounds.