2015 (10) TMI 454 - AT - Service Tax

Imposition of penalty - Misclassification of service - Held that - activities undertaken by the appellant can be classified into any of the services and appellant might have entertained a bonafide belief that the services rendered by them can be classified under the head transportation of goods and eligible for the exemption of abatement. We also note that the appellant had made good the differential tax liability with interest on being pointed out by the revenue authorities. In our considered view the ratio of the judgement of the Tribunal in the case of Tidewater shipping (2008 (3) TMI 47 - CESTAT, BANGALORE), and as affirmed by the Honourable High Court of Karnataka 2011 (8) TMI 1072 - KARNATAKA HIGH COURT will apply in full force - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
1. Appellant's liability for service tax under cargo handling services and transport of goods by road.
2. Correct classification of services rendered by the appellant.
3. Imposition of penalties under Section 78 of the Finance Act, 1994.

Analysis:
1. The appellant had initially discharged service tax liability under the wrong category but corrected it upon audit department's notification. The revenue authorities issued a show cause notice for penalties. The appellant contested the penalties, citing Section 73(3) of the Finance Act, 1994, and judicial precedents like Tidewater Shipping Pvt. Ltd. case. The appellate authorities confirmed penalties.

2. The appellant accepted the misclassification, paid the differential tax liability with interest, and did not contest the tax liability. The Tribunal upheld the tax liability but considered the issue of penalties. The Tribunal noted that the appellant may have genuinely believed in the correct classification and rectified the error promptly. Referring to the Tidewater Shipping case and Section 73(3) of the Finance Act, the Tribunal found the penalties unjustified, as the appellant had cleared the service tax with interest before the show cause notice.

3. The Tribunal emphasized that if an assessee clears service tax due with interest, penalty proceedings cannot be initiated, as per Section 73(3) and relevant circulars. Considering the appellant's proactive payment before the notice and the legal precedents, the Tribunal set aside the penalties imposed under Section 78 of the Finance Act, 1994. The Tribunal allowed the appeal on the grounds of penalties and revoked the penalties imposed on the appellant.

This comprehensive analysis highlights the issues of service tax liability, correct classification of services, and the imposition of penalties under the Finance Act, 1994. The judgment showcases the application of legal provisions, judicial precedents, and fair considerations in deciding the penalties in this case.