2015 (12) TMI 1110 - AT - Service Tax

Levy of penalty for delayed filing of ST-3 return - Levy Penalty u/s 77 & 78 for default in payment of service tax - Manpower supply service - Held that - In respect of the appellant assessee, where service of supply of manpower had come under the tax net about three months back and where the service recipient was a 100% EOU registered with Cochin Special Economic Zone leading them to believe that liability of service tax was not payable by them and considering the case laws quoted above by the appellant, I am of the considered view that the appellant assessee deserves relief in case of penalties imposed on them under Sections 77 and 78 of the Finance Act, 1994 and the same are hereby set aside - However provisions of Section 80 of Finance Act, 1994 gives relief from imposition of penalty in case of penalties imposed under Sections 77 & 78 of the Finance Act, 1994 only. Here the appellant has been penalized under Section 70 also, when they had delayed the filing of their half-yearly return contravening the relevant provisions of law of Service Tax. This penalty of ₹ 4000/- imposed under Section 70 of the Finance Act, 1994 on the appellant assessee does not deserve to be set aside - Decided in favour of assessee.

Summary

Issues: Imposition of penalties under Sections 70, 77, and 78 of the Finance Act, 1994.

Analysis:
1. Issue of Imposition of Penalties: The appellant argued that the service of "supply of manpower" came under the Service Tax net from a specific date, and they started providing the service only after that date. They believed their client, a 100% EOU, was exempt from service tax under a notification. The appellant paid the service tax and interest as soon as they realized their liability. The appellant cited Section 73(3) of the Finance Act, stating that a show-cause notice should not have been issued since they had already paid the dues. Additionally, the appellant invoked Section 80 of the Finance Act, claiming a "reasonable cause for non-payment" due to the recent inclusion of the service under the tax net and their belief in the exemption for the EOU client. The appellant relied on various court decisions to support their argument.

2. Court's Consideration: The court considered the circumstances, including the recent inclusion of the service under the tax net and the appellant's belief in the exemption due to the client being a 100% EOU. The court found merit in the appellant's arguments and set aside the penalties imposed under Sections 77 and 78 of the Finance Act, 1994.

3. Decision on Penalties: However, the court noted that the appellant was also penalized under Section 70 for delaying the filing of their half-yearly return, which contravened the Service Tax law. The court upheld the penalty of Rs. 4000 imposed under Section 70, as relief under Section 80 of the Finance Act applies only to penalties under Sections 77 and 78.

4. Final Decision: The court granted relief to the appellant by setting aside the penalties under Sections 77 and 78 but upheld the penalty under Section 70. The appeal was decided accordingly.