2016 (3) TMI 485 - HC - Service Tax

Validity of Tribunal s order waiving the penalty - Scope of section 80 w.e.f. 14-5-2015 - Penalty imposed under Section 78 of the Finance Act, 1994 - Failure to pay Service tax - Service tax was not leviable at the time of execution of agreement but subsequently leviable during the time of subsistence and implementation of contract - Held that - the Tribunal omitted from considering the fact that though the contract was executed prior to 10 September 2004, the same was a continuing contract and obligation. The work continued. Also the Tribunal omitted the fact that there was an inspection of the premises in the year 2007 and that is how the assessee was called upon to pay the tax which was not paid till then. After that, an order-in-original was about to be passed on a show cause notice, but that was avoided by payment of the tax and discharge of the liability. Whether such an act absolves an assessee from payment of penalty and specifically with the aid of Section 80 of the Finance Act, 1994 which was on the statute book till its amendment by Finance Act, 2015 with effect from 14 May 2015, is the question which has not been examined by the Tribunal at all. There is rather no reference to Section 80 of the Finance Act, 1994. As the Tribunal s order is cryptic and the reasons are wholly unsatisfactory, needs to be quashed and set aside. - matter restored before tribunal - Decided in favour of the revenue

Summary

Issues:
Challenge to order reversing penalty under Section 78 of the Finance Act, 1994 by Customs, Excise and Service Tax Appellate Tribunal.

Analysis:
1. The appeal challenged the Tribunal's order reversing the penalty imposed under Section 78 of the Finance Act, 1994. The Tribunal allowed the assessee's appeal and set aside the penalty. The assessee argued that there was no obligation to pay service tax when the contract was executed, but service tax was imposed later. The Revenue claimed evasion of service tax, leading to penalties under Sections 76 and 78 imposed by the adjudicating authority.

2. The Commissioner (Appeals) upheld penalties under Sections 77 and 78 but set aside the penalty under Section 76. The Tribunal eventually set aside all penalties. The Revenue contended that penalties were mandatory for failure to pay service tax due to fraud. The assessee argued that the Tribunal's decision was not based on substantial questions of law and the reasoning was not perverse.

3. The Tribunal's reasoning for setting aside the penalty under Section 78 was based on the ongoing contract, the assessee's belief about service tax liability, and prompt payment upon notification. However, the Tribunal did not consider the continuing contract obligation, the inspection in 2007, and the relevance of Section 80 of the Finance Act, 1994.

4. The High Court found a substantial question of law regarding the waiver of penalty under Section 78 in cases of proven suppression of facts for evading service tax. The Court quashed the Tribunal's order, restoring the appeal for a fresh decision considering all legal provisions, including Section 80 of the Finance Act, 1994. The Court clarified that it did not express any opinion on the controversy, keeping all arguments open for further consideration.