2016 (8) TMI 848 - AT - Service Tax

Waiver of penalty section 77 and 78 of the Finance Act, 1994 - demand of service tax with interest and penalty Renting of immovable property sale of space for advertisement bonafide belief no intention to evade tax section 80(2) - section 80(1) - Held that - It nowhere says that in case of failure to avail benefit under sub-section (2) of Section 80, the benefit under sub-section (1) of Section 80 will be taken away. As per sub-section (1) of Section 80 if the assessee proves reasonable cause for failure, then no penalty shall be imposible. The appellant has established that the failure was caused because they were a small scale service provider with regard to the service of sale of space advertisement. They bonafidely believed that no tax was payable on the services of renting of immovable property during the relevant period. There is no allegation of fraud, suppression of facts or willful misstatement - penalty imposed under Sections 77 and 78 not sustainable demand of tax and interest already confirmed appeal allowed decided partly in favor of appellant.

Summary

Issues:
Penalty imposed under Sections 77 & 78 of the Finance Act, 1994 for non-payment of service tax on renting of immovable property and sale of space for advertisement.

Analysis:
The appellants, engaged in running a theatre, were issued a show-cause notice for recovery of service tax under renting of immovable property and sale of space for advertisement categories. The original authority confirmed the demand along with interest and penalties under Sections 77 and 78. The appellants appealed to the Commissioner(Appeals) who upheld the demand, interest, and penalties, leading to the present appeal.

The appellant's counsel argued that the issue of service tax under renting of immovable property was contentious, and hence, no tax was collected initially. They paid the tax promptly upon receiving the order-in-original. The value of taxable services for sale of space for advertisement was below the threshold limit. The appellant paid the service tax within the prescribed time frame as per Section 80(2) introduced in 2012. Citing the case of Mahesh Vakatawarmal Rathod Vs. CCE, Pune-III, the counsel pleaded for a waiver of penalties due to reasonable cause for the failure to pay service tax.

The respondent's representative contended that the penalties were justified as the appellants failed to pay interest within the specified period despite the provision of Section 80(2) allowing time for clearing the tax liability.

The judge acknowledged the contentious nature of the issue regarding the levy of service tax on renting of immovable property. The value of taxable services for advertisement was below the exemption threshold. The judge highlighted the introduction of Section 80(2) to prevent penalizing assesses due to the contentious nature of the matter. Referring to relevant court judgments, the judge emphasized the importance of timely payment of service tax to avail penalty waivers.

The judge noted that failure to avail the benefit under Section 80(2) did not automatically negate the benefit under Section 80(1) if reasonable cause for failure was proven. The appellants, being small-scale service providers, genuinely believed no tax was due on renting of immovable property during the relevant period. Relying on the precedent set in the case of Mahesh Vakatawarmal Rathod, the judge ruled in favor of the appellants, setting aside the penalties under Sections 77 and 78 due to the established reasonable cause for the failure.

In conclusion, the appeal was allowed, penalties under Sections 77 and 78 were waived, while the demand for service tax and interest was upheld.