2016 (10) TMI 797 - AT - Service Tax

Rental income - consideration from letting of spaces for advertisement - Held that - I find that the appellant is a Municipality, a Statutory body under the Control of the State Government. It is further evident that they have maintained proper records of their transactions. It is further evident that service tax was not paid in absence of advise from their competent Authority and/or from the side of Revenue from the date of imposition. It is further fact on record that after receipt of the show cause notice, in close proximity of that, the appellant took registration and have started paying the service tax both on renting of immovable property and sale of space for advertisements. It is further evident that the Ld. Commissioner (Appeals) have found that there is no element of fraud or suppression on the part of the appellant-Nagar Palika Praishad and accordingly have deleted the penalty under Section 76 & 78 of the Act. Extended period of limitation - once it is held that there was reasonable cause for failure to pay tax and the penalties have been deleted, as a corollary invocation of the extended period of limitation is equally and unjustified. The appellant-assessee is not liable to pay tax for the extended period and shall be liable to pay the tax only for the normal period with interest. decided partly in favor of assessee.

Summary

Issues involved:
1. Confirmation of demand for the extended period
2. Deletion of penalty under Section 76 & 78 of the Act

Analysis:
1. The judgment pertains to cross-appeals filed by a Municipality and the Revenue against the Order-in-Appeal dated 25.04.2014. The Municipality received rental income from shops and consideration for advertisements. The Revenue initiated an inquiry in 2010 and issued a show-cause notice in 2012 demanding duty for the period of June 2007 to December 2011. The Municipality did not respond to the notice, leading to an ex-parte order confirming the demand and imposing penalties under Sections 76, 78, and 77 of the Act.

2. The Municipality appealed the decision, and the Commissioner(Appeals) partially allowed the appeal, confirming the demand but holding that penalties under Section 76 and 78 were not applicable. However, a penalty under Section 77 of ?10,000 was confirmed. The Municipality contested the confirmation of demand for the extended period, while the Revenue appealed against the deletion of penalties under Sections 76 and 78.

3. After hearing both parties, the Tribunal noted that the Municipality is a statutory body under the State Government's control, maintaining proper transaction records. It was observed that the service tax was not paid due to a lack of advice from competent authorities or Revenue. The Municipality registered and started paying service tax after receiving the show-cause notice. The Tribunal found no fraud or suppression by the Municipality and referred to previous decisions where demands for extended periods were not sustained in the absence of misconduct or suppression.

4. Relying on precedent rulings, the Tribunal held that the Municipality was not liable to pay tax for the extended period but only for the normal period with interest. The Municipality was directed to calculate and deposit the tax and interest for the normal period within 45 days for verification by the Revenue. The Tribunal allowed the Municipality's appeal and dismissed the Revenue's appeal, maintaining the penalty under Section 77 and allowing appropriation of taxes already paid for the disputed period.