2016 (12) TMI 1394 - AT - Service Tax

Waiver of penalty u/s 78 of FA, 1994 - invocation of section 80 - Commercial Construction Service under Works Contract Composition Scheme. The appellant has been regularly paying the service tax. The short payment of service tax arose only due to the reason that the value of free supplies of goods was not included in the gross value of the construction service - Held that - On the dispute that whether the cost of free supplies goods should be included or otherwise the Larger Bench of this Tribunal in Bhayana Builders (P) Ltd. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) held that the same is not includible in the gross value of the construction service. Therefore the issue involved in the present case was not free from doubt. The appellant, immediately, on pointing out by the department, paid the service tax and the interest thereupon even before issuance of the show cause notice - the appellant has been able to show the reasonable cause for non-payment of service tax on the element of cost of free supplied goods - invocation of section 80 justified - penalty waived - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
- Appeal against Order-in-Appeal upholding Order-in-Original for service tax underpayment due to non-inclusion of free supplies in construction service value.
- Appellant's plea for waiver of penalty under Section 78 of Finance Act invoking Section 80.
- Dispute over whether value of free supplies should be part of gross value of construction service.

Analysis:
1. The appeal challenged the Order-in-Appeal affirming the Order-in-Original that confirmed a service tax demand against the appellant for not including the value of free supplies in their construction service under Works Contract Composition Scheme. The appellant sought waiver of penalty under Section 78 of the Finance Act by invoking Section 80, emphasizing no intention to evade tax and regular tax payments. The dispute centered on the inclusion of free supplies in the service value.

2. The appellant, represented by a Chartered Accountant, contended that despite settling the service tax issue on free supplies in favor of the assessee, they paid the tax and sought penalty waiver. The appellant promptly paid the service tax and interest upon realizing the error, arguing against penalty imposition due to a mere valuation dispute, not tax evasion. The appellant's compliance history and immediate tax payment upon notification were highlighted to support the plea for penalty waiver.

3. The Revenue, represented by the Assistant Commissioner, maintained that the penalty was rightfully imposed as the appellant did not disclose the value of free supplies, indicating an intent to evade service tax. The Revenue argued against interference in the penalty imposition, emphasizing the appellant's non-disclosure as a basis for penalty justification.

4. The Member (Judicial) analyzed the submissions and noted the appellant's regular tax payments, attributing the service tax underpayment to the exclusion of free supplies from the construction service value. Referring to a precedent where inclusion of free supplies was deemed unnecessary, the Member found the issue not free from doubt. Acknowledging the appellant's immediate tax payment post-notification, the Member concluded that the appellant demonstrated a reasonable cause for non-payment related to free supplies. Consequently, the penalty under Section 78 of the Finance Act was waived invoking Section 80, while upholding the service tax demand, interest, and previous payments made by the appellant.

5. In the final judgment pronounced on 08/06/2016, the Member allowed the appeal, emphasizing the appellant's compliance, prompt tax payment, and the reasonable cause for the underpayment related to free supplies. The waiver of penalty under Section 78 by invoking Section 80 was granted, affirming the service tax demand, interest, and previous payments.