2017 (5) TMI 53 - AT - Service Tax

Imposition of penalty u/s 77 and 78 of FA - non-filing of ST-3 returns and non-payment of interest within time - Held that - the appellants cannot be found fault with for not discharging their service tax liability. However, they have paid the entire tax liability along with interest - The Tribunal relying upon the judgment in the case of Mahesh Vakatawarmal Rathod Vs CCE, Pune-III 2015 (2) TMI 147 - CESTAT MUMBAI held that in such a situation the penalty imposed u/s 77 and 78 cannot be sustained - penalties are unsustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Penalty imposed under Section 77 and 78 of Finance Act, 1994 for non-filing/late filing of returns and non-payment of interest within the stipulated time.

Analysis:
The appellant, the owner of commercial complexes, was receiving rent from letting out immovable properties. The services of renting of immovable property became taxable from 01.06.2007. The appellant paid the service tax and interest after a show cause notice dated 19.09.2011. The adjudicating authority confirmed the demand, interest, and imposed penalties under Section 77 and 78. The Commissioner (Appeals) upheld the decision, leading to the current appeal.

The appellant argued that during the relevant period, the taxability of renting immovable property services was uncertain due to conflicting decisions. Citing a Delhi High Court judgment, the appellant contended that there was no intention to evade tax, as they paid the tax under protest following a High Court order. The appellant also highlighted an amendment in Section 80 of the Finance Act, 1994, which they believed entitled them to benefit under Section 80(1).

The respondent contended that the appellant failed to file ST-3 returns for specific years, indicating an intent to evade tax. The respondent argued that the benefit of Section 80(2) could only be availed if the service tax and interest were paid within the stipulated time, which the appellant did not comply with.

The Tribunal considered the contentious nature of the taxability issue, the appellant's payment of the entire tax liability with interest, and the non-payment by tenants due to pending litigations. Referring to precedent cases, the Tribunal concluded that penalties under Section 77 and 78 could not be upheld in such circumstances. Therefore, the penalties were set aside, and the appeal was allowed with consequential reliefs, if any.