2017 (5) TMI 519 - AT - Service Tax

Penalty u/s 77 and 78 of FA - non-payment of service tax for the period prior to registration - case of appellant is that the appellants were paying VAT on the service provided by them, therefore, they were under bonafide belief as they are paying VAT on their activity, they are not required to pay service tax prior to registration - Held that - the appellant was under bonafide belief that they are required to pay service tax after registration. Further, the appellant has paid entire amount of service tax payable by them before audit took place. In these circumstances, the appellant has been able to show a reasonable cause for non-payment of service tax before 25.10.2010 - benefit of section 80 of the FA, 1994 extended to appellant - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against penalty under section 77 and 78 of the Finance Act, 1994 confirmed by Commissioner (Appeals).

Analysis:
The appellant was registered under commercial construction service but had provided services before registration without paying service tax. The proceedings were initiated for demand of service tax, interest, and penalty under sections 77 and 78 of the Finance Act, 1994. The adjudicating authority dropped the penalty invoking section 80 as the appellant paid service tax and interest before the show cause notice. However, the Commissioner (Appeals) confirmed the penalties citing lack of reasonable cause shown by the appellant.

The appellant argued that they hired a service tax consultant who advised them to pay service tax if services were provided before registration. They claimed a bonafide belief that service tax was not required for pre-registration services. The appellant contended that since they paid the tax before audit based on the consultant's advice, they should receive the benefit of section 80. The appellant challenged the Commissioner (Appeals) decision, stating that the penalty should not have been confirmed.

The respondent opposed the appellant's argument, stating that the appellant knew about the service tax requirement but chose not to pay unless audited. The respondent cited tribunal decisions to define reasonable cause for non-payment of service tax. The appellant rebutted, mentioning they paid VAT on services, believing it exempted them from pre-registration service tax liability.

After hearing both sides, the Tribunal noted the appellant's payment of service tax before audit and their bonafide belief due to VAT payments. The Tribunal agreed that a reasonable cause must be shown for non-payment but determined that the appellant's actions demonstrated such a cause. The Tribunal found in favor of the appellant, overturning the Commissioner (Appeals) decision and upholding the adjudicating authority's order granting the benefit of section 80.

In conclusion, the appeal was allowed, and the impugned order was set aside, with the Tribunal upholding the adjudicating authority's decision.