2017 (5) TMI 954 - AT - Service Tax

Penalty u/s 76 - It was the case of the appellant that this construction of houses were undertaken by them for Maharashtra Housing Development Board (MHADA) and hence not taxable as they are doing the job for Maharashtra Government - appellant paid tax with interest and penalty u/s 78 - Held that - appellant could have entertained a bona fide belief that having constructed houses for MHADA they need not discharge any tax liability as MHADA being a Government of Maharashtra undertaking - appellant was an unemployed engineer and has claimed it so to get the tender for construction of such houses - by invoking the provisions of Section 80 of the FA, 1994, as it was during the relevant period, we set aside the penalties imposed u/s 76 by the lower authorities - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on construction of complex and residential complex under Section 65(30a) and 65(91a) of the Finance Act, 1994 for construction of residential houses under a specific scheme.

Analysis:
The appeal challenged an Order-in-Appeal regarding service tax liability on the construction of residential houses under a government scheme. The appellant argued that since the construction was for a government entity, it should not be taxable. However, both lower authorities ruled against the appellant, confirming the demand, interest, and penalties. The appellant paid the tax liability, interest, and a portion of the penalty. The Tribunal found that the appellant could not claim exemption based on the construction being for a government entity, as the construction activity itself was taxable. Therefore, the tax liability and interest were upheld based on departmental instructions.

On the issue of penalties, the Tribunal noted that the appellant admitted the tax liability and paid interest. The first appellate authority found the appellant liable for penalties under Section 76 and 78, but reduced the penalty under Section 76 post an amendment in 2008. The appellant had paid 25% of the penalty under Section 78, which was accepted as sufficient. The Tribunal determined that the appellant, being an unemployed engineer, could have genuinely believed they were not liable for tax due to the nature of the project. Therefore, invoking Section 80 of the Finance Act, 1994, the penalties under Section 76 were set aside.

In conclusion, the Tribunal disposed of the appeal by upholding the tax liability and interest while setting aside the penalties imposed under Section 76 based on the appellant's genuine belief and circumstances.