2017 (6) TMI 377 - AT - Service Tax

Penalty u/r 78 of the FA, 1994 - SISL had not paid any service tax, under the mistaken impression that the services related to erection and installation of wind mill were not taxable - subsequent payment of tax - Held that - it is not disputed that the appellants have paid up the entire tax liability along with interest even before the issue of SCN. In the circumstances, penalty imposable on them should be restricted to 25% as per the Section 73 (1A) - penalty u/r 78 of the FA, 1994, imposed on the appellants is required to be reduced to 25% of the total tax liability of ₹ 23,45,419/- - appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Service tax liability on civil contract works for a company, imposition of penalties under different sections of the Finance Act, 1994, reduction of penalties on appeal.

Analysis:

Issue 1: Service tax liability on civil contract works
The case involved contractors engaged in civil contract works for a company, where they completed work worth a certain amount but failed to discharge the tax liability. The Department initiated an investigation and confirmed a service tax demand along with interest and penalties under various sections of the Finance Act, 1994. The Commissioner (Appeals) upheld the tax liability but modified the penalties. The contractors appealed against the decision.

Issue 2: Imposition of penalties under the Finance Act, 1994
The contractors argued that they had registered with the Department under a specific category but had not provided services falling under that category until later. They contended that the company they worked for did not pay service tax on the amount paid to them, leading to confusion. The Department argued that non-payment of service tax was due to fraud or suppression of facts, making the contractors liable for penalties under Section 73(1A) of the Act.

Issue 3: Reduction of penalties on appeal
The Tribunal considered the provisions of Section 73(1A) and noted that penalties could be imposed for non-payment of service tax due to fraud or suppression of facts. However, since the contractors had paid the entire tax liability along with interest before the issuance of the Show Cause Notice, the penalty was reduced to 25% of the total tax liability as per the relevant section. The Tribunal directed the contractors to pay the reduced penalty within 30 days.

In conclusion, the Tribunal partially allowed the appeal by reducing the penalty imposed on the contractors to 25% of the total tax liability. The judgment highlighted the importance of complying with tax provisions and seeking advice from departmental officers to avoid penalties for non-payment of service tax.