2017 (7) TMI 493 - AT - Service Tax

Penalty u/s 76, 77 and 78 - non-payment of service tax - appellant is engaged in providing Stevedoring/Customs House Agent and other connected services related to import/export of goods - Held that - the provisions of Section 80 which are to the effect that no penalty would be imposed under Section 76,77, or 78 of the Finance Act, if the noticee proves that there was reasonable cause for the said failure. What is a reasonable cause has to be seen and examined in each and every case. Admittedly, such reasonable cause has to be a bonafide cause and must not be burdened with appellant assessee s intentions. The appellant was admittedly liable to pay the service tax in respect of services provided by him. Prior to the present proceedings, a show cause notice for the earlier period was issued to them. As such they were aware of their liability to discharge service tax and it cannot be said that they were entertaining any bonafide belief about their service tax liability - In any case, it stands observed by the lower authority that the appellant was recovering the said tax amount from their customers, in which case again their plea of financial difficult cannot be appreciated. In these circumstances, the applicability of Section 80 is ruled out. The law provides for imposition of penalty, which stands rightly imposed by the adjudicating authority - penalty upheld. Scope of SCN - demand of ₹ 2,81,446/- on the ground that the said service tax amount got escaped from the earlier SCN - Held that - Such piecemeal adjudication is not permissible. Even if there was some calculation mistake in the earlier show cause notice, Revenue was within its rights to issue corrigendum instead of including the said deficiency in the subsequent show cause notice - confirmation of demand of ₹ 2,81,446/- is neither appreciated nor justified - demand set aside. CENVAT credit - car hire charges - air travel charges - denial on account of nexus - Held that - it is a well settled law that the car hire charges and air travel charges incurred by the assessee in connection with their business are cenvatable input services and are available as Cenvat credit - credit allowed. Appeal allowed - decided partly in favor of appellant.

Issues:
1. Confirmation of demand of service tax along with penalty.
2. Imposition of penalty under Section 76 of the Finance Act, 1994.
3. Confirmation of demand of earlier period not included in the initial show cause notice.
4. Denial of Cenvat credit on car hire charges and air travel charges.

Analysis:

Issue 1: Confirmation of demand of service tax along with penalty
The appellant was engaged in providing services related to import/export of goods and faced a demand of service tax amounting to ?15,72,641/- for a specific period. The Addl. Commissioner confirmed this demand along with interest and a penalty. The appellant did not challenge the tax demand but contested the imposition of penalty under Section 76 of the Finance Act, 1994. The Tribunal examined Section 80, which provides for the waiver of penalty if a reasonable cause is demonstrated. The appellant's financial difficulties were not considered a reasonable cause as they failed to file ST-3 returns and did not inform the Revenue about their tax liability. The Tribunal upheld the imposition of penalty based on the lack of a genuine reasonable cause.

Issue 2: Imposition of penalty under Section 76 of the Finance Act, 1994
The Tribunal referred to the Hon'ble Karnataka High Court's interpretation of Section 80, emphasizing the need for a bonafide and reasonable cause to avoid penalty under Sections 76, 77, or 78 of the Finance Act. The appellant's failure to pay service tax despite being aware of their liability, coupled with the absence of filing ST-3 returns, led to the rejection of their plea for financial difficulties as a reasonable cause. The Tribunal held that the penalty was rightly imposed by the adjudicating authority due to the appellant's non-payment and lack of communication with the Revenue.

Issue 3: Confirmation of demand of earlier period not included in the initial show cause notice
The Tribunal found that the confirmation of demand amounting to ?2,81,446/- for an earlier period, which was not included in the initial show cause notice, was unjustified. It ruled that piecemeal adjudication was impermissible, and the Revenue should have issued a corrigendum instead of including the alleged deficiency in a subsequent notice. Consequently, the Tribunal set aside the confirmation of this demand.

Issue 4: Denial of Cenvat credit on car hire charges and air travel charges
Regarding the denial of Cenvat credit amounting to ?79,218/- on car hire and air travel charges, the Tribunal referred to established legal principles that such expenses are cenvatable input services. Citing precedents, the Tribunal overturned the denial of credit, emphasizing that these charges were eligible for Cenvat credit. The Tribunal set aside this part of the order denying the credit.

In conclusion, the appeal was allowed concerning the confirmation of demand for the earlier period and the denial of Cenvat credit, while upholding the imposition of penalty for non-payment of service tax based on the lack of a genuine reasonable cause.

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