2017 (9) TMI 363 - AT - Service Tax

Survey and Exploration of Mineral services - Non-payment of service tax - penalty - Held that - the issue whether the subject services of drilling of shot hole would come within the ambit of survey and exploration of mineral services was subject matter of doubt and dispute - There is no specific allegation of fraud or willful suppression in the show cause notice. We find that the department has failed to establish the deliberate attempt to evade payment of service tax by suppressing or mis-declaring facts - the issue was subject matter of litigation before the Tribunal and being an interpretational issue, the penalty imposed is too harsh on the appellant - the penalty of ₹ 2.75 crores imposed, is unjustified and requires to be set aside - matter requires verification as regards the contentions of the appellant that the amount that has been already discharged by them has not been properly taken note of - appeal allowed by way of remand.

Summary

Issues:
1. Delayed payment of service tax and interest.
2. Non-payment of service tax for services provided to other customers.
3. Imposition of penalty under section 78 of the Finance Act.
4. Dispute regarding liability to pay service tax on specific services.
5. Verification of service tax liability already discharged by the appellant.

Analysis:
1. The appellants provided seismic job services and shot hole drilling services to M/s. ONGC. They delayed payment of service tax amounting to ?2,67,31,766 and did not pay interest for the delay. Additionally, they did not pay service tax of ?4,48,583 for services provided to other customers in May and June 2005. The adjudicating authority confirmed the demand of ?2,71,80,349 as service tax for the period September 10, 2004, to March 31, 2007, along with interest. A penalty of ?2.75 crores under section 78 of the Finance Act was also imposed.

2. The appellant argued that the services provided were not taxable when the bid document was filled, and they registered for service tax under Exploration of Mineral services in good faith. They contended that they had paid the entire service tax liability and disputed the penalty imposition. The appellant had also entered into a contract with another company for shot hole drilling services, where the service tax was not paid as the subcontractor had already remitted the tax.

3. The appellant contested the penalty imposition, citing a previous case where the Tribunal had set aside a similar penalty. They argued that there was no intention to evade payment of service tax and requested the penalty to be set aside. The respondent reiterated the findings in the impugned order, stating deliberate delay and non-payment of service tax by the appellant.

4. The Tribunal found that the issue of whether the drilling services were liable for service tax was subject to doubt and dispute. The appellant's delay in payment was attributed to ONGC's refusal to pay the service tax. The Tribunal noted that there was no specific allegation of fraud or willful suppression in the show cause notice. The penalty imposed was considered harsh and unjustified, leading to its setting aside.

5. The Tribunal directed the adjudicating authority to verify the amount already discharged by the appellant. If any shortfall was found, the appellant would be liable to pay the remaining service tax along with interest. The demand for service tax and interest was upheld, while the penalty under section 78 was set aside. The appeal was partly allowed on these grounds.