2017 (9) TMI 913 - AT - Service Tax

Penalties u/s 77 and 78 of FA - non-payment of the service tax liability within time - works contract - Held that - appellant could have entertained a bona fide belief that he having undertaken the work of construction of roads, drains, etc., no service tax liability arises. In my view, appellant has made out a case for invoking the provisions of Section 80 of Finance Act, 1994 - penalties set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of penalties under Section 77 and 78 of Finance Act, 1994 for non-payment of service tax liability within time.

Analysis:
The appeal was against the Order-in-Appeal passed by the Commissioner of Central Excise (Appeals), Mangalore. The appellant, registered for providing services, participated in a tender for construction works and received consideration for the services rendered. It was alleged that the appellant did not discharge the service tax liability on the amount received, leading to the imposition of penalties under Section 77 and 78 of the Finance Act, 1994. The appellant contested the taxability of services and invoked Section 80 of the Finance Act, 1994 to avoid penalties. The lower authorities confirmed the demand, interest, and penalties, but the appellant appealed against the penalties specifically.

The appellant, a hotelier by profession, participated in the tender for the first time and claimed unawareness of service tax liability for construction activities. The appellant argued that due to lack of legal knowledge, especially since they had only studied up to SSLC, penalties should be set aside invoking Section 80. On the other hand, the Department argued that despite being aware of tax liability, the appellant did not discharge it as required, justifying the penalties under Section 77 and 78. The contracts with the client also indicated that taxes would be reimbursed.

Upon considering the submissions, the Tribunal noted that the appellant's activities fell under works contract, including construction of roads, drains, and other peripheral works. It was observed that the appellant might have genuinely believed that such activities did not attract service tax liability. The Tribunal found merit in the appellant's argument that they had a bona fide belief regarding the tax liability, especially for construction-related services. Consequently, the Tribunal upheld the service tax liability and interest but set aside the penalties under Section 77 and 78 by invoking Section 80 of the Finance Act, 1994. The appeal was disposed of in favor of the appellant.

The judgment was pronounced on 31.07.2017 by Shri M. V. Ravindran, Judicial Member of the Appellate Tribunal CESTAT Bangalore.