2017 (11) TMI 885 - AT - Service Tax

Penalties u/s 76, 77 and 78 - erection, commissioning and installation service - composite contract - Held that - as appellant is not contesting their liability of service tax, which has been paid along with interest, the provision of Section 73(3) of the FA, 1994 are invokable to the facts of this case. In that circumstance, no SCN was required to be issued to the appellant. Penalty not invokable on appellant by invoking section 80 - penalties set aside - appeal allowed.

Summary

Issues:
Appeal against penalties under Section 76, 77, and 78 of the Finance Act, 1994.

Analysis:
The appellant entered into a contract for supply and erection, installation, and commissioning of electrical equipment, initially as a composite contract. Later, the contract was divided into separate contracts for supplies and erection, commissioning, and installation. The appellant did not pay service tax during 2003-07, believing it was a composite contract. However, on investigation, it was found that two separate contracts existed, leading to the initiation of proceedings for non-payment of service tax on erection, commissioning, and installation services. The demand for service tax, interest, and penalties under the Finance Act, 1994 was confirmed by the adjudicating authority and upheld by the Commissioner (A).

The consultant for the appellant argued that they believed in good faith that service tax was not payable due to the composite nature of the contract. Upon the start of the investigation, the appellant paid the entire service tax along with interest before receiving a show-cause notice. Citing Section 73(3) of the Finance Act, 1994, it was contended that penalties should not apply due to the voluntary payment. The appellant also referenced relevant case laws to support their position.

In response, the AR representing the respondent contended that the appellant did not provide necessary documents to the Commissioner (A), leading to the assumption that service tax had been collected from customers. The AR argued that penalties under Sections 76, 77, and 78 were justified due to the confirmed demand of service tax using the extended period of limitation and the alleged suppression of facts.

After hearing both parties, the tribunal noted that the appellant had not recovered service tax from customers, indicating a genuine belief that no tax was due. As the appellant accepted their liability and paid the tax with interest, invoking Section 73(3) of the Finance Act, 1994, the tribunal found no need for a show-cause notice. Consequently, penalties were waived under Section 80 of the Finance Act, 1994, and the appeal was disposed of, setting aside the penalties while confirming the rest of the order.

In conclusion, the tribunal ruled in favor of the appellant, recognizing their genuine belief regarding the service tax liability and their proactive payment of the tax and interest. By applying the relevant provisions of the Finance Act, 1994, the tribunal waived penalties and upheld the remaining aspects of the order.