2018 (1) TMI 1271 - AT - Service Tax

Penalty u/s 78 - Interior decorator services - non-payment of service tax - suppression of facts - extended period of limitation - Held that - the department has not been able to establish any positive act on the part of the appellant to establish willful suppression of facts - Further, the appellant has paid substantial amount of service tax prior to issuance of SCN - penalty u/s 78 set aside - demand of tax with interest upheld - appeal allowed in part.

Summary

Issues:
1. Liability of service tax on interior designing services
2. Imposition of penalty under section 78 of the Finance Act, 1994

Analysis:

Issue 1: Liability of service tax on interior designing services
The case revolved around whether the interior designing services provided by the appellants were liable for service tax under the category of interior decorator services. The department contended that such services were taxable from June 2007 onwards. A show cause notice was issued for the period June 2007 to September 2008, leading to the original authority confirming the demand of service tax, interest, and penalties. The appellant appealed to the Tribunal, which remanded the matter for re-examination to determine if the appellant had provided services like advice or consultancy. Following a denovo adjudication, the Commissioner confirmed the demand, interest, and imposed a penalty under section 78 of the Finance Act, 1994. The appellant contested the penalty imposition, arguing that there was confusion regarding the classification of services and whether they fell under works contract service. The appellant claimed to have paid a significant amount of the service tax before the show cause notice was issued, indicating a genuine belief that they were not liable to pay. The Tribunal ultimately found that the appellant had a bonafide belief that their services were not taxable, leading to the setting aside of the penalty under section 78 while upholding the demand for service tax and interest.

Issue 2: Imposition of penalty under section 78 of the Finance Act, 1994
The appellant disputed the penalty imposed under section 78 of the Finance Act, 1994. The department argued that the appellant had only paid the service tax after the impugned order was passed, indicating non-compliance before that. It was also contended that the show cause notice was issued under the extended period of limitation, suggesting suppression of facts by the appellants. However, the Tribunal found that there was no concrete evidence of willful suppression of facts by the appellant. The appellant had provided all necessary details to the department for quantification of service tax and had paid a substantial amount even before the issuance of the show cause notice. The Tribunal noted that the appellant had genuinely believed their services were not taxable, as evidenced by their actions and the fact that the issue had been taken up to the Tribunal. Consequently, the penalty under section 78 was deemed unwarranted and was set aside, while the demand for service tax and interest remained upheld.

In conclusion, the Tribunal partially allowed the appeal by setting aside the penalty under section 78 while maintaining the demand for service tax and interest, based on the appellant's bonafide belief and lack of evidence of willful suppression of facts.