2018 (2) TMI 81 - AT - Service Tax

Penalty u/s 78 - renting of immovable property service - conflicting decisions on the issue - Held that - the appellant had not paid the amount of ₹ 71,207/- only because they believed that since the building was used by educational institution, they need not discharge the service tax liability with regard to the rent received from such building - there were much confusion whether the services were subject to levy of service tax since there were conflicting decisions on the said issue - penalty set aside - appeal allowed.

Summary

Issues:
1. Service tax liability on income from renting immovable property
2. Penalty imposition under sections 77 and 78
3. Interpretation of legal provisions regarding service tax liability on renting of immovable property
4. Applicability of conflicting judicial decisions on the issue

Analysis:

1. The appellant earned income by renting immovable property but did not discharge their service tax liability. A show cause notice was issued for the periods 2008-09 to 2010-11, demanding service tax of ?33,10,914 along with interest and penalties. The original authority upheld the demand, interest, and penalties. The Commissioner (Appeals) modified the order, observing that the appellant had paid a significant portion of the demand prior to the notice issuance, limiting the penalty to the remaining amount of ?71,207. The appellant, aggrieved by this penalty, filed the present appeal.

2. During the hearing, the appellant's counsel argued that they believed they were not liable to pay service tax on rents collected from an educational institution renting their building. The appellant had paid a substantial amount but refrained from paying the balance due to this belief. The counsel highlighted the confusion surrounding the liability to pay service tax on renting immovable property due to conflicting judicial decisions. The appellant had not collected service tax from customers based on a genuine belief that the educational institution's use exempted them from this obligation.

3. The appellant contended that they had discharged the entire service tax liability except for the amount of ?71,207, which they did not pay due to their understanding regarding the educational institution's use of the property. Considering the confusion and conflicting decisions on the issue of service tax liability for renting immovable property, the tribunal found that the appellant had a strong case for setting aside the penalty. The tribunal acknowledged the genuine belief held by the appellant and the legal uncertainties surrounding the issue.

4. Consequently, the tribunal modified the impugned order by setting aside the penalty of ?71,207 imposed under section 78 while maintaining the demand for service tax and interest. The appeal was allowed on these grounds, recognizing the appellant's genuine belief and the legal complexities surrounding the service tax liability on renting immovable property.

This detailed analysis of the judgment highlights the key issues addressed by the tribunal, the arguments presented by the parties, and the reasoning behind the decision to set aside the penalty imposed on the appellant.