2018 (2) TMI 1249 - Commission - Service Tax

Construction Service other than residential complex, including Commercial/ industrial buildings or civil structures - the applicant had filed ST-3 Returns for Construction service, but the Service Tax was paid for Works Contract Service - N/N. 30/2012-S.T., dated 20-6-2012 read with Rule 2(d) of the Service Tax Rules, 1994 - reverse charge mechanism - demand of interest and penalty. Held that - Even though initially a portion of the tax was wrongly paid by the Service recipient, instead of the Service provider, i.e. the applicant, and even accepting that the wrong payment had happened by mistaken understanding of the legal position, the fact remains that Service Tax was short paid by the Service provider vis- -vis the value determined by them under Section 67 of the Finance Act, 1994. It is also an admitted fact that the applicant had raised bill on the Service recipient charging 100% of the applicable rate of Service Tax. Having charged Service Tax at 100% and paying only 50% of the tax to the Government clearly establishes short payment by the Service provider, attracting interest. It is only a case of excess payment of tax by a different assessee, dealt according to the provisions of law governing refund/ adjustment and it cannot be linked with the case on hand. Hence, the Bench holds that interest is chargeable from the date on which the Service Tax became payable by the applicant, as alleged in the show cause notice and as contended by the jurisdictional Commissioner. The Bench, thus, settles the Service Tax liability and interest liability at ₹ 81,59,255/- and ₹ 14,61,006/respectively. Penalty - Held that - This is a case of short payment of Service Tax. Though the sequence of events suggest that the short payment had occurred out of mistaken understanding of the legal position by the Service recipient, the applicant had not disclosed the above facts of short payment till the unit was audited by the officers of the Department. Nevertheless, the applicant had paid short of the appropriate Service Tax and the short payment had come to the notice only on verification by the Audit. The applicant has not suo moto informed the position to the Department - Considering the fact that misunderstanding of the provisions of Notification had led to the short payment of Service Tax and the applicant had made good the short payment on being pointed out, the applicant is entitled to partial waiver of penalty, which this Bench is inclined to consider. Hence, the Bench grants partial waiver from penalty to the applicant. The Bench considers it a fit case for grant of immunity from prosecution to the applicant - The immunities are granted in terms of Section 32K of the Central Excise Act, 1944, as made applicable to Service Tax matters vide Section 83 of the Finance Act, 1994. If the applicant fails to pay the sum ordered as above, the immunity granted shall stand withdrawn. Appeal disposed off.

Summary

Issues Involved:
1. Short payment of Service Tax.
2. Applicability of Reverse Charge Mechanism.
3. Liability for interest on short payment.
4. Imposition of penalty.
5. Grant of immunity from prosecution.

Detailed Analysis:

Short Payment of Service Tax:
The applicant, M/s. K & K Contech Engineering Pvt. Ltd., was involved in providing Works Contract Service and Construction Service. They were found to have short-paid Service Tax for the period from October 2012 to December 2013. The short payment arose because the applicant paid only 50% of the Service Tax, while the remaining 50% was paid by the service recipient, M/s. Chareon Popkhand Pvt. Ltd. (CPIPL), under the mistaken belief that the reverse charge mechanism applied. The department contended that the entire Service Tax liability was on the applicant as a private limited company, and the applicant admitted the liability and paid the shortfall amounting to ?81,59,255/- on 5-7-2014.

Applicability of Reverse Charge Mechanism:
The reverse charge mechanism, as per Notification No.30/2012-S.T., dated 20-6-2012, applies only to Individual, Hindu Undivided Family, and Partnership Firm, not to private limited companies. The applicant, being a private limited company, was liable for the entire Service Tax. The applicant's service recipient, CPIPL, had erroneously paid 50% of the Service Tax, which was later adjusted against their future tax liabilities. The department maintained that the short payment by the applicant was not permissible under the law.

Liability for Interest on Short Payment:
The applicant argued that since the total Service Tax was paid (albeit partially by them and partially by CPIPL), there was no short payment in the strict sense, and hence, the interest liability should be limited to ?3,99,103/-. However, the department contended that the applicant was liable for interest from the date the Service Tax became payable, amounting to ?14,61,006/-. The Bench agreed with the department's view, holding that interest is chargeable from the date the Service Tax became payable by the applicant.

Imposition of Penalty:
The applicant sought immunity from penalty, arguing that the short payment resulted from a misunderstanding of the law by the service recipient. The Bench noted that the short payment was detected during an audit and not voluntarily disclosed by the applicant. However, considering the applicant's cooperation and the circumstances, the Bench granted partial waiver of the penalty, imposing a penalty of ?80,000/-.

Grant of Immunity from Prosecution:
The Bench considered the facts and circumstances of the case and granted immunity from prosecution to the applicant, subject to the payment of the amounts ordered.

Order:
The Bench settled the case with the following terms and conditions:
1. The additional Service Tax liability of ?81,59,255/- was settled and appropriated, with no further liability.
2. The interest liability was settled at ?14,61,006/-, with the applicant required to pay the balance interest of ?10,61,903/- within 30 days.
3. A penalty of ?80,000/- was imposed, to be paid within 30 days.
4. Immunity from prosecution was granted, subject to the payment of the ordered amounts.

The immunities were granted under Section 32K of the Central Excise Act, 1944, as applicable to Service Tax matters. If the applicant fails to comply with the payment orders, the immunity granted shall be withdrawn.