2018 (6) TMI 80 - AT - Service Tax

Evasion of service tax - Construction service - liability of service tax - date of completion certificate - whether the liability is confined to the builder/developer or shall be shared by the land owner, who has parted with his land with an intention to be converted into a residential complexes and has simultaneously sold the portion of the developed property to the buyers of his choice - Penalty u/s 78 of FA - suppression of facts with intend to evade payment of tax - applicability of Section 73 (3) of Finance Act Held that - The flats sold by the land owner before the completion certificate was obtained i.e. before 20th March, 2012 will invite the liability of Service Tax upon the land owner. However, the flats sold after the said date of receiving completion certificate, since no more construction services were rendered after the said date, the land owner will not invite any liability to the Service Tax. Also with respect to the one flat, which has been gifted by him to his own son vide Deed dated 30thOctober, 2012, the liabilities stand exempted under Section 65 (91A) of the Finance Act - there is no infirmity in the order under challenge where the extra levy of the subsequent sale of flats has been done away. So, as far as that part of the order is concerned, it is upheld. Penalty u/s 78 - tax liability deposited before issuance of SCN - Held that - There has been plethora of judgements that where the assessee has paid the tax liability before the issuance of show cause notice and the authorities could not find any fraud or wilful intention on the part of the respondent, in terms of provisions contained in Section 73 (3) of the act, no further proceedings were warranted - the act of land owner for getting the map approved for the complex to be constructed on this land by same developer prior the sale is complete since invites no service tax liability, the appellant cannot be accused of suppressing the facts with an intention to commit fraud or wilful suppression - There is no evidence on record which can prove beyond reasonable doubt about the alleged fraud or wilful intention to suppress the facts, so as to evade tax liability - penalty set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Suppression of facts with intent to evade payment of tax.
2. Applicability of mandatory penalty under Section 78 of the Finance Act.
3. Denial of benefit under Section 73(3) of the Finance Act.
4. Validity of show cause notice issued beyond the limitation period.
5. Liability of Service Tax for the sale of flats by the landowner before and after obtaining the completion certificate.

Issue-wise Detailed Analysis:

1. Suppression of Facts with Intent to Evade Payment of Tax:
The appellant was found to have suppressed facts with the intent to evade payment of tax, leading to the imposition of a mandatory penalty under Section 78 of the Finance Act. The Department argued that the appellant's failure to register and pay the Service Tax liability before the raid indicated suppression of facts. However, the appellant contended that he had registered and paid the Service Tax before the issuance of the show cause notice, negating any intent to evade tax.

2. Applicability of Mandatory Penalty under Section 78 of the Finance Act:
The penalty under Section 78 was imposed due to the appellant's non-payment of Service Tax before the raid. The appellant argued that since he had registered and paid the tax liability before the show cause notice, the penalty was unwarranted. The judgment referenced precedents where penalties were not imposed if the tax was paid before the show cause notice and no fraud or wilful intention was found.

3. Denial of Benefit under Section 73(3) of the Finance Act:
The authorities denied the benefit under Section 73(3), which allows for no further proceedings if the tax is paid before the show cause notice unless there is fraud or suppression of facts. The appellant argued that his actions did not constitute suppression or fraud, as he had complied with tax payment before the notice. The judgment concluded that the appellant's actions did not amount to fraud or wilful suppression, thus setting aside the penalty.

4. Validity of Show Cause Notice Issued Beyond the Limitation Period:
The appellant contended that the show cause notice issued on 19th October 2015 was time-barred, being beyond the one-year limitation period. The judgment did not specifically address this issue in detail, focusing instead on the appellant's compliance with tax payment before the notice.

5. Liability of Service Tax for the Sale of Flats by the Landowner:
The core issue was whether the landowner (appellant) was liable for Service Tax on flats sold before and after obtaining the completion certificate. The judgment clarified that the Service Tax liability was applicable to flats sold before the completion certificate was obtained (20th March 2012). Flats sold after this date and one flat gifted to the appellant's son were exempt from Service Tax. The judgment upheld the authorities' decision regarding the tax liability for flats sold before the completion certificate and dismissed the extra demand for subsequent sales.

Conclusion:
The appeal was partly allowed. The penalty imposed under Section 78 was set aside due to the appellant's compliance with tax payment before the show cause notice and lack of evidence for fraud or wilful suppression. The Service Tax liability for flats sold before the completion certificate was upheld, while the extra demand for subsequent sales was dismissed.