2018 (7) TMI 177 - AT - Service Tax

Penalties u/s 77 and 78 - Commercial or Industrial Construction Service - payment of service tax under wrong head - Bona fide belief - Held that - The issue whether works contract services was liable to levy of service tax was contentious issue for a long time. Further the appellant had inadvertently deposited dues under wrong head which shows that there was no intention to evade payment of tax - Moreover the issue and the period was immediately after 1/6/2007. The penalty imposed under section 78 of the Finance Act 1994 is unwarranted - the penalty imposed under Section 78 is set aside without disturbing the confirmation of demand interest or the penalty imposed under Section 77. Appeal allowed in part.

Summary

Issues:
1. Liability to pay service tax under "Commercial or Industrial Construction Service."
2. Imposition of penalties under sections 77 and 78 of the Finance Act, 1994.

Analysis:

Issue 1: Liability to pay service tax under "Commercial or Industrial Construction Service"
The appellant was issued a Show Cause Notice proposing to demand service tax under the category of "Commercial or Industrial Construction Service" and penalties. The original authority confirmed the service tax, interest, and penalties. The appellant undertook civil construction work for BSNL, classifiable under works contract services for the period 2007-08 to 2009-10. The appellant had discharged part of the service tax liability but had inadvertently deposited an excess amount under a different head. The appellant, not contesting the tax liability, challenged the penalties imposed, seeking the benefit of Section 80 to waive the penalties. The Tribunal considered the contentious issue of whether works contract services were liable to service tax and the appellant's inadvertent payment under the wrong head. The Tribunal held that the penalty under Section 78 was unwarranted due to the circumstances and period involved post-1/6/2007. Consequently, the penalty under Section 78 was set aside while confirming the demand, interest, and penalty under Section 77.

Issue 2: Imposition of penalties under sections 77 and 78 of the Finance Act, 1994
The appellant contested the penalties imposed under sections 77 and 78 of the Finance Act, 1994. The appellant acknowledged the liability to pay service tax but challenged the penalties. The appellant's inadvertent payment under a different head and the contentious nature of the issue regarding works contract services post-1/6/2007 were considered. The Tribunal found that the penalty under Section 78 was unwarranted given the circumstances and the appellant's actions. As a result, the penalty under Section 78 was set aside, while the confirmation of demand, interest, and penalty under Section 77 remained undisturbed. The impugned order was modified to only set aside the penalty imposed under Section 78 of the Finance Act, 1994. The appeal was allowed in these terms, with consequential reliefs if any.

This judgment highlights the importance of considering the circumstances, intent, and period involved when imposing penalties under the Finance Act, 1994, particularly in cases where there is inadvertent payment and contentious issues regarding tax liability.