2018 (8) TMI 176 - AT - Service Tax

Maintenance and repair services - Point of Taxation Rules - payment of tax with Interest made on being pointed out - Invocation of extended period of limitation - penalty - Held that - Admittedly, appellant company had expressed its ignorance about change of procedure concerning Point of Taxation Rules, with effect from 01.04.2011 and made delayed payment of service tax upon its receipt and not on the basis of dates on which invoices were raised by it - because of long practice prevailing since introduction of service tax, it was just carrying forward the process and there was no ill intention that can be attributed to evade tax since all the tax liabilities were addressed with due payment of interest after the same being identified by way of audit. The explanation 2 has been inserted to sub-rule 3 of Rule 73 with effect from 08.05.2010 and sub-rule 4 has all along been existing since implementation of Finance Act, 1994. Therefore, there is no need to venture into such debate that explanation 2 providing non-imposition of penalty under any of the provisions of Act and Rule on fulfilment of requirement of sub-rule(3) would have application to subrule 4 since sub-rule 4 starts with an non-obstinate clause nothing contained in sub-rule 3 shall apply to a case where service tax has not been levied or paid or short levied or short paid or erroneously refunded by reason of those five grounds mentioned above under proviso to subrule (1) of Rule 73. In view of the fact that parameters of proviso to Section 73 and ingredients constituting suppression of fact by the appellant has not been made out and the same had not been established by the respondent department before the authorities adjudicating the matter, it can safely be concluded that Section 4 would have no application to the case of the appellant attracting penalty, in which case explanation 2 to sub-section (3) of Section 73 will have its effect - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legitimacy of the service tax demand.
2. Applicability of extended period of limitation.
3. Justification for imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.
4. Validity of the enhancement of the penalty from 15% to 50% under Section 78(1).

Detailed Analysis:

1. Legitimacy of the Service Tax Demand:
The appellant, a private limited company providing maintenance and repair services, was unaware of changes in the service tax regime introduced by the Point of Taxation Rules, 2011, effective from 01.04.2011. Consequently, they continued to pay service tax upon receipt of payment rather than on an accrual basis. An audit for the period from 2011 to 2014 revealed non-compliance with Rule 3 of the Point of Taxation Rules, 2011, resulting in a tax demand of ?17,79,239/-. The appellant recalculated and paid ?15,16,841/- along with interest of ?1,95,081/-. The Assistant Commissioner confirmed the demand of ?15,62,686/- with penalties under Sections 77 and 78(1)(i) of the Finance Act, 1994.

2. Applicability of Extended Period of Limitation:
The appellant argued that the extended period of limitation should not have been invoked and penalties should not have been imposed due to the absence of ill intention. The respondent department justified the extended period on grounds of suppression of facts. The Tribunal noted that the appellant's ignorance of the new rules and their subsequent payment of tax and interest indicated no intent to evade tax. The Tribunal emphasized that the burden of proving suppression or fraud lies with the department, which failed to establish such grounds convincingly.

3. Justification for Imposition of Penalties under Sections 77 and 78 of the Finance Act, 1994:
The Tribunal examined the provisions of the Finance Act, 1994, particularly Section 73, which allows for an extended period for assessment in cases of fraud, collusion, wilful misstatement, or suppression of facts. The Tribunal found no evidence of such practices by the appellant. The appellant's delayed payment was attributed to a long-standing practice and misunderstanding of the new rules, not an intent to evade tax. The Tribunal highlighted the distinction between "failure" and "suppression," concluding that the appellant's actions did not constitute suppression.

4. Validity of the Enhancement of the Penalty from 15% to 50% under Section 78(1):
The respondent department appealed to enhance the penalty from 15% to 50%, which was allowed by the Commissioner (Appeals). The Tribunal, however, found this enhancement unjustified. It noted that the appellant had paid the tax and interest voluntarily after the audit, and there was no evidence of deliberate evasion. The Tribunal referred to the Supreme Court's judgment in Uniworth Textiles Ltd., which stated that mere non-payment of duties does not equate to collusion or wilful misstatement. The Tribunal concluded that the conditions for imposing a higher penalty were not met in this case.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the Commissioner (Appeals) that imposed duty, interest, and enhanced penalties. The Tribunal emphasized that the appellant's actions did not warrant the extended period of limitation or the imposition of penalties under Sections 77 and 78 of the Finance Act, 1994. The judgment underscored the importance of distinguishing between genuine mistakes and deliberate evasion in tax matters.

Order:
The appeal is allowed, and the order passed by the Commissioner (Appeals) imposing duty, interest, and penalty is hereby set aside. (Pronounced in Court on 26.07.2018)