2018 (10) TMI 558 - AT - Service Tax

Penalties on Local Authorities - Delay in payment of service tax - Renting of immovable Property Services - Case of appellant is that there was no levy of service tax at that time and when the levy of service tax was introduced, it was difficult for the municipality to immediately intimate the tenants to make necessary alterations to collect service tax - it was also argued that the issue is interpretational. Held that - Appellant, being a municipality, has to take up a lot of formalities before giving the premises for lease as well as for collecting rents. The premises were already leased out for three to five years without incorporating the levy of service tax. It is understandable that such a local self-body would find it very much difficult to collect the service tax from the tenants without proper orders from higher authorities. They have written letters to the Principal Commissioner, etc., to obtain sanction for collection of service tax as well as for remitting the service tax. Thus, the delay in payment of service tax occurred due to such reasons. It is convincing that the appellants have put forward reasonable cause for failure to discharge service tax - this is a fit case to invoke section 80 - Penalty set aside - The impugned Order is therefore modified to the limited extent of setting aside the penalties imposed without disturbing the demand or interest thereon. Appeal allowed in part.

Summary

Issues involved:
Appeal against service tax demand under Renting of Immovable Property Services by Punjai Puliampatti Municipality and Sathyamangalam Municipality.

Analysis:

1. Service Tax Demand Confirmation:
The appellants, local authorities, received Show Cause Notices for service tax short paid under Renting of Immovable Property Services. The Original Authority confirmed the demand, interest, and penalties, which were upheld by the Commissioner (Appeals), leading to the appeals.

2. Appellant's Argument:
The Ld. Consultant for the appellants argued that as local authorities, they provide civic services without profit motive. The properties were leased out before the service tax levy, and the delay in payment was due to the difficulty in immediately informing tenants about the new tax. The appellant believed they were not liable for service tax due to ongoing litigations regarding the taxability of Renting of Immovable Property Services.

3. Penalty Imposition:
The Ld. Consultant requested setting aside the penalties, highlighting the interpretational nature of the issue and referring to pending litigations before the Supreme Court on similar matters.

4. Appellant's Justification:
The appellants faced challenges in collecting service tax from tenants due to the formalities involved in leasing premises and the absence of prior provisions for tax collection. They sought approval from higher authorities to implement the tax, leading to delays in payment.

5. Decision and Ruling:
After hearing both sides, the Tribunal found the appellants' reasons for delay in service tax payment reasonable. Invoking Section 80 of the Finance Act, 1994, the penalties under Sections 77 and 78 were set aside without affecting the demand or interest. The impugned Order was modified to reflect this decision, partially allowing the appeals with consequential reliefs.

This comprehensive analysis outlines the legal proceedings, arguments presented, justifications provided, and the final ruling by the Tribunal, emphasizing the reasons for setting aside penalties while upholding the demand for service tax.