2018 (12) TMI 1362 - AT - Service Tax

Non-payment of Service tax - erection, commissioning and installation services - demand alongwith interest - Held that - The appellants are engaged in providing solar fencing systems to their customers and owing to some tax concessions, available to the solar power sector they were under the bonafide belief that their activities are not subject to payment of Service Tax. Subsequent to audit of their accounts, it was pointed out that they are liable to service tax under the category of maintenance or repair services . The appellant/assessee being a proprietary concern immediately paid the entire liability of service tax along with interest and filed ST-3 returns, though belatedly. The appellants are not disputing their liability of service tax and have paid the entire amount of service tax along with interest which has also been appropriated in the adjudication order but are only before the Tribunal contesting the imposition of penalties - the entire proceedings were initiated based on the final audit report and the ST-3 returns and hence, do not find any element of suppression of facts mis-statement etc. with an intent to evade payment of service tax. The demand of Service Tax and interest is upheld and the penalties imposed u/s 78 and late fine imposed under Rule 7C of the S.T. Rules, 1994 are set side - appeal allowed in part.

Issues:
1. Demand of service tax for the years 2009-10, 2010-11 and 2012-13.
2. Appropriation of the paid service tax.
3. Demand of interest.
4. Imposition of penalties under Section 78.
5. Imposition of late fee under Rule 7C of Service Tax Rules, 1994.

Analysis:

1. Demand of Service Tax:
The appellants provided solar fencing systems and services without paying service tax for the years 2009-10 and 2010-11. After audit, they paid the service tax along with interest. Subsequently, for the year 2012-13, a demand of service tax was raised. The adjudicating authority upheld this demand, which the Commissioner (Appeals) also affirmed. The appellants contested the demand, arguing that the demand for the years 2009-10 and 2010-11 was beyond the stipulated period for demand under Section 73(1) of the Finance Act 1994. They contended that penalties under Section 78 cannot be imposed without a valid demand under Section 73.

2. Appropriation of Paid Service Tax:
The adjudicating authority appropriated the paid service tax amount against the demand. The appellants did not dispute their liability but contested the imposition of penalties. The Tribunal noted that the proceedings were initiated based on audit reports and ST-3 returns, without any suppression of facts to evade tax. Citing a circular, the Tribunal emphasized that payment of service tax, interest, and penalty concludes adjudication proceedings, and penalties cannot be imposed without a valid demand.

3. Demand of Interest:
The demand for interest was confirmed by the adjudicating authority, which the Tribunal upheld. The appellants did not contest this aspect, focusing their challenge on the penalties imposed under Section 78.

4. Imposition of Penalties under Section 78:
The adjudicating authority imposed penalties under Section 78 for non-payment of service tax in various instances. The appellants argued that penalties cannot be imposed without a valid demand under Section 73. The Tribunal agreed with this argument, setting aside the penalties imposed under Section 78.

5. Imposition of Late Fee:
Additionally, a late fee was imposed under Rule 7C of Service Tax Rules, 1994, read with Section 70 of the Finance Act 1994. The Tribunal set aside this late fee along with the penalties under Section 78, as they were based on demands that were beyond the stipulated period and lacked a legal basis.

In conclusion, the Tribunal upheld the demand of service tax and interest but set aside the penalties under Section 78 and the late fee imposed, as they were not legally sustainable due to the absence of valid demands under Section 73. The appeal was allowed with consequential relief.

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