2019 (3) TMI 115 - AT - Service Tax

Penalty u/s 78 - Non-payment of service tax - registration not taken - Manpower Recruitment or Supply Agency Service - Held that - Out of the total service tax demand of ₹ 45,06,956/-, an amount of ₹ 41,28,676/- service tax amount relating to Manpower Recruitment or Supply services was paid up by the appellant before issue of SCN and the remaining amount of ₹ 3,79,198/- was paid after issue of the adjudication order - Penalty u/s 78 not sustainable. Valuation - amount related to reimbursable expenses - demand of ₹ 3,78,280/- - Held that - No proof has been put forth at the adjudication stage or before the lower appellate authority to substantiate their claim - For these reasons, the issue relating to the demand of ₹ 3,78,280/- is remanded to the adjudicating authority, to enable the appellant to produce the necessary documentary evidence and to prove that the same relates to expenses which were reimbursed by M/s. Shakti Sugars - matter on remand. Appeal allowed in part and part matter on remand.

Summary

Issues:
1. Non-payment of service tax liability by the appellant for providing services.
2. Dispute regarding the demand of ?3,78,280 claimed to be reimbursable expenses.
3. Imposition of penalties under Section 78 and Section 77 of the Finance Act, 1994.

Issue 1: Non-payment of service tax liability
The appellant provided Manpower Recruitment or Supply Agency Service to various companies but failed to register and pay service tax for operations in Sivagangai. The appellant admitted to supplying workers based on 'labour days' and had registered for Sivagangai operations after the fact, paying a portion of the due tax. The adjudicating authority confirmed a demand of ?45,06,956 with penalties under Section 78 and Section 77. The Commissioner (Appeals) upheld this order, leading to the current appeal.

Issue 2: Dispute over reimbursable expenses
The appellant contended that the disputed amount of ?3,78,280 was related to expenses reimbursed by M/s. Shakti Sugars, citing a Supreme Court judgment. The appellant had paid a significant portion of the total demand before the issue of show cause notice (SCN), with the remaining amount settled post the adjudication order. The department argued that there was no proof of reimbursable expenses submitted by the appellant, alleging suppression of facts and justifying the penalty under Section 78.

Issue 3: Imposition of penalties
The Appellate Tribunal noted that the appellant had paid a substantial portion of the service tax demand before the SCN and the remaining post the adjudication order. Referring to a previous case, the Tribunal held that no penalty under Section 78 would apply for the Manpower Recruitment or Supply services. The issue of the disputed reimbursable expenses was remanded to the adjudicating authority for further evidence submission. The Tribunal set aside the penalty under Section 78 but upheld the penalty under Section 77, considering the prolonged litigation and the absence of proof for reimbursable expenses.

In conclusion, the Tribunal allowed the appeal with the following decisions:
a) No interference with the demand of service tax for Manpower Recruitment and Supply Services.
b) Remanding the issue of disputed reimbursable expenses to the adjudicating authority.
c) Setting aside the penalty under Section 78 but upholding the penalty under Section 77.
The judgment provided detailed reasoning for each issue, ensuring a fair and comprehensive analysis of the appellant's case.