2019 (3) TMI 1513 - AT - Service Tax

Imposition of penalty - Non-payment of service tax - Construction services under the Works Contract - bonafide belief - issue under confusion - no intent to evade - Held that - Indubitably, there was confusion in respect of taxability on composite works contract service, under the category of CICS, which was only laid to rest by the Hon ble Supreme Court in CCE Vs. Larsen & Toubro Ltd 2015 (8) TMI 749 - SUPREME COURT - It is also pertinent to note that the appellant did not collect tax from their service recipients and that they have paid up the tax liability immediately on pointed out. There is a definite case for waiver of penalty under Section 80 of the Act ibid - appeal allowed - decided in favor of appellant.

Summary

Issues involved: Appeal against penalties imposed under Section 77(1) and Section 78 of the Finance Act, 1994.

Analysis:

1. Penalty under Section 77(1) and Section 78:
The appeal was focused on challenging the penalties of ?77,756 each imposed under Section 77(1) and Section 78 of the Finance Act, 1994. The appellant argued that they were not aware of the tax liability, as evidenced by their failure to collect service tax from customers. They disclosed the entire amount in their income tax returns and paid the tax liability promptly upon being notified by the department. The confusion regarding the taxability of services provided by the appellant was acknowledged, especially in relation to composite works contract services. The Tribunal referred to the decision in Real Value Promoters Pvt. Ltd. and highlighted that the appellant's actions, including non-collection of tax from service recipients and immediate payment upon notification, demonstrated a lack of intent to evade tax. Consequently, the Tribunal found merit in the appellant's argument and waived the penalties under Sections 77 and 78 of the Act while upholding the demand for tax liability.

2. Waiver of Penalties:
The Tribunal recognized the confusion surrounding the taxability of composite works contract services and the subsequent clarification provided by the Supreme Court in CCE Vs. Larsen & Toubro Ltd. The Tribunal also noted that the appellant did not collect tax from their customers and promptly settled the tax liability upon notification. Considering these factors, the Tribunal concluded that there was a reasonable cause for the failure to pay the tax liability, warranting the waiver of penalties under Section 80 of the Act. While the demand for tax liability was upheld, the penalties under Sections 77 and 78 were set aside in favor of the appellant.

3. Decision and Conclusion:
Ultimately, the Tribunal allowed the appeal on the grounds that the confusion regarding tax liability, the appellant's actions in promptly paying the tax upon notification, and the lack of intent to evade tax justified the waiver of penalties under Sections 77 and 78 of the Finance Act, 1994. The demand for tax liability was maintained, but the penalties were set aside, providing relief to the appellant in this matter.