2019 (9) TMI 413 - AT - Service Tax

Levy of penalty u/s 76 and 77 of FA - taxability of Renting of Immovable Property Services - non payment of tax under Bonafide belief - no suppression of facts - HELD THAT - The undisputed facts are that the appellant is a local authority and hence, there can be no issue as to suppression of any facts and that too, with an intent to evade any tax. Further, though the activity of renting of building is not a statutory function, the building has been rented to earn revenue to perform the statutory functions entrusted on the appellant under Article 243W of the Constitution of India. Further, the bona fide belief of the appellant can be vouched from the Circular No. 13052/2016/D2 dated 03.05.2017 issued by the Commissioner of Municipal Administration to all the Municipal Commissioners clarifying the exemption available under Sl. No. 39 of Mega Exemption Notification No. 25/2012-ST dated 20.06.2012. Also, the taxability of Renting of Immovable Property Services has not attained finality and is still pending before the Larger Bench of the Hon ble Apex Court, in the matters of UNION OF INDIA AND ORS. VERSUS UTV NEWS LTD. 2018 (5) TMI 1367 - SUPREME COURT and MINERAL AREA DEVELOPMENT AUTHORITY ETC. VERSUS M/S STEEL AUTHORITY OF INDIA ORS 2011 (3) TMI 1554 - SUPREME COURT and therefore, it can be safely assumed that the doubts in the mind of the appellant as to taxability or otherwise of the renting activity was in good faith, which is also due to the fact that there are contrary decisions available and that finally, it has reached the Hon ble Supreme Court. Thus, the main issue of taxability on the Renting of Immovable Property itself being under litigation, the ingredients of Section 76 of the Finance Act, 1994 can be assumed to be absent, for levying penalty - penalty u/s 76 set aside - However, the penalty under Section 77 ibid is imposed because of delay/failure in filing the ST-3 return, which is an admitted fact. Appeal allowed in part.

Summary

Issues:
Challenge to penalties under Sections 76 and 77 of the Finance Act, 1994.

Analysis:

Issue 1: Challenge to Penalties under Sections 76 and 77
The appellant contested penalties imposed under Sections 76 and 77 of the Finance Act, 1994. The appellant, responsible for Municipal Administration and Water Distribution, rented out immovable properties to individuals. Show Cause Notices were issued for Service Tax demands on rental charges, along with interest and penalties. The Assistant Commissioner confirmed the demands, penalties under Sections 76 and 77, and a separate penalty. The Commissioner of G.S.T. and Central Excise (Appeals) upheld these penalties. The main issue was whether the penalties under Sections 76 and 77 were correctly imposed.

Issue 1 Analysis:
During the hearing, the appellant's advocate and the Revenue's representative presented their arguments. The crucial question was the correctness of the penalties under Sections 76 and 77. The appellant, being a local authority, had no intention to evade tax, as renting the buildings aimed to generate revenue for statutory functions. The appellant's belief was supported by a circular clarifying exemptions. Moreover, the taxability of Renting of Immovable Property Services was unsettled, pending before the Larger Bench of the Supreme Court. Given the ongoing litigation on this issue, it was deemed that the conditions for penalty under Section 76 were not met, leading to setting aside of the penalty under this section.

Issue 1 Continued:
However, the penalty under Section 77 was upheld due to the admitted delay/failure in filing the ST-3 return. The decision was based on the clear facts surrounding the delay in filing the return. Consequently, the appeals were partly allowed, with the penalty under Section 76 being set aside, while the penalty under Section 77 was maintained.

This comprehensive analysis addresses the issues involved in the legal judgment, detailing the arguments, facts, and decisions made by the tribunal regarding the penalties imposed under Sections 76 and 77 of the Finance Act, 1994.