2019 (11) TMI 790 - AT - Service Tax

Imposition of penalty u/s 78 of FA - valuation - inclusion of conservation charges recovered from the employees, in respect of residential accommodation provided to them, for which the appellant company recovered licence fee - HELD THAT - There is no case of having collected the service tax and not paid. Further, it is evident that appellant is a Public Sector Undertaking and maintained the proper record of their transactions. Further, the levy of service tax on lease rent from education institution was wholly exempt. It was only by a subsequent modification of the mega exemption notification (w.e.f. 11.07.2014) the service tax became chargeable on the said lease rent. On this score also it is evident that there is no malafide on the part of the appellant, as such changes were brought about in the middle of the financial year, could have escaped the notice of the appellant. The conservancy charges are in the nature of recovery for municipal services provided by the town administration department of the appellant, for maintaining the industrial township. In this view of the matter also it prima facie appears that no case of imposing penalty is made out under Section 78 - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Imposition of penalty under Section 78 on the appellant.

Analysis:
The judgment revolves around the imposition of a penalty under Section 78 on the appellant, a Public Sector Undertaking engaged in various activities related to energy and renewable sources. The appellant runs an industrial township adjacent to its factory, providing housing and facilities to around 22,000 employees. The issue arose when the Department observed that the appellant was not paying service tax on lease rent received from educational institutions and cultural organizations, along with conservancy charges. The appellant had deposited service tax on lease rent but contested the tax on conservancy charges. The Department issued a show cause notice demanding service tax on both lease rent and conservancy charges, along with a penalty under Section 78.

Upon adjudication, the demand was confirmed, and an equal penalty under Section 78 was imposed, along with interest. The appellant appealed, arguing that no service tax should be levied on conservancy charges related to residential accommodation. The appellant had already deposited the service tax on conservancy charges and did not contest it. The appellant also contested the penalty under Section 78, claiming there was no allegation of suppression or fraud, as the transactions were properly recorded and taxes were paid on time. The Commissioner (Appeals) held that no service tax was leviable on conservancy charges related to residential accommodation, and the appellant did not contest the service tax on conservancy charges.

The Member (Judicial) analyzed the contentions and facts, noting that the appellant had maintained proper records and paid taxes regularly. The Member observed that the service tax on lease rent from educational institutions was exempt until a subsequent modification. Considering the nature of conservancy charges for municipal services provided by the town administration department of the appellant, the Member found no malafide intent on the part of the appellant. Consequently, the penalty under Section 78 was set aside, and the appeal was allowed.

In conclusion, the judgment clarifies the applicability of service tax on lease rent and conservancy charges, emphasizing the importance of proper record-keeping and compliance. The decision highlights the need to consider the circumstances and intent of the taxpayer before imposing penalties under Section 78.