2021 (2) TMI 790 - AT - Service Tax

Levy of penalty u/s 78 of the Finance Act, 1994 - demand of service tax on Construction of Complex Service (CCS) for the period from 2006-07 to 2009-10 - residential apartments constructed by the appellant - tripartite agreement - HELD THAT - A perusal of the documents placed on record would indicate that the appellant was involved in providing taxable service under the category of Construction of Complex Service (CCS), which included construction of residential complex as well on account of the appellant having constructed semi-finished flats/villas by the time of the commencement of the National Games in 2002. This semi-finished job required further construction in order to complete the same into residential flats/villas, which was undertaken by the appellant under construction agreements with the respective owners/customers, which clearly brings the scope of the above work out of the purview of the exclusion clause under Section 65(91a) of the Finance Act, 1994 since the residential complex was never intended for the personal use of the appellant. But the law requires that such complex shall not be constructed by a person directly engaging any other person for designing or planning of the layout, which according to us stands satisfied here since the Revenue has nowhere flagged any objections on the satisfaction of this requirement of law - the demand do not sustain. Works Contract Service - HELD THAT - The appellant as a builder was expected to put up partial construction as per plan which thereafter, i.e., after sale, was required to be completed. Hence, we find that the appellant was required to undertake a host of activities to ensure completion of the project before handing over possession - the demand cannot sustain. Demand of Service Tax on pipe laying and pipe laying civil works at MCGM-TANSA Pipeline - HELD THAT - Revenue is not able to establish that this is a commercial or industrial project. Hence, we agree with the appellant s contentions that the demand on this count cannot sustain. Penalty under Section 78 - HELD THAT - As per first proviso to Sub-section (1) of Section 78 of the Act, no penalty shall be imposable for any failure referred to in the said Provision viz., for failure to pay service tax, for contravention of Rules and Provisions of the Act, or for suppression of facts etc., if the assessee proves that there was reasonable cause for such failure. From the facts available on record, it is noticed that entire facts were available on record and on this there is no dispute; nor is there any contrary finding by the adjudicating authority. The entire dispute arose, as pleaded by the appellant, on account of wrong interpretation/understanding of the provisions of the Act and the lower authority has not disputed the bona fide pleadings of the appellant. But the penalty is levied as if it is automatic. However, it can hardly be said that there was evasion, much less wilful evasion, to pay tax or not to comply with the provisions of the Act - there was no justification for imposition of penalty, especially when there was no allegation of fraud, mis- representation, etc. Accordingly, the penalty imposed on the appellant shall stand deleted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Construction of Complex Service demand
2. Service Tax under site formation, clearance, excavation, and earthmoving
3. Works Contract Service demand
4. Erection, Commissioning, and Installation Service demand
5. Contested Service Tax demand
6. Imposition of penalty under Section 78

Construction of Complex Service demand:
The appellant contested the demand related to Construction of Complex Service (CCS) for the period from 2006-07 to 2009-10. The appellant argued that the demand was raised in connection with residential apartments constructed under a tripartite agreement. The Tribunal found that the appellant was involved in providing taxable services under CCS, including construction of residential complexes. The Tribunal noted that the appellant undertook further construction activities to complete semi-finished flats into residential units, which fell outside the exclusion clause. The demand was not sustainable as the law required that such complexes should not be constructed by a person engaging others for designing or planning, a requirement met by the appellant.

Service Tax under site formation, clearance, excavation, and earthmoving:
The appellant did not contest the demand for Service Tax under site formation and related services for the period from 2009-10 to 2010-11. However, the appellant disputed the imposition of equal penalty under Section 78. The Tribunal observed that the penalty was levied without verifying the presence of the necessary ingredients under Section 78. The appellant's belief that the work was not liable to Service Tax due to its nature was considered bona fide. The penalty was deemed unjustified, and the demand could not sustain.

Works Contract Service demand:
The demand under Works Contract Service (WCS) for the Pranahitha Chevella Lift Irrigation Project was contested by the appellant. The Tribunal referred to a precedent and concluded that the demand could not be sustained. The appellant's activities in completing the project before handing it over aligned with the precedent's interpretation of WCS. Hence, the demand under WCS was not justified.

Erection, Commissioning, and Installation Service demand:
Regarding the demand under Erection, Commissioning, and Installation Service (ECIS), the appellant argued that the works did not fall under the commercial or industrial purpose category. The Tribunal agreed with the appellant's contentions, citing relevant judgments. The demand on this count was deemed unsustainable.

Contested Service Tax demand:
The Service Tax demand, not disputed by the appellant, was paid along with interest. The appellant contested the levy of penalty under Section 78 on the grounds of bona fides. The Tribunal found merit in the appellant's arguments, leading to the conclusion that the penalty could not be sustained.

Imposition of penalty under Section 78:
The Tribunal analyzed the imposition of penalty under Section 78, emphasizing the necessity for tax evasion or non-compliance with the Act due to fraud or wilful suppression. The Tribunal found no evidence of wilful evasion by the appellant and noted the absence of any findings against the appellant. The penalty was considered unjustified, especially in the absence of fraud or misrepresentation. Consequently, the penalty imposed on the appellant was deleted.

This detailed analysis of the judgment addresses the various issues involved in the case, highlighting the arguments presented by both parties and the Tribunal's reasoning for each issue.