2024 (7) TMI 547 - HC - Central Excise

Imposition of penalty and interest - failure to deposit service tax on reverse charge mechanism when no man power has been supplied to the petitioner as because the petitioner engaged contractors for executing job works who hired labours. Demand of service tax - HELD THAT - It is not in dispute that the said service tax has already been paid by the assessee. From the order passed by the learned Tribunal, it is found that the Tribunal has re-appreciated the facts, more particularly, Annexure-B to the Chartered Accountant s certificate and found that there are two parts of the labour charges which have been paid one, pertaining to labour charges paid to the contractors and, the second pertaining to labour charges paid to the locally hired workers by the company and, thereafter considered the findings recorded by the adjudicating authority and affirmed the same - there can be substantial question of law arising on the said issue and the appeal challenging the demand of Rs.25,16,900/- towards service tax is affirmed. Imposition of penalty - HELD THAT - It is settled legal principle that mere use of the expression fraud and willful mis-statement etc. will not automatically attract the penal provision as the adjudicating authority is bound to bring the facts on record, especially fraud or willful mis-statement . Bearing this principle in mind, it is found in the facts of the present case that except using the word willful mis-statement , nothing has been brought on record to show as to how and under what manner the statement made by the assessee was willful and with an intent to evade payment of tax. On facts, it is seen that the assessee was not under the service tax net, because their activities remained exempted under the service tax regime so far as forward charge mechanism was in vogue. Reverse charge mechanism became operative only from July 1, 2012 in so far as supply of manpower service is concerned - it cannot be held that the assessee had made a willful mis-statement so as to invoke Section 78 to impose penalty on the assessee. Ais partly allowed and the penalty imposed on the assessee is set aside - the substantial question of law is answered in favour of the assessee.

Summary

Issues:
1. Demand of service tax already paid by assessee.
2. Imposition of penalty under Section 78 of the Act.

Analysis:
1. The first issue pertains to the demand of service tax amounting to Rs.25,16,900/-, which was already paid by the assessee. The Tribunal re-evaluated the facts and observed that there were two components of labor charges: one paid to contractors and the other to locally hired workers. The adjudicating authority's findings were upheld by the Tribunal. The Court noted the possibility of a substantial legal question arising on this matter, leading to the affirmation of the appeal challenging the service tax demand.

2. The second issue revolves around the imposition of penalty under Section 78 of the Act. The adjudicating authority had imposed a penalty on the appellant, which was later reduced by the Tribunal to 25% of the original amount. However, the Court emphasized that the mere use of terms like "fraud" or "willful mis-statement" does not automatically warrant the imposition of penalties. In this case, it was found that there was no evidence to demonstrate how the appellant's actions constituted willful mis-statement with the intent to evade tax. Given that the appellant's activities were exempt from service tax until the reverse charge mechanism came into effect, it was deemed inappropriate to penalize the appellant under Section 78.

In conclusion, the Court partially allowed the appeal, setting aside the penalty imposed on the assessee. The substantial legal question was resolved in favor of the assessee, leading to the closure of the stay application.