2024 (10) TMI 1403 - AT - Service Tax

Non discharge of service tax - invocation of the extended period or the demand of service tax - Penalties imposed u/s 77 and 78 of the Finance Act, 1994 - appellant was providing taxable services under the category of Maintenance Repair Service, Man Power Recruitment Supply Agency Service to the service recipient HELD THAT - Both the authorities below have misdirected themselves as there was no contest by the appellant to the invocation of the extended period or the demand of service tax. Appellant has suo motto computed the service tax due and has paid the said amount. As pleaded his lack of knowledge and status as petty contractor not having means to understand the complexity of taxation of services. Both the authority agree to these submissions and have still gone on to impose heavy penalties u/s 77 and 78 of the Finance Act, 1994. Taking note of undisputed findings with regards to status of appellant and his compliance even before the adjudication has been undertaken we do not find any justification for not having considered extending the benefit of Section 80 of the Finance Act, 1994 and waiving of all the penalties imposable on the appellant. We do not find any merits in the impugned order to the extent it is in relation to the penalties imposed on the appellant. This is a fit case where penalties imposable under Section 77 and 78 should have been waived in terms of provisions of Section 80 of the Finance Act, 1994. Appeal partly allowed to the extent of setting aside the penalties imposed on the appellant.

Issues Involved:

1. Demand of service tax and interest under the Finance Act, 1994.
2. Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.
3. Invocation of the extended period of limitation.
4. Applicability of Section 80 for waiver of penalties.
5. Revenue neutrality argument by the appellant.

Detailed Analysis:

1. Demand of Service Tax and Interest:

The appellant, a registered service provider, was found to have not discharged the service tax due for services rendered under the categories of Maintenance & Repair Service and Man Power Recruitment & Supply Agency Service. The Original Authority confirmed a demand of service tax amounting to Rs. 457,364, including Education Cess and Secondary & Higher Education Cess, under Section 73(2) of the Finance Act, 1994, along with interest under Section 75. The appellant had already deposited Rs. 475,391, which was appropriated against the liability. The appellant did not contest the demand of service tax on merits but only on the computation aspect, acknowledging the tax liability and agreeing to pay the interest due.

2. Imposition of Penalties:

Penalties were imposed under Sections 77 and 78 of the Finance Act, 1994. The Original Authority imposed a penalty of Rs. 5,000 each for violations of Sections 70 and 69, and a penalty of Rs. 457,364 under Section 78, with a provision to reduce it to 25% if paid within 30 days. The appellant argued for waiver of penalties, citing lack of knowledge and being a petty contractor without means to understand complex tax provisions. However, both the Original and Appellate Authorities upheld the penalties, stating the appellant's failure to obtain service tax registration timely and non-filing of statutory returns indicated intent to evade tax.

3. Invocation of Extended Period of Limitation:

The authorities invoked the extended period of limitation, citing the appellant's conscious suppression of taxable service value and non-disclosure of material information. The appellant did not contest this invocation, and both authorities justified the extended period due to the appellant's actions.

4. Applicability of Section 80 for Waiver of Penalties:

The appellant sought relief under Section 80, arguing for waiver of penalties due to lack of knowledge and compliance efforts before adjudication. The Tribunal found merit in this argument, noting the appellant's status as a petty contractor and voluntary compliance. The Tribunal criticized the lower authorities for not considering Section 80 and concluded that penalties under Sections 77 and 78 should have been waived.

5. Revenue Neutrality Argument:

The appellant contended that the demand was revenue neutral if Cenvat credit was considered. The Appellate Authority dismissed this argument, stating it lacked statutory basis and contradicted the Cenvat credit scheme, which requires tax payment at each taxable event stage. The Tribunal did not find this argument substantial enough to affect the penalty decision.

Conclusion:

The Tribunal allowed the appeal partly by setting aside the penalties imposed on the appellant, invoking Section 80 of the Finance Act, 1994, due to the appellant's compliance and lack of intent to evade taxes. The demand of service tax and interest was upheld, but the penalties were waived, acknowledging the appellant's status and efforts to comply with tax obligations.

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