2012 (11) TMI 438 - AT - Service Tax

Penalty under Section 76 & 78 of the Act - entire amount of service tax and education cess with interest was paid before the issue of show-cause notice assessee submitted that assessee is an illiterate person and did not know the provisions of law and therefore a liberal view is required to be taken Held that - Department came to know about the fact that appellant was providing manpower supply service only during the audit of service receivers and thereafter proceeding were initiated - appellant cannot be said to have a bona fide belief about his liability to tax - Penalty under Section 76 is not a mandatory penalty - penalty under Section 76 is required to be set aside by invoking the provisions of Section 80 of the Act which provides for non-imposition of penalty on a reasonable cause being shown - demand for service tax, interest and imposition of penalty under Section 78 of the Act confirmed - penalty under Section 76 of the Act set aside

Summary

Issues:
1. Failure to pay service tax on labor charges.
2. Imposition of penalty under Section 76 and Section 78 of the Act.
3. Justification for waiver of penalty.
4. Appellant's knowledge of tax liability and participation in proceedings.

Analysis:

1. The case involved the failure of a labor contractor to pay service tax on labor charges paid by a manufacturing unit. The contractor confessed to the tax liability and promised to pay the service tax. Subsequently, a demand for service tax, education cess, interest, and penalty was confirmed. The appellant paid the service tax demand with interest and part of the penalty. The appeal was filed against the imposition of the remaining penalty.

2. The appellate authority considered the submissions made by the appellant's representative, who did not contest the demand for service tax and interest but argued against the imposition of penalty under Section 76 and 78 of the Act. It was noted that the appellant had been uncooperative during the proceedings, requiring multiple summons and failing to participate effectively. The authority found that the appellant's lack of awareness of tax laws did not justify a waiver of penalty. The penalty under Section 76 was deemed non-mandatory, and considering the appellant's individual status and lack of education, the authority set aside the penalty under Section 76 while confirming the penalty under Section 78.

3. The issue of the appellant's knowledge of tax liability and participation in the adjudication proceedings was crucial in determining the imposition of penalties. Despite the appellant's claim of being illiterate and unaware of tax provisions, the authority found that the appellant's behavior, including refusal to receive personal hearing intimation and non-participation in proceedings, did not support a bona fide belief about tax liability. The authority invoked the provisions of Section 80 of the Act to set aside the penalty under Section 76 while upholding the penalty under Section 78.

4. In conclusion, the appellate tribunal rejected the appeal against the demand for service tax, interest, and penalty under Section 78, while also rejecting the appeal against the penalty under Section 76. The decision was based on the appellant's lack of cooperation, the non-mandatory nature of the penalty under Section 76, and the provisions of Section 80 allowing for non-imposition of penalty on reasonable cause being shown.