2014 (5) TMI 576 - AT - Service Tax

Penalty u/s 76, 77 & 78 - Construction of residential complexes /finishing activity - Malafide intention - Fraudulent activity - Held that - There is no case made out of fraud, collusion and/or active concealment on the part of the appellant. Further, the appellant has paid the Service Tax along with interest before the issue of show-cause notice and accordingly they are entitled to benefit under Section 73 (3). Thus the penalty levied under Sections 76, 77 and 78 of the Finance Act are hereby set aside - Decided in favour of assessee.

Summary

Issues:
1. Liability of Service Tax on construction of residential complexes for low-income group.
2. Applicability of Section 73(3) of the Finance Act, 1994 in the case of tax liability admission and payment before show-cause notice.
3. Rejection of plea under Section 73(3) due to reasons of fraud, suppression, collusion, etc.
4. Consideration of fraud, collusion, or active concealment for penalty imposition under Sections 76, 77, and 78 of the Finance Act.

Issue 1: Liability of Service Tax on construction of residential complexes for low-income group
The appellant, a partnership firm engaged in civil construction, particularly roads construction, undertook the construction of 14 tenements for the Maharashtra Housing Development Authority (MHADA). A show-cause notice was issued regarding the liability of Service Tax under the category of "construction of residential complexes/finishing activity" for the period from 01.06.2005 to 30.09.2007. The appellant argued that the tenements constructed were small separate houses and did not meet the criteria of a building or buildings as per the definition under Section 65 of the Finance Act, 1994. They contended that no single residential complex had more than 12 residential units, which was a prerequisite for tax liability. However, the appellant admitted tax liability and deposited the tax with interest before the show-cause notice was issued, as evident from the show-cause notice itself.

Issue 2: Applicability of Section 73(3) of the Finance Act, 1994
The appellant relied on Section 73(3) of the Finance Act, which allows the assessee to pay the Service Tax chargeable based on their own ascertainment or as determined by a Central Excise Officer before the issuance of a show-cause notice. The appellant argued that since they had paid the tax and informed the Revenue authorities before the notice was served, the provisions of Section 73(3) should apply. They cited a decision of the Hon'ble Karnataka High Court to support their position, emphasizing that once tax and interest were deposited with proper intimation, the Revenue authorities could not initiate recovery proceedings or impose penalties under the Act.

Issue 3: Rejection of plea under Section 73(3) due to reasons of fraud, suppression, collusion, etc.
The learned A.R. pointed out that the lower appellate authority rejected the appellant's plea under Section 73(3) by stating that the provisions were not applicable when tax liability arose due to fraud, suppression, collusion, etc. However, the appellate tribunal found that there was no evidence of fraud, collusion, or active concealment on the part of the appellant. Since the Service Tax was paid along with interest before the show-cause notice was issued, the tribunal held that the appellant was entitled to the benefit under Section 73(3), thereby setting aside the penalties imposed under Sections 76, 77, and 78 of the Finance Act.

Issue 4: Consideration of fraud, collusion, or active concealment for penalty imposition under Sections 76, 77, and 78 of the Finance Act
The tribunal's decision to set aside the penalties levied under Sections 76, 77, and 78 of the Finance Act was based on the absence of any indication of fraud, collusion, or active concealment by the appellant. Since the appellant had paid the Service Tax with interest before the issuance of the show-cause notice and had complied with the provisions of Section 73(3), the tribunal found no grounds for penalty imposition. As a result, the appeal was allowed, and the penalties under Sections 76, 77, and 78 were set aside.

This detailed analysis of the judgment highlights the key issues surrounding the liability of Service Tax, the application of Section 73(3) of the Finance Act, and the considerations for penalty imposition in cases of fraud or non-compliance.