2014 (9) TMI 782 - AT - Service Tax

Penalty u/s 77 & 78 - Construction of complex service - suppression of facts - Held that - There is no discussion/analysis with regard to the allegation of suppression and the adjudicating authority merely jumps to the conclusion that there is suppression of facts. Obviously this is not sufficient to sustain the allegation of suppression of facts - When section 80 of the Finance Act, 1994 has been found to be invocable for waiving penalty under Section 76, it is not possible to argue that the same (i.e. Section 80) will not be invocable mutatis mutandis for waiving penalty under Section 78 ibid. Further as has been fairly conceded by the Ld. AR, there is absence of mala fide in the present case. In such a situation, even otherwise penalty under Section 78 ibid cannot be imposed in as much as penalty under that section requires means rea - Decided in favour of assessee.

Summary

Issues:
Service tax demand confirmation, imposition of penalties under Section 78 and Section 77 of Finance Act 1994, alleged suppression of facts, invocation of Section 80 for waiving penalties.

Analysis:

Service Tax Demand Confirmation:
The appellants appealed against the confirmation of a service tax demand of Rs. 62,46,844 along with interest and penalties under Section 78 and Section 77 of the Finance Act 1994. The demand arose from the construction of residential houses falling under the taxable category of Construction of complex service, where the appellants received Rs. 16,49,20,743 from their client during a specific period. The appellants were found liable to pay service tax amounting to Rs. 62,46,844 after allowing abatement of 67% from the gross value of taxable service recovered by them, which they allegedly evaded through suppression of facts.

Alleged Suppression of Facts:
The appellants contended that they were unaware of the service tax liability initially, as it was introduced in June 2005. They argued that they took immediate steps to register for service tax upon being informed by the DGCEI and subsequently deposited a total of Rs. 76,24,017 towards the service tax liability. They claimed that the Show Cause Notice included amounts received before the introduction of the construction of complex service, which they believed should not be leviable. The appellants emphasized their lack of mala fide intention and absence of willful suppression or misstatement on their part, asserting their eligibility for the benefit of Section 80 of the Finance Act 1994.

Penalties and Waiver under Section 80:
The adjudicating authority found the appellants liable for penalties under Section 78 and Section 77 due to non-payment of the outstanding service tax and failure to file periodical returns. However, the appellate tribunal noted that the Order-in-Original lacked a detailed discussion regarding the allegation of suppression of facts. The tribunal emphasized that the invocation of Section 80 for waiving penalties under Section 76 implied a similar consideration for waiving penalties under Section 78. Moreover, the absence of mala fide intention in the case rendered the imposition of penalties under Section 78 unjustifiable, as it requires mens rea. Consequently, the tribunal set aside the imposition of penalties under Sections 77 and 78 of the Finance Act 1994.

Overall, the judgment highlighted the importance of a thorough analysis of allegations, the requirement of mens rea for penalty imposition, and the applicability of Section 80 for waiving penalties in cases lacking mala fide intent.