2015 (12) TMI 948 - AT - Service Tax

Imposition of penalty - benefit of u/s 73(3) - Construction service - Held that - Provisions of Section 73(3) of the Finance Act, 1994 as were in the statute during the relevant period when the show-cause notice dated 16.10.2009 issued needs to be considered; as appellant have discharged the entire service tax liability along with interest as has been ascertained by the Central Excise Officers i.e. audit party. In our view, provisions of Section 73(3) very clearly lays down that if service tax liability and the interest thereof is discharged on the direction of the Central Excise Officers, there is no need to issue show-cause notice. Adjudicating authority should have applied these provisions in the case in hand. We find a strong force in the contentions raised by the learned Counsel that they were under bonafide belief that the construction activity which was undertaken by the appellant was in respect of Government appointed statutory body hence tax liability may not arise. In our view the appellant could have entertained a bonafide belief that the activity undertaken by the appellant may not be covered under the tax net. In our considered view, this is a fit case for invoking provisions of Section 80 of the Finance Act, 1994. By invoking the said provisions of Section 80 of the Finance Act, 1994, we set aside the penalties imposed by the adjudicating authority under various sections - Appeal disposed of.

Summary

Issues:
1. Liability to pay service tax on construction activities.
2. Discharge of service tax liability and interest.
3. Imposition of penalties under Section 73(3) of the Finance Act, 1994.
4. Bonafide belief regarding tax liability.
5. Application of Section 80 of the Finance Act, 1994.

Analysis:

1. Liability to pay service tax on construction activities:
The appeal was against an order-in-original related to the appellant's construction activities from 2004-05 to 2008-09. The appellant was awarded contracts for various constructions but did not discharge the service tax liability on the amounts received. The adjudicating authority confirmed the demand of service tax along with interest, which was upheld by the Tribunal.

2. Discharge of service tax liability and interest:
The appellant claimed to have discharged the entire service tax liability on 08.06.2009, whereas the show-cause notice was issued on 16.10.2009. The Tribunal noted that the appellant was liable to pay service tax on the received amounts. However, it considered the provisions of Section 73(3) of the Finance Act, 1994, which state that if service tax liability and interest are discharged on the direction of Central Excise Officers, there is no need for a show-cause notice. The Tribunal upheld the discharge of service tax liability along with interest.

3. Imposition of penalties under Section 73(3) of the Finance Act, 1994:
Regarding the penalties imposed, the Tribunal found that the appellant had a bonafide belief that the construction activities were not taxable as they were for Government agencies. The Tribunal invoked Section 80 of the Finance Act, 1994, setting aside the penalties imposed by the adjudicating authority under various sections. It held that the appellant's belief could be considered genuine, and thus, penalties were waived.

4. Bonafide belief regarding tax liability:
The appellant argued that they believed the construction activities for Government agencies might not attract tax liability. The Tribunal acknowledged this belief as bonafide, considering the nature of the projects undertaken. It deemed the appellant's belief reasonable and relevant in the context of tax liability assessment.

5. Application of Section 80 of the Finance Act, 1994:
In light of the appellant's bonafide belief and the discharge of service tax liability along with interest, the Tribunal applied Section 80 of the Finance Act, 1994, to waive the penalties imposed by the adjudicating authority. By invoking this provision, the Tribunal disposed of the appeal, setting aside the penalties and upholding the demand of service tax along with interest.

This detailed analysis of the judgment highlights the issues of service tax liability, discharge of liabilities, imposition of penalties, bonafide beliefs, and the application of relevant provisions under the Finance Act, 1994, as considered and decided by the Tribunal.