2016 (4) TMI 68 - AT - Service Tax

Imposition of penalties - Section 76 and 78 of the Finance Act, 1994 - Provider of construction services - Service tax on construction services during the relevant period was newly introduced and the Appellant was ignorant about the prevailing law. Also the service recipient did not guide them properly regarding payment of service tax - Held that - the service tax on construction services were paid by the appellant on certain months but no service tax liability was discharged for certain other months when considerations were received from service recipient, therefore, the appellant was well aware of the service tax liability on the services rendered by them. Also no financial hardships were explained by the appellant to suggest that service tax could not be paid due to financial hardships. It is also observed that Show Cause Notice in this case was issued on 12.03.2008 which is prior to the date of amendment made in Section 78 of the Finance Act, 1994, therefore both the penalties under section 76 and 78 of the Finance Act, 1994 are imposable upon the appellant. No option for payment of 25% reduced penalty under section 78 ibid was extended. It is a well settled law that 25% option of reduced penalty can even be extended at the appellate stage when no such option was extended by the lower authorities. Accordingly, the appellant is extended the option of payment of 25% reduced penalty under section 78 ibid if the same is paid within one month from the date of receipt of this Order. - Decided partly in favour of appellant

Summary

Issues:
1. Appellant's liability for service tax on construction services.
2. Imposition of penalties under sections 76 and 78 of the Finance Act, 1994.
3. Extending the option for reduced penalty under section 78.

Issue 1: Appellant's liability for service tax on construction services:
The Appellant, a provider of construction services to M/s. Tata Steel Ltd., argued that they were unaware of the service tax liability due to the recent introduction of the tax and the service recipient's failure to guide them properly. However, a contract clause required the Appellant to separately mention service tax on invoices. The Revenue contended that the Appellant knowingly avoided paying service tax, as evidenced by selective payments on certain months. The Tribunal observed that the Appellant was aware of the tax liability, as shown in the contract clause and payment history. Financial hardships were not proven as a reason for non-payment. The Tribunal found the penalties under sections 76 and 78 of the Finance Act, 1994 applicable due to the issuance of the Show Cause Notice before the relevant amendment.

Issue 2: Imposition of penalties under sections 76 and 78 of the Finance Act, 1994:
The Appellant argued against the imposition of penalties, citing ignorance and lack of guidance from the service recipient. However, the Tribunal noted the contractual obligation to specify service tax separately and the inconsistent payment behavior of the Appellant. As the Show Cause Notice was issued before the amendment to Section 78, both penalties were deemed applicable. The Appellant's plea for financial hardships was dismissed, and the Tribunal upheld the penalties based on the evidence presented.

Issue 3: Extending the option for reduced penalty under section 78:
The Adjudicating Authority did not extend the option for a reduced penalty under section 78 in the original order. The Tribunal clarified that the option for reduced penalty could be granted even at the appellate stage. Therefore, the Appellant was given the opportunity to pay a 25% reduced penalty under section 78 if done within one month from the receipt of the Tribunal's order. The appeal was allowed only to the extent of granting this option for reduced penalty.

This detailed analysis of the judgment highlights the Appellant's liability for service tax, the imposition of penalties under sections 76 and 78, and the extension of the option for reduced penalty under section 78 as per the decision of the Appellate Tribunal CESTAT KOLKATA.