2017 (5) TMI 288 - AT - Service Tax

Penalty - adjudicating authority has held that the services rendered by the appellant is covered under Erection, Commissioning and Installation Service and rejected the contention of the appellant that the services are Works Contract Service provided to their clients - whether the penalty imposed u/s 76 and 78 is correct or otherwise? - Held that - the claim of the appellant that the execution of the various projects by them under works contract is not negated by the lower authority on factual matrix. Since the tax under erection, commissioning and installation charges are not payable by the appellant for the period prior to 01/06/2007 as the contract executed by them being works contract , the question of imposing penalty u/s 76 and 78 of the FA, 1994 does not arise - The law has been settled by the Hon ble Punjab & Haryana High Court in the case of Ajay Kumar Gupta 2015 (5) TMI 566 - PUNJAB & HARYANA HIGH COURT , wherein their Lordships held that once an assessee was not liable to pay tax under the provisions of Section 68 of the Finance Act, 1994, as he was not providing any taxable service at that point of time, penalty imposable u/s 76 does not arise - penalty set aside - appeal allowed - decided in favor of assessee.

Summary

Issues involved:
Service tax liability under 'Erection, Commissioning and Installation Service' for the period prior to 01/06/2007.

Detailed Analysis:

Issue 1: Service tax liability classification
The appeal challenged the Order-in-Original passed by the Commissioner of Service Tax, Mumbai, regarding the classification of services rendered by the appellant under 'Erection, Commissioning and Installation Service' or 'Works Contract Service'. The adjudicating authority upheld the former classification, relying on Section 65(105)(zzd) provisions. The Tribunal initially rejected the appeal, but the Hon'ble High Court of Bombay directed a reevaluation of the case.

Issue 2: Legal questions raised
The legal questions raised before the Hon'ble High Court included the nature of services pre-01/06/2007, applicability of Section 73A, ambiguity in service tax discharge for 'Works Contract Service', and imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.

Issue 3: Arguments and submissions
The appellant argued that they had discharged works contract tax/VAT, and the contracts were inclusive of all taxes. The appellant contended that penalties should not apply as the law was settled by previous judgments. The Authorized Representative argued that penalties were warranted due to the appellant's awareness of the inclusive service tax in contracts.

Issue 4: Tribunal's findings
The Tribunal examined the contracts executed by the appellant, noting the classification as 'works contract' and VAT payment. The adjudicating authority's rejection based on the appellant's self-classification was deemed flawed. The Tribunal referenced legal precedents to establish that penalties under Sections 76 and 78 were not applicable as the contracts were 'works contract', aligning with settled law.

Conclusion:
The Tribunal set aside the penalties imposed under Sections 76 and 78, upholding the service tax liability and interest paid by the appellant. The decision was based on the established nature of the contracts as 'works contract' and the inapplicability of penalties as per legal interpretations.