2017 (11) TMI 540 - AT - Service Tax

Penalty - proviso to Section 73(1) - Extended period of limitation - manpower recruitment agency service - department found that the activity undertaken by the appellant was liable to be classified under manpower recruitment agency service and the fact of rendering taxable service was unearthed only because of the verification conducted by the officers of the department and the appellant had suppressed the taxable value - Held that - the appellant has started supplying the manpower from 1-5-2008 and at that time this service was not taxable and this service was made taxable with effect from 16-5-2008 and therefore the appellant was not aware that his activity is taxable service - Further when the department on verification pointed out, then immediately the appellant deposited the service tax along with interest before the issue of show cause notice and that itself shows his bona fides to pay the tax and there is no allegation in the show cause notice that he has suppressed the facts with intention to evade tax - penalty unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against rejection of appellant's appeal by Commissioner (Appeals)
- Imposition of penalty under Section 78
- Allegation of suppression of facts with intent to evade payment of duty
- Appellant's contention of bonafide belief and immediate payment of tax upon department's notification

Analysis:
The case involved an appeal against the rejection of the appellant's appeal by the Commissioner (Appeals). The appellant was engaged in providing manpower recruitment agency services without registering as a service tax provider, leading to the initiation of action against them for non-payment of service tax between May 2008 and December 2008. The original authority confirmed the demand under Section 73(2) of the Finance Act, 1994, along with interest under Section 75, and imposed penalties under Sections 77(2) and 78. The department contended that the appellant's activity fell under the category of manpower recruitment agency service, discovered through departmental verification, and invoked the extended period of demand under proviso to Section 73(1) due to alleged suppression of taxable value by the appellant with the intent to evade service tax.

The appellant argued that the penalty under Section 78 was not sustainable as the conditions for its imposition did not exist in the case. They highlighted that the service tax, along with interest, was paid before the issuance of the show cause notice, questioning the validity of invoking the extended period for alleging suppression of facts. The appellant emphasized their lack of awareness regarding the taxable nature of their services, as the service was made taxable from a date after they commenced operations. Upon notification by the department, the appellant promptly paid the service tax and interest, demonstrating their good faith and lack of mens rea to evade tax. The appellant cited relevant case laws to support their arguments.

Upon reviewing the submissions and records, the Tribunal found merit in the appellant's contentions. It noted that the appellant had started providing services before the service became taxable, and upon being informed by the department, promptly paid the due tax and interest. The Tribunal observed that there was no allegation of suppression of facts in the show cause notice, and considering the appellant's immediate compliance upon notification, deemed the penalty imposed unjustified. Consequently, the Tribunal allowed the appeal, dropping the penalty and providing any consequential relief deemed necessary. The operative portion of the order was pronounced in open court on 15-3-2017.