2018 (2) TMI 323 - AT - Service Tax

Penalty - liability of service tax on the amount of security deposit collected from the prospective flat owners which was subsequently handed over to the newly formed flat owners society - validity of SCN. Penalty u/s 78 - Held that - there is no case of suppression or contumacious conduct or any attempt on the part of the appellant to evade payment of service tax. Further it is admitted fact that there was disturbance in the normal carrying out of the business due to freezing of withdrawal in the bank account of the appellant company, which is a reasonable cause for delay in submission of their payment of taxes - penalty u/s 78 set aside. Penalty u/s 77(2) for taking service tax registration late - Held that - the appellant had suo motu taken registration with the Department. Further it is not the case of Revenue that the appellants had taxable receipts during the period prior to the date of taking registration - no case of penalty under Section 77(2) is made out and accordingly the said penalty is also set aside. Penalty/late fee of ₹ 1,03,000/- u/s 70 of the FA read with Rule 7C of STR 1994, towards late filing of the returns - Held that - there is reasonable cause for furnishing of returns late due to disturbance in the business, being freezing of withdrawal from the Bank account, but as levy of late fee is not discretionary the same is not interfered with. Levy of service tax on the amount of security deposit - Held that - the said amount was received by the appellants having character of pure agent and on behalf of the flat owners as their trustee, which amount have been subsequently given to the society formed of the flat owners and this fact is not disputed - demand set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Validity of show cause notice, liability to pay service tax on security deposit, liability for penalty.

Analysis:

1. Validity of show cause notice:
The issue in this appeal revolved around the validity of the show cause notice issued to the appellant. The appellant, a builder of residential flats, had taken registration under various services. The Revenue officers conducted an audit and pointed out non-payment of service tax. The appellant subsequently deposited the tax amounts mentioned in the audit report. The show cause notice demanded a significant sum as service tax, interest, late fee, and penalties. The appellant contested the notice, arguing that they had paid more tax than proposed in the notice. The appellant claimed the benefit of the second proviso to Section 73(1) of the Finance Act, stating that no show cause notice was required if the tax in dispute was already paid. The Tribunal found merit in the appellant's argument, setting aside the penalties and directing the refund/adjustment of any excess amounts paid.

2. Liability to pay service tax on security deposit:
Another crucial issue was whether the appellant was liable to pay service tax on the security deposit collected from flat owners. The appellant had collected a sum as "Interest Free Management Security" and later transferred it to the flat owners' society. The Tribunal held that this amount was received by the appellant as a pure agent on behalf of the flat owners, and thus, no service tax was leviable on it. Consequently, the demand for service tax on this amount was set aside.

3. Liability for penalty:
The appellant was also facing penalties under various sections of the Finance Act, including late fee, penalty for late registration, and penalty under Section 78. The appellant argued that they had been paying taxes regularly, and delays were due to external factors like a freeze on bank withdrawals. The Tribunal acknowledged the disruptions in the business operations and set aside the penalties under Section 78 and Section 77(2) for late registration. However, the late fee under Section 70 for late filing of returns was upheld due to non-discretionary nature. The Tribunal directed the concerned authority to grant any refunds or adjustments due to the appellant.

In conclusion, the Tribunal allowed the appeal, providing relief to the appellant on various grounds, including the validity of the show cause notice, liability for service tax on security deposit, and penalties imposed. The judgment emphasized the importance of considering the circumstances leading to delays and disruptions in business operations while adjudicating tax liabilities and penalties.