2018 (11) TMI 1471 - AT - Service Tax

Penalty u/s 77, 78 and under Rule 7(C) - delayed payment of service tax - appellant approached their customer and requested them to pay service tax but their client did not pay the service tax on the ground that they were exempt being a charitable institution - Held that - The appellant was constructing student hostel and staff quarters for the Trust only and they had a bona fide belief that they are not liable to pay service tax as they were doing construction work only for the Trust which had exemption vide Notification No.25/2012-ST dated 20.6.2012 - further, when the letters were received from the Department thereafter appellant paid the entire service tax along with interest from her own pocket in spite of the fact that the client of the appellant refused to pay the service tax to her. The imposition of penalty of 15% under Section 78 is not applicable in the present case, because in the present case, the entire service tax along with interest was paid two years before the issue of show-cause notice whereas reduced penalty under Section 78 is applicable if payment is made within 30 days from the date of show-cause notice. Penalties do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Upholding of penalties under Section 77, 78, and Rule 7(C) by Commissioner (A).

Analysis:
The appellant, engaged in construction services for a charitable institution, faced penalties imposed by the Commissioner (A) under Section 77, 78, and Rule 7(C). The appellant's sole client, a charitable institution, claimed exemption from service tax. The appellant voluntarily registered and paid service tax with interest, even though the client refused to pay. The appellant argued a bona fide belief in non-taxability due to the client's exemption status. The consultant contended that penalties were unsustainable as the appellant paid the tax before the show-cause notice, citing Section 78 provisions. The appellant sought leniency under Section 80, claiming a reasonable excuse for non-payment based on client communication and circulars exempting such services for educational institutions and Trusts.

2. Applicability of penalties under Section 78 and justification for penalty imposition.

The Tribunal considered the appellant's construction work for the Trust, the client's exemption status, and the appellant's proactive tax payment as crucial factors. The Tribunal noted the appellant's genuine belief in non-taxability and the timely tax payment, two years before the show-cause notice. Emphasizing the appellant's correspondence with the client and the confusion regarding taxable construction categories, the Tribunal found the penalties unsustainable in law. The Tribunal set aside all penalties, ruling in favor of the appellant and providing consequential relief, if any.