2019 (1) TMI 70 - AT - Service Tax

Liability of service tax - washing and ironing services (Dhulai/Estri) - imposition of penalty under Section 77(2) and under Section 78 of the Finance Act, 1994 - Held that - The Commissioner (Appeals) has given his finding that washing of clothes were done in washing machine with the help of water and washing powder/ liquid for which he held that service given by appellant before 01.07.2012 is not taxable but as negative list under Section 66D or mega exemption Notification no. 25/2012-ST have not contained the name of services provided by the appellant, the further period post negative list is taxable - there are no irregularity in his order on duty liability of the appellant applicable with effect from 01.07.2012, having regard to extension of cum tax benefit as provided under section 67(2) of the Act. Penalties under Section 77(2) - Held that - While reducing penalty from ₹ 20,000 to ₹ 10,000 under Section 77(2) of the Act, the Commissioner (Appeals) has given his reasoning that ₹ 20,000 was maximum penalty prescribed and as appellant was yet to file the prescribed return for which he considered that it would be improper to invoke Rule 7C and Section 70 of the Act to impose maximum penalty by equating the delay in filing with non-filing of return. Since respondent department has not challenged the same reduction of penalty, such reduction of penalty under Section 77(2) appears to be reasonable. Penalty u/s 78 - Held that - In the instant case the service provided by the appellant was not taxable before introduction of negative list. It was not filing returns on those scores though it was duly maintaining the record. Further if the contention of ld. Advocate is to be accepted, the rural folk of Indian society continue to follow the same procedure unless being appraised about change of any system, law, rule or regulation and to this extent, the observation of Hon ble Supreme Court made in Uniworth Textile 2013 (1) TMI 616 - SUPREME COURT that mere non-payment of duty is not equivalent to collusion or wilful mis-statement or suppression of fact is relevant - in the instant case as there was no proof furnished by the department that suppression had taken place and finding in the order-in-original reveals that appellant had started voluntarily paying the service tax, penalty of equivalent amount under Section 78 of the Act would be a travesty of justice. Service tax liability to be requantified with effect from 01.07.2012 by giving cum-tax benefit in terms of Section 67(2) of the Act - Applicable interest to be levied on requantified service tax liability penalty of ₹ 10000/- in terms of Section 77(2) of the Act is confirmed - Penalty under Section 78 of the Act is set aside - appeal allowed in part.

Summary

Issues:
Confirmation of duty demand, interest, and penalty on washing and ironing services by the Commissioner (Appeals) against the appellant.

Analysis:

Issue 1: Duty Demand, Interest, and Penalty
The appellant, a cooperative society providing washing and ironing services, was issued a show-cause cum demand notice for service tax payment for the period from 2011-12 to 2014-15. The Commissioner (Appeals) confirmed duty liability post-negative list implementation and reduced the penalty under Section 77(2). The appellant argued ignorance of new service tax rules and lack of malafide intent, citing judicial decisions. The department defended the penalty imposition. The Tribunal found the appellant started paying service tax voluntarily on laundry activities from 01.04.2015. The washing services were deemed non-taxable before 01.07.2012. The Tribunal upheld the duty liability post-negative list implementation. The penalty under Section 77(2) was reduced considering the appellant's delay in filing returns. The penalty under Section 78 was set aside as there was no proof of suppression of fact or intent to evade duty, leading to the modification of the Commissioner (Appeals) order.

Outcome:
The appeal was allowed in part, modifying the Commissioner (Appeals) order to requantify service tax liability from 01.07.2012, confirm a penalty of &8377;10,000 under Section 77(2), and set aside the penalty under Section 78.