2019 (2) TMI 1311 - AT - Service Tax

Penalty u/s 78 of FA - Tax paid on being pointed out - Appellant also willing to deposit the amount of interest u/s 75 ibid - no suppression of facts - construction services - amendment in the provisions - lot of confusion amongst the builders - Held that - The provisions under Section 11AC of the Central Excise Act, 1944 and Section 78 of the Finance Act, 1994, are pari materia - In the matter of Rajasthan Spinning and Weaving Mills 2009 (5) TMI 15 - SUPREME COURT OF INDIA the Hon ble Supreme Court has laid down that unintentional and bona fide non-payment of duty does not entail penalty under Section 11AC of the Act of 1944 - Similarly, in the matter of Commissioner of Central Excise, Vapi v. Kisan Mouldings Limited 2010 (9) TMI 451 - SUPREME COURT OF INDIA , following the ratio of Rajasthan Spinning and Weaving Mills case, the Hon ble Supreme Court has held that since it is a case of bona fide mistake and there was no intention to evade tax by the respondent, penalty was rightly not imposed. Thus, it is quite vivid that presence of mens rea is absolutely necessary ingredient for imposing penalty under Section 78 of the Finance Act, 1994, as laid down by the Hon ble Supreme Court - In the present matter, the Appellants were under a bona fide belief that they were not liable to pay Service Tax for construction services. The conduct of the appellant of prompt payment of Service Tax immediately after gaining knowledge about its liability to pay Service Tax, is sufficient reason to believe that the appellant did not have an intention to evade the payment of Service Tax. Therefore, considering the overall facts and circumstances of the case, while upholding the interest liability u/s.75 ibid, Section 80 ibid can be invoked for waiver of penalty imposed on the appellant. Penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the Appellants are liable for penalty u/s. 78 of the Finance Act, 1994.

Analysis:
1. Background and Legal Framework:
The appeal was filed against an order regarding the liability for penalty under section 78 of the Finance Act, 1994. The Appellants were engaged in construction and rental activities, with confusion arising due to amendments in service tax laws. The Hon'ble High Court upheld the constitutional validity of the amendments in 2012.

2. Arguments and Submissions:
The Appellant contended that they were not aware of the final court decision and promptly paid the service tax upon notification by the anti-evasion team. They argued that the confusion in the industry justified their non-payment initially. The department sought penalty under section 78.

3. Judicial Precedents and Analysis:
The Tribunal referred to a similar case where penalties were set aside due to a bona fide belief held by the appellants. The Tribunal noted the importance of mens rea for imposing penalties under section 78, as established by Supreme Court rulings.

4. Decision and Rationale:
Considering the facts, the Tribunal found that the Appellants acted in good faith and promptly paid the service tax upon notification. The Tribunal invoked Section 80 of the Finance Act, 1994, to waive the penalty under Section 78. The interest liability was upheld, but the penalty was waived based on the absence of intent to evade payment.

5. Conclusion:
The Tribunal, in line with legal principles and precedents, concluded that the Appellants' actions did not demonstrate an intention to evade payment. Therefore, the penalty under Section 78 was waived, and the appeal was disposed of accordingly.

(Judgment delivered by Shri Ajay Sharma, Member (Judicial) on 21/02/2019)