2019 (4) TMI 1689 - AT - Service Tax

Imposition of penalty - entire service tax alongwith interest paid before issuance of SCN - Renting of immovable property service - HELD THAT - The penal provisions as provided under the Finance Act, are for the situation where the assessee, intentionally try to evade payment of service tax. The penal provisions of section 78 specify that same can only be invoked in case of fraud, collusion, willful mis-statement, suppression of facts with intention to evade payment of service tax. The assessee, in this particular case, never had any intention to evade Service tax as all the receipts of rents of various godown have been properly recorded in their books of accounts. The Service tax collected by them from their service receivers has also been recorded and deposited with the State Exchequer - It was only a case of confusion with regard to leviability of Service Tax on renting of immovable property services , which delayed the payment of service tax. Since the entire amount of service tax has already been deposited along with interest, there is no valid reason for imposition of penalty on the appellant. Penalty set aside - other part of demand upheld - appeal allowed in part.

Summary

Issues:
1. Imposition of penalty under sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:
The case involved an organization in the cooperative sector in Chhattisgarh that provided services of renting out godowns to fertilizer manufacturing companies. The Department discovered that the organization had not paid service tax on the rent collected for the godowns during a specific period. The organization deposited the outstanding service tax amount before a show cause notice was issued. The Commissioner confirmed the service tax demand and imposed penalties under sections 76, 77, and 78 of the Finance Act, 1994.

The organization did not contest the service tax confirmation but challenged the imposition of penalties. They argued that there was a genuine confusion regarding the taxability of renting immovable property services during the relevant period. They cited a Delhi High Court decision and amendments to the definition of renting immovable property under the Finance Act. The organization claimed they deposited the service tax with interest promptly after being approached by authorities, demonstrating no intent to evade payment.

The Tribunal noted that the organization maintained proper records of the transactions and promptly paid the service tax upon notification by authorities. They highlighted that penalties under the Finance Act are for intentional evasion, which was not the case here. The Tribunal referred to various decisions supporting their view that in cases of genuine confusion, penalties should not be imposed. Citing a specific Tribunal decision, they emphasized that penalties should not apply if the assessee proves reasonable cause for the failure to pay tax.

Ultimately, the Tribunal upheld the service tax demand but found the penalties under sections 76, 77, and 78 legally unsustainable. They set aside the imposed penalties, partially allowing the appeal. The decision emphasized that in cases of genuine confusion and where taxes were promptly paid upon clarification, penalties should not be imposed, especially when there was no intent to evade payment.

This detailed analysis showcases the legal arguments, precedents cited, and the Tribunal's reasoning in arriving at the decision to uphold the service tax demand but set aside the penalties imposed under sections 76, 77, and 78 of the Finance Act, 1994.