2019 (7) TMI 261 - AT - Service Tax

Imposition of penalty - service tax with interest paid before issuance of SCN - Suppression of facts or not - HELD THAT - In the present case, the service tax along interest has been paid before the issuance of the show-cause notice. Further the appellant has not suppressed any facts with intent to evade payment of tax - the imposition of penalties under Section 77 78 is not sustainable in law - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Confirmation of demand of service tax along with interest and penalties under Section 77 and Section 78.
- Applicability of Section 73(3) regarding issuance of show-cause notice.
- Consideration of confusion regarding computation of service tax on construction activity.

Analysis:

Issue 1: Confirmation of demand of service tax along with interest and penalties under Section 77 and Section 78
The appellant, a provider of commercial or industrial construction services, had not paid the full amount of service tax for the period of June to September 2005 due to confusion surrounding the introduction of service tax on construction of residential complexes. Despite paying the service tax along with interest before the show-cause notice was issued, the demand was confirmed by the Commissioner(Appeals) along with penalties under Section 77 and Section 78. The Tribunal found that the payment of service tax along with interest before the issuance of the show-cause notice was duly made by the appellant. It was also noted that there was no intention to evade payment of tax, as the confusion regarding tax computation and the guidance provided by the Department were contributing factors. Relying on various decisions, the Tribunal held that the imposition of penalties under Section 77 and Section 78 was not sustainable in law and allowed the appellant's appeal.

Issue 2: Applicability of Section 73(3) regarding issuance of show-cause notice
The appellant contended that since the service tax along with interest was paid before the issuance of the show-cause notice, as per Section 73(3), the notice should not have been issued. The appellant argued that there was no suppression of facts on their part, and the delay in payment was due to confusion and differing clarifications from Departmental authorities. The Tribunal, after considering the arguments and precedents cited, agreed with the appellant's position. It was held that the appellant had fulfilled their obligation by paying the service tax along with interest before the show-cause notice, and therefore, the issuance of the notice was not warranted.

Issue 3: Consideration of confusion regarding computation of service tax on construction activity
The confusion surrounding the computation of service tax on construction activity, especially in the context of the introduction of service tax on residential complexes, was a crucial aspect of the case. The appellant had approached the Range Office for guidance and had paid the service tax along with interest based on that guidance. The Tribunal acknowledged the genuine confusion faced by the appellant and the efforts made to comply with the tax obligations. Considering the settled legal position and the absence of any intent to evade tax, the Tribunal concluded that the penalties imposed were not justified and set them aside.

In conclusion, the Tribunal allowed the appeal of the appellant, setting aside the penalties imposed under Section 77 and Section 78, emphasizing the timely payment of service tax along with interest and the absence of any suppression of facts.