2021 (2) TMI 494 - HC - Service Tax

Levy of penalty u/s 78 of the Finance Act, 1994 - construction of complex service - Correctness of the findings - HELD THAT - The Adjudicating Authority as well as the Tribunal committed a fundamental error while appreciating the factual position. It is not in dispute that the assessee did not separately collect service tax from its buyers/clients. Their consistent stand was that they have collected advance amount from their clients, who have booked the apartment for the purpose of construction of residential complexes and after 16.06.2005, they had not collected/realised any amount from their clients separately towards service tax. This factual position has been noted and admitted by the Adjudicating Authority while issuing the show cause notice dated 19.04.2007, as could be seen from paragraph 11(iv) of the show cause notice - Unfortunately, the Adjudicating Authority did not examine this factual position for its correctness, but proceeded on the basis as if the assessee collected service tax separately, did not remit it to the Department, on the contrary filed Nil return. Uncertainty in the implementation of the law - HELD THAT - For the first time, this particular service was brought within the service tax net with effect from 16.06.2005. The service tax was introduced by amendments to Finance Act, 1994 with effect from from 10.09.2004. The legislation was at its nascent stage. There were several interpretations to the new law and uncertainty loomed even with the Department. This submission made by the assessee was not considered by the Adjudicating Authority. In fact, the assessee stated that as soon as the Department had advised them, they had remitted the entire amount along with interest. This was much prior to the issuance of show cause notice. The first appellate authority did not render any independent finding, but chose to interfere with the order of the Adjudicating Authority by deleting the penalty under Sections 76 and 77 of the Act. No independent reasons have been given by the first appellate authority to confirm the penalty under Section 78 of the Act. When the matter went before the Tribunal, no attempt has been made to examine the facts of the case and the Tribunal also was of the view that the assessee had separately collected the service tax and not remitted to the Department, but filed Nil return. This being contrary to facts, both the authorities and the Tribunal committed error in levying/confirming the penalty under Section 78 of the Act. The substantial question of law is answered in favour of the assessee - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Levy of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:
1. The appellant, engaged in construction services, challenged the levy of penalty under Section 78 of the Finance Act, 1994, in an appeal filed under Section 35G of the Central Excise Act, 1944. The dispute arose from a show cause notice demanding service tax for a specific period and other related charges.

2. The appellant contended that they did not collect service tax separately from clients, as they believed the tax liability arose only upon completion of services. They attributed non-payment to lack of awareness about legal provisions effective from May 2005, which subjected advances to service tax.

3. Despite the appellant's explanation and payment of the entire service tax with interest before a specified date, penalties under Sections 76, 77, and 78 were imposed. The first appellate authority vacated penalties under Sections 76 and 77 but upheld the penalty under Section 78 without providing independent reasons.

4. The Tribunal dismissed the appeal, alleging that the appellant collected service tax, suppressed facts, and filed incorrect returns. However, the High Court found errors in the authorities' interpretation of facts. The appellant did not collect service tax separately and promptly paid upon being informed by the Department.

5. The High Court emphasized the uncertainty surrounding the new legislation's implementation and the evolving tax regime. It criticized the authorities for not considering the appellant's genuine reasons and for erroneously upholding the penalty under Section 78.

6. Ultimately, the High Court allowed the appeal, setting aside the impugned order and ruling in favor of the appellant due to the factual and legal misunderstandings by the authorities. No costs were awarded, and the case was closed.