2023 (5) TMI 1150 - AT - Service Tax

Modification in the quantum of penalty - Exemption from service tax in respect of value of goods and materials sold by the service provider while providing the service - benefit of N/N. 12/2003-ST dated 20.06.2003 - Maximum penalty of Rs.2,74,400/- in terms of Section 77 (1) (a) of the Finance Act, 1994 - failure to take registration - invocation of extended period of limitation. Whether the appellant has been rightly denied the benefit of Notification No. 12/2003-ST dated 20.06.2003, which provide for exemption from service tax in respect of value of goods and materials sold by the service provider while providing the service? - HELD THAT - The lower adjudicating authority has held that the appellant has not produced any evidence regarding consumables or spare parts used while providing the AMC service to its customers and the service provider has charged service tax on the gross amount received for the AMC and 4C Bills raised upto April, 2009 and adopted the method of artificially splitting the AMC charges from 20.04.2009 onwards in the ratio of 75% to supply portion and 25% of AMC charges to service portion to avail the benefit of exemption from service tax in respect of value of goods and material sold by the service provider to the recipient of service. Under the Notification No. 12/2003-ST dated 20.06.2003, the appellant is required to provide documentary proof specifically indicating the value of the said goods and materials used in providing the service. The appellant is engaged not only in providing AMC services but also in selling computers, printers and peripherals. In the absence of any documentary evidence of value of consumables and other materials used co-relating to AMC services, the benefit of notification is rightly denied to the appellant. Maximum penalty of Rs.2,74,400/- in terms of Section 77 (1) (a) of the Finance Act, 1994 - Whether the penalty imposed at the maximum of Rs. 200/- for every day during which the failure to take registration continued amounting to Rs. 2,74,400/- is justified in the facts of this case? - HELD THAT - Though imposition of penalty and the amount computed is absolutely legal, a lenient view can be taken in view of the amendments carried out to this Section in Finance Act, 2013, providing for imposition of penalty of Rs.10,000/- at the maximum. The ends of justice will be adequately met considering all the facts in this appeal if the penalty imposed under 77(1) (a) of the Finance Act, 1994 is limited to Rs. 10,000/-. So, modification of the penalty to Rs. 10,000/- ordered, considering the fact that the appellant has obtained necessary service tax registration on 08.04.2009. Whether the extended period is rightly invoked in the background of the facts obtained in this appeal? - HELD THAT - The appellant has collected service tax without registration and without filing ST-3 returns and failed to credit the same into the Government account. As such, the extended period is rightly invoked for demand of service tax and also for imposition of penalties in this case. The impugned order does not call for any interference and so the appeal is rejected but for modification of the penalty imposed under Section 77(1)(a) of Chapter I of the Finance Act, 1994 to Rs. 10,000/-.

Summary

Issues:
The issues involved in this case are:
- Denial of benefit of Notification No. 12/2003-ST dated 20.06.2003 for exemption from service tax on goods and materials sold.
- Justification of the maximum penalty of Rs. 2,74,400/- for failure to take registration.
- Appropriateness of invoking the extended period for imposition of penalties.

Denial of Benefit of Notification No. 12/2003-ST:
The appellant, engaged in providing maintenance services for photo copier machines, was denied the benefit of the notification as they failed to provide evidence of sale of goods or materials used in the service. The appellant's method of splitting charges to avail exemption was deemed artificial, and without proof of consumables used, the benefit of the notification was rightly denied.

Imposition of Maximum Penalty:
The imposition of a penalty of Rs. 2,74,400/- for failure to take registration was considered legal, but a lenient view was taken due to recent amendments limiting the maximum penalty to Rs. 10,000/-. The penalty was modified to Rs. 10,000/- considering that the appellant obtained the necessary service tax registration.

Appropriateness of Extended Period:
The appellant, despite being engaged in sales and services since 2006, failed to obtain service tax registration and file necessary returns. They collected service tax without registration and failed to deposit it into the Government account. The extended period was deemed justified for demanding service tax and imposing penalties due to the appellant's non-compliance with service tax laws.

Conclusion:
The appellate tribunal upheld the original order, except for modifying the penalty under Section 77(1)(a) to Rs. 10,000/-, considering the appellant's compliance post-registration. The appellant's conduct showed disregard for service tax compliance, leading to the appropriate invocation of the extended period for penalties and tax demand.