2024 (9) TMI 180 - AT - Service Tax

Taxability - renting of immovable property service - failure to pay service tax correctly on the properties rented out by them for commercial purpose - imposition of penalties u/s 78 and 77 of the Finance Act, 1994 - HELD THAT - There was bonafide belief on the part of the appellant for non-payment of tax as litigation was going on in the Hon ble Delhi High Court in the case of HOME SOLUTION RETAIL INDIA LTD. VERSUS UOI ORS. 2009 (4) TMI 14 - DELHI HIGH COURT as well as in the Hon ble Supreme Court regarding taxability of rent on immovable property , however, the appellant have regularly been filing ST-3 returns and wherever service tax has been paid by the recipients of service, it is a matter of record that on such amount, service tax was deposited in time by the appellant with the department. It is also a matter of fact that entire amount of service tax short paid, which has been made payable by the Hon ble Delhi High Court in HOME SOLUTIONS RETAILS (INDIA) LTD. VERSUS UNION OF INDIA ORS 2011 (9) TMI 46 - DELHI HIGH COURT , the appellant have deposited the entire short paid service tax. The extended time proviso for demanding service tax because of the reason that fraud, suppression of facts, mis - representation or contravention of any provisions with intent to evade payment of service tax are not present in this case and the service tax has already been paid before issue of show cause notices. The provisions of Section 78 of Finance Act, 1994 for imposition of penalties on the appellants are not sustainable - the impugned orders-in-appeal upholding imposition of penalties under Section 77 and 78 of the Finance Act, 1994 is not sustainable and therefore set aside - appeal allowed.

Summary

Issues:
1. Whether the appellants were liable to pay service tax correctly on properties rented out for commercial purposes.
2. Whether the imposition of penalties under Section 78 and 77 of the Finance Act, 1994 was justified.

Analysis:

Issue 1:
The appellants, engaged in providing commercial properties on rent, had been discharging their service tax liability under the category of Renting of Immovable Property. The department conducted searches suspecting incorrect service tax payments. Show cause notices were confirmed, and penalties under Section 78 and 77 were imposed. The appellants argued that they had paid service tax on some properties, citing ongoing litigation on taxability of immovable property service. They referred to a Delhi High Court decision and contended that penalties were unjustified. The Chartered Accountant highlighted the payment of the difference in service tax post-searches and regular filing of returns, relying on the Delhi High Court judgment.

Issue 2:
The Tribunal noted a bonafide belief on the appellants' part due to ongoing litigation regarding taxability of rent on immovable property. The appellants had regularly filed returns and paid service tax where recipients did not. They had also paid the short paid service tax as directed by the Delhi High Court. The Tribunal found no fraud, suppression, or intent to evade tax. As the service tax was paid before the show cause notices, the imposition of penalties under Section 78 was deemed unsustainable. The Tribunal set aside the penalties imposed under Section 77 and 78, holding that the orders-in-appeal upholding the penalties were not sustainable. Consequently, the appeals were allowed.

This judgment emphasizes the importance of bonafide belief, regular compliance, and timely payment of service tax in the context of ongoing litigation on taxability issues. The Tribunal's decision showcases a balanced approach in considering the circumstances and legal precedents to determine the imposition of penalties under the Finance Act, 1994.