enalty not imposable when there is reasonable cause for failure to pay service tax.

PJ-Case law-2013/14-1578

Case:- N.I.ASSOCIATES VERSUS COMMISSIONER OF SERVICE TAX, KOLKATA

Citation:-2013(30) S.T.R. 416 (Tri.-Kolkata)

Issue:-Penalty not imposable when there is reasonable cause for failure to pay service tax.

Brief Facts:- The Appellant filed this Appeal against Order-in-Appeal No. 128/ST/KOL/10,dated 21-12-2010, whereby the learned Commissioner(Appeals) has set aside the Order-in-Original to the extent of imposition of penalty.

Briefly stated facts of the case are that the Appellant are doing maintenance and repair of refractory part of furnaces, boiler etc. as well as installation of refractory in coke –oven furnace etc. The Department initiated proceedings against the Appellant on the ground that they are engaged in the services of management, maintenance and repair falling under Clause (zzg) and also engaged in the service of erection, commissioning and installation falling under Clause (zzd) of Section 65(105) of the Finance Act, 1994 respectively. Accordingly, a show cause-cum-demand notice was issued and there was a proposal for penal action against the Appellant. The lower Adjudicating Authority confirmed the demand of Service Tax of Rs. 3,67,389/-; however, he did not impose any penalty against the Appellant. Revenue challenged the same before the learned Commissioner (Appeals); the latter vide his Order dated 21-12-2010, imposed a penalty equal to the demand of Service Tax, i.e. Rs. 3,67,389/- under Section 78 of the Finance Act. Hence, the present Appeal.

Appellant’s Contention:-The Appellant submits that maintenance and repairing service under Clause (zzd) and erection, commissioning and installation service under Clause (zzd), of Section 65(105) of Finance Act, were made taxable with effect from 1-7-2003. There were changes introduced regularly during the years, 2003, 2004, 2005 and 2006. The period involved in the present case was from 16-6-2005 to 31-3-2008. So, they were under the bona fide belief that their services did not fall under the Service Tax liability. In terms of the provisions of Section 80 of the Finance Act, since there was a reasonable cause for their failure to pay the Service Tax, they did not take the registration. Therefore, they are not liable to penalized in view of the provisions of Section 80 of the Finance Act, 1994.

In his rejoinder, learned Chartered Accountant appearing for the Appellant submitted that they took the registration on 12-04-2007 and when the Officers of Service Tax Intelligence Department visited their premises, they handed over all the documents to them and they were not having any intention to evade the tax liability in case of Rs. 1,63,873/-. The contention is that they did not receive the amount from their clients and they paid the said amount and all other amounts to the Department the total dues along with interest to the Department.

Respondent’s Contention:-The Respondent submits that there had been not sufficient cause for waiving the penalty under Section 80, rather by way of belated registration they tried to evade payment of Service Tax by not paying the same before they submitted their ST-3 Return for the periods from 16-6-2005 to 30-09-2005, 1-10-2005 to 31-3-2006, 4-4-2006 to 30-9-2006 and 1-10-2006 to 31-3-2007. In this connection, learned AR placed reliance on the judgment of Hon’ble Punjab and Haryana High Court in the case of Machino Montell reported in 2006 (4) S.T.R. 177 (P &H).

Reasoning of Judgment:- We have considered the submissions from both the sides and perused the record, we find that the appellant were not able to follow the provision of the Finance Act, 1994, while they were performing the activities which the Department sought to classify under the category of ‘Management, Maintenance and Repair’ service falling under Clause (zzg) of Section 65(105) of the Finance Act, 1994 and under the category of ‘Erection, Commissioning and Installation’ falling under Clause (zzd) of Section 65 (105) of said Act. The appellant could not take the registration and pay service tax under bona fide belief that due to changes introduced in the above-mentioned services from time-to-time. On being pointed out, they obtained the Service Tax Registration and paid the dues. They also paid the Service Tax of Rs. 1,63,873/- from their own pocket. They did not receive anything from their clients, and they had paid all the dues including the remaining Service Tax along with the interest. We find that the lower Adjudicating Authority in his finding had recorded that there was no intention on their part not to pay the Service Tax within time. He found that the explanation and submission made by the Appellant in regard to short-payment of Service Tax and Education Cess, are justified. The lower Adjudicating Authority considering all these aspects did not impose any penalty against the Appellant. We also find that the cause explained by the Appellant not to follow the provisions of the Finance Act, 1994 during the period in question, is reasonable. Accordingly, the Appellant’s plea that they are not liable for penalty under Section 76 in view of the provisions of Section 80 of the Finance Act, 1994, is acceptable. Section 80 provides as under:-

“SECTION 80 . Penalty not to be imposed in certain cases.-

Notwithstanding anything contained in the provisions of section 76,[section 77 or section 78], no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure.”

In these circumstances, the penalty is not imposable in view of the provisions of Section 80 of the Finance Act, 1994. Therefore, the learned Commissioner (Appeals) Order is not sustainable.
Accordingly, the same is set aside and the Appeal is allowed with consequential relief, if any, as per law.

Decision:- Appeal allowed with consequential relief.

Comment:-The crux of this case is that the appellant were under the bona fide belief that their services did not fall under the Service Tax liability and did not take the registration due to changes introduced in the above-mentioned services from time-to-time. Hence, in terms of the provisions of Section 80 of the Finance Act, since there was a reasonable cause for their failure to pay the Service Tax, penalty was waived under section 78 of the Finance Act, 1994.

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PJ-Case law-2013/14-1578

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