In view of bona fide belief on non-taxability of an activity, is penalty imposable?

PJ/Case Law /2016-17/3372

Case - SHOBHAN SARKAR TRAVELS Versus COMMISSIONER OF C. EX. & S.T., INDORE
Citation- 2016 (45) S.T.R. 208 (Tri. - Del.)
Brief Facts -Revenue was not sure about category under which providing of bus service to carry employees of company would fall and wrongly issuing show cause notice under Tour Operator Service .It was only after dropping of demand by adjudicating authority under Tour Operator Service that a fresh show cause notice under Rent-a-Cab service was issued after some time by which time period under present case had expired. Authorities have confirmed the service tax demand of Rs. 90,272/- along with confirmation of demand of interest and have further imposed penalty in terms of Section 76 of the Finance Act, 1994, on the finding that during the period April, 2011 to March, 2012, they have provided services falling under the category of rent-a-cab.
Appellant’s Contention-The appellant contended that they were providing Bus services to M/s. Ranbaxy Laboratories for transportation of their employees from home to factory and vice versa. They were earlier issued a show cause notice by the authorities on 5-4-2011 seeking to confirm service tax for the period October, 2009 to September, 2010 under the category of “Tour Operator Services”. The said show cause notice was adjudicated by the Assistant Commissioner vide his order dated 25-7-2012 observing that the services provided by the assessee may amount to providing services under the category of rent-a-cab. However, he vacated the show cause notice on the ground that adjudicating authority cannot go beyond the show cause notices, which allege providing of tour operator services. Revenue’s appeal against the said order of Assistant Commissioner was rejected by Commissioner (A).In this background, submission of ld. Advocate that they continued to provide services to their customers without payment of service tax under any category inasmuch as by the time the order of the Assistant Commissioner indicating that the services may fall under rent-a-cab was issued, the period in present appeal was over. It is only subsequently Revenue issued a show cause notice on 9-10-2011 raising the demand for the period April, 2011 to March, 2012. Ld. Advocate submits that they have already deposited the entire service tax demand along with interest and are not challenging the same. However, the only challenge is to imposition of penalty, which she prays for setting aside on the ground of bona fide and in the above backdrop of the matter.
Respondent’s Contention- Revenue contended that earlier proceedings were dropped on the technical grounds of the empowerment of the adjudicating authority to go beyond the show cause notices otherwise it is clearly observed in the earlier order of the Assistant Commissioner that the services provided by the appellant would fall under rent-a-cab services. However, ld. DR fairly agrees that by the time the said order was passed the period in the present appeal was over.
Reasoning of Judgment –The only challenge is to imposition of penalty on the ground of bona fide. The appreciation of the entire development on record leads to one fact that even the Revenue was not clear about category of services under which assessee can be taxed and that is why initially Revenue issued a show cause notice under the category of Tour Operator Services. Though there is observation of the Assistant Commissioner in the earlier order that the appellant’s services are properly classifiable under rent-a-cab services but by the time such observation was made by the adjudicating authority, the period under the present case had lapsed. As such it can be fairly concluded that the appellant was under the bona fide belief that there services may fall under different category or that may not be taxable at all as they were not admittedly covered under the Tour Operator Services. In such a scenario, it is of the view that by extending the benefit of doubt to the assessee the penalty imposed upon them is liable to be set aside.

Appeal allowed.
Comment – The plot of the case is that the assesse was providing service under the head rent – a - cab but revenue wrongly issued a show cause notice for interest & penalty for service provided by them under category of tour operator service. Also by the time such observation was made by the adjudicating authority, the period under the present case had lapsed. Thus by extending the benefit of doubt to the assessee the penalty imposed upon them is liable to be set aside.
Prepared by- Alakh Bhandari

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PJ/Case Law /2016-17/3372

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