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PJ/Case Laws/2011-12/1464

Non-payment of Service – reasonable cause – confusion in field about liability under service tax – Non-imposition of penalty by invoking Section 80 justified

Case: CST, NEW DELHI Vs M/s JRC GRID ENGINEERS PVT LTD
 
Citation: 2011-1101-1594-CESTAT-DEL
 
Issue:- Non-payment of Service – reasonable cause – confusion in field about liability under service tax – Non-imposition of penalty by invoking Section 80 justified.
 
Whether mere payment of service tax at the start of investigation at the instance of Department prove the mala fide intention of the assessee?
 
Brief Facts:- Respondent-assessee were working as contractors for the construction of residential flats of welfare organisations. Demand of service tax was raised against them. The Adjudicating Authority confirmed the demand of service tax by holding that services provided by the respondents fall under the category of "Construction of Complexes" as defined under section 65 (30a) of Finance Act, 1994.
 
However, the Adjudicating Authority did not impose any penalty on the respondents under section 76, 77 & 78 of the Finance Act, 1994 by invoking Section 80.  
 
Revenue is in appeal against the part of the order not imposing any penalty on respondent.
 
Reasoning of Judgment:- The Tribunal found that the Adjudicating Authority has observed that during the relevant period, there was general confusion as regard taxability on the projects involving non-profit/welfare organisation i.e. residential welfare housing complexes, defence housing complexes, etc. Even the contracts entered into between the respondents and service recipients did not include element of service tax.
 
The Tribunal observed that the respondents responded to the investigations by the department and discharged all their service tax liability well before issuance of show cause notice. It was also observed that it is also evident from record that the matter was clarified only after the start of investigation and the respondents had immediately made prompt payment of service tax.
 
They also applied for centralized service tax registration on 17.8,06 and started making voluntary payments of service tax with effect from 25.8.06. As such, the Tribunal observed that the above factors constitute "reasonable cause" in terms of the provisions of section 80, thus calling for non imposition of penalty under various sections of Finance Act, 1994. For the above proposition, he relied on the various decisions of the Tribunal.
 
As against that part of the order, the Revenue in their memo of appeal have contended that the respondents suppressed the material fact with intention to evade payment of service tax and as such proviso to section 73(1) of Finance Act has been correctly invoked against them. They have paid service tax only being pointed out by the department. As such, they have made prayer that non imposition of penalty by the adjudicating authority by placing reliance on the Board's Circular F.No.137/176/2006-CX.4 dated 03.10.07 was not legal and correct.
 
It was found that the Commissioner had advanced valid and sufficient reason for invoking section 80 of Finance Act, 1994. Merely because the service tax was paid by the respondents at the start of the investigations by the Revenue, by itself cannot be indicative of the fact that there was malafide intention and suppression on their part. The Revenue in their memo of appeal have not rebutted the findings of the Commissioner there was utter confusion in the field during the relevant period regarding the taxability on the projects involving non profit/welfare organization i.e. residential complexes, defence housing complexes which were constructed by the respondents for various organisations and the same can lead to a reasonable belief that no service tax liability arises in respect of such construction. Further, we find that the reliance by the Commissioner on the Board's circular dated 03.10.07 and various clarification issued by the Ministry which are to the effect that once dues of service tax stands paid alongwith interest by the assesee and intimated to the department, the entire proceedings are deemed to be concluded, is legal and proper.
 
Decision:- Appeal rejected. 

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