Penalty for failure to pay service tax for services provided to State Government Electricity distribution companies.

PJ/CASE LAW/2016-17/3155

Case:- M/s PATWARI ELECTRICALSVs COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX, AURANGABAD

Issue:- Penalty for failure to pay service tax for services provided to State Government Electricity distribution companies.

Brief Facts:- The observations of the Tribunal are that as regards the penalty under Section 78, the appellant have entertained bonafide belief in nonpayment of service tax for the reason that the show cause notice demanded the service tax for an amount of Rs.2.80 crore for the period April, 2008 to March, 2013 whereas in the impugned order the demand was reduced to Rs.26.36 lacs which is for the period July, 2012 to March, 2013, this shows that there was serious confusion among the assessee as well as department about the levy of service tax on the services provided to State Government Electricity distribution companies. This confusion stand confirmed on the ground that to remove the confusion on the issue, the exemption notification no. 45/2010-ST by which the said service was made exempted from retrospective effect. It is also observed that even from July, 2012 the negative list of services was introduced in the Union Budget 2012 wherein electricity distribution utility services listed in the negative list. This entry further created confusion that whether the appellant is falling under the negative list or otherwise. Therefore as per the above confusion, it is clear that the appellant entertained bonafide belief and hence not paid the service tax. However, when the issue was made clear the entire service tax demand confirmed has been paid before adjudication alongwith interest. It was found that appellant have shown reasonable cause for non-payment of service tax on due date. Accordingly they have made out a case for waiver of penalty in terms of Section 80 of the Finance Act, 1994. Therefore, they waive the penalty imposed under section 78 invoking Section 80 of the Finance Act. As regard the late fee, it was found that admittedly the service tax was confirmed only for the period July, 2012 to March, 2013 therefore no late fee can be charged for delay in filing/non filing of ST-3 returns for the period prior to 1/7/2012. However, the service tax liability confirmed and admittedly paid by the appellant for the period July, 2012 to March, 2013, the appellant was duty bound to file ST-3 returns for this period on due date therefore the appellant is liable for late fee for non filing / delayed filing of ST-3 returns for the period July, 2012 to March, 2013 in terms of Section 70 read with Rule 7C of Service Tax Rules, 1994.
The fact of the case is that the appellant M/s. Patwari Electricals is a Proprietary Concern of Shri. Sanjay Dinkarrao Patwari engaged in providing ‘Erection, Commission & Installation services to M/s. Maharashtra State Electricity Distribution Company Ltd (herein after ‘M/s. MSEDCL'). On the basis of intelligence gathered by the officers of Aurangabad Commissionerate, investigation was carried out. It was found that appellant providing erection, commission and installation services with material and paying service tax only on labor charges instead on total service charges, hence paying less service tax than what is require to be paid by them. A show cause notice was issued for the differential service tax wherein it was proposed to demand service tax amounting to Rs.2,80,78,694/-. In the Adjudication Ld. Commissioner out of the total demand proposed in the show cause notice confirmed demand for Rs.26,36,363/- for the period from 1/7/2012 to 31/3/2013 and demand pertaining to the period prior to 1/7/2012 was dropped on the ground that the services in question was made exempted by the government vide Notification No. 45/10-ST dated 20/7/2010 from retrospective effect. Being aggrieved by the impugned order, the appellant filed the present appeal only for waiver of penalty imposed under Section 78 and late fee for delayed filing of ST-3 returns under Section 70 of the Finance Act, 1994 read with Rule 7C of Service Tax Rules.

Appellant’s Contention:-The Appellants submit that the appellant is providing service exclusively to State Government company i.e. M/s. MSEDCL therefore all the transaction are legitimate and the same is as per the contract between them and the M/s. MSEDCL. Therefore, there is no malafide intention on the part of the appellant. He further submits that the issue of taxability on the services provided to the M/s. MSEDCL was under the dispute and therefore the government has issued notification to exempt the said services provided to transmission and distribution companies of state electricity deptt. This also leads to bonafide belief of the appellant that no tax liability was existing. He further submits that though the show cause notice was issued for demanding more than Rs. 2 crore of service tax but considering retrospective exemption notification almost 90% of the total demand was dropped by the Commissioner. This clearly shows that even there was confusion even within the department that whether the services provided to the electricity distribution companies of state government are taxable or otherwise. The service became taxable only from 1/7/2012 when the negative list of services was introduced in the Union Budget of 2012. Since the taxability was in dispute for long time and service tax was exempted for particular period, the appellant entertained the belief that services are exempted throughout. Moreover, in the negative list also distribution utility services was listed in negative list which also creates confusion whether the service of the appellant is also covered under that negative list and therefore not taxable. In view of the undisputed position of uncertainty, appellant had bonafide belief that they are not liable for paying tax. At the same time, out of demand amount i.e. Rs.26 lacs, an amount of Rs.19 lacs was paid before issuance of show cause notice and remaining amount was also paid after issuance of show cause notice along with interest. Therefore entertaining their belief that the service tax is not leviable on their services provided to M/s. MSEDCL when it was made clear that service is taxable during the adjudication process appellant admittedly paid entire amount confirmed in the adjudication order along with interest and in this fact, penalty should not have been imposed on the appellant under Section 78. As regard the late fee for filing the ST-3 returns, he submits that the requirement of filing ST 3 returns arises only when the service is taxable. In the present case, admittedly services are not taxable till 30/6/2012. Since in major period the service tax was not leviable, there was no need to file any return, accordingly not late fee could have been demanded by the Adjudicating authority.

Respondent’s Contention:-The Revenue reiterates the findings of the impugned order. He submits that from 1/7/2012 it became clear that service of the appellant are taxable and therefore subsequent to that it cannot be said that there is bonafide belief of the appellant in nonpayment of service tax for period 1/7/2012 onwards. Therefore the appellant could not make out a case for waiver of penalty under Section 78. As regard the late fee for delayed filing of ST 3 returns he submits that admittedly the appellant have not filed correct and true ST 3 returns in time therefore the ld. Commissioner has correctly imposed the late fee upon the appellant.

Reasoning Of Judgment: That as regard the penalty under Section 78, the appellant have entertained bonafide belief in nonpayment of service tax for the reason that the show cause notice demanded the service tax for an amount of Rs.2.80 crore for the period April, 2008 to March, 2013 whereas in the impugned order the demand was reduced to Rs.26.36 lacs which is for the period July, 2012 to March, 2013, this shows that there was serious confusion among the assessee as well as department about the levy of service tax on the services provided to State Government Electricity distribution companies. This confusion stand confirmed on the ground that to remove the confusion on the issue, the exemption notification no. 45/2010-ST by which the said service was made exempted from retrospective effect. It is also observed that even from Jul, 2012 the negative list of services was introduced in the Union Budget 2012 wherein electricity distribution utility services listed in the negative list. This entry further created confusion that whether the appellant is falling under the negative list or otherwise. Therefore as per the above confusion, it is clear that the appellant entertained bonafide belief and hence not paid the service tax. However when the issue was made clear the entire service tax demand confirmed has been paid before adjudication along with interest. Therefore, it was found that appellant have shown reasonable cause for nonpayment of service tax on due date. Accordingly they have made out a case for waiver of penalty in terms of Section 80 of the Finance Act, 1994. Therefore, Tribunal waived the penalty imposed under section 78 invoking Section 80 of the Finance Act. As regard the late fee, it was found that admittedly the service tax was confirmed only for the period July, 2012 to March, 2013 therefore no late fee can be charged for delay in filing/non filing of ST3 returns for the period prior to 1/7/2012. However, the service tax liability confirmed and admittedly paid by the appellant for the period July, 2012 to March,2013, the appellant was duty bound to file ST3 returns for this period on due date therefore the appellant is liable for late fee for non filing / delayed filing of ST3 returns for the period July, 2012 to March, 2013 in terms of Section 70 read with Rule 7C of Service Tax Rules, 1994.

Decision:-Appeal partly allowed.

Comment:- The gist of the case is that the appellant is not liable to pay any penalty under section 78 for non-payment of service tax on erection services provided to State Electricity Distribution Companies as appellant have entertained bonafide belief due to confusion prevalent for the same. There was serious confusion among the assessee as well as department about the levy of service tax on the services provided to State Government Electricity distribution companies & thus the appellant is waived off with imposition of penalty.

Prepared By: - Alakh Bhandari

Comments

PJ/CASE LAW/2016-17/3155

Post a Comment

Query