2009 (10) TMI 567 - AT - Service Tax

CESTAT rules on penalties under Finance Act 1994 - Section 78 set aside, Section 77 upheld

The Appellate Tribunal CESTAT, Ahmedabad, addressed liability for penalties under the Finance Act, 1994, and the interpretation of Notification No. ... Penalty – irregular availment of exemption - abatement of 67% under the Notification No. 19/2003-S.T - interpretation given by the lower authorities would mean that it is absolutely necessary to sell the goods to avail exemption - appellants in bona fide belief that they are eligible for Notification and paid Service tax by availing benefit – Held that: - appellant interpreted the notification differently, penalty under Section 78 of Finance Act, 1994 cannot be upheld and is accordingly set aside - Service tax and interest is paid prior to issue of show cause notice, no further action is called for - Penalty under Section 77 has been imposed for late filing return which has to be upheld in view of the fact that return has been filed late – appeal disposed off accordingly Issues:1. Liability for penalty under various Sections of Finance Act, 1994.2. Interpretation of Notification No. 19/2003-S.T., dated 21-8-2003.3. Eligibility for exemption under the Notification.4. Imposition of penalties under different sections of the Finance Act, 1994.Analysis:1. The judgment dealt with the liability for penalty under various Sections of the Finance Act, 1994. The Commissioner (Appeals) observed that there was no dispute about the liability to pay Service tax and interest. The advocate for the appellant admitted that they had paid Service tax under protest but lacked evidence to challenge the Commissioner's observation. The only issue remaining was the liability of the assessee for penalties under different Sections of the Finance Act, 1994.2. The appellants were denied the benefit of Notification No. 19/2003-S.T., dated 21-8-2003, as they had purchased items from the market but did not sell them to clients or charge sales tax. The Notification exempted taxable services related to commissioning or installation, subject to conditions. The Tribunal noted that the gross amount charged should include the value of materials sold by the service provider. The lower authorities' interpretation suggesting the necessity of selling goods for exemption was deemed incorrect. The Tribunal found that the appellants had a bona fide belief in their eligibility for the Notification, and thus, the penalty under Section 78 of the Finance Act, 1994 was set aside.3. The Tribunal analyzed the interpretation of the Notification and concluded that the appellants had a valid reason to believe they were eligible for the exemption. Since the service tax liability and interest were not challenged, the focus was on whether suppression of facts or mis-declaration warranted penalty under Section 78. The Tribunal held that the penalty under Section 78 could not be upheld based on the interpretation of the Notification, which differed from that of the lower authorities. The Department's appeal for penalty under Section 76 also failed, as per the provisions of Section 73, where payment is made before a show cause notice.4. Regarding the imposition of penalties, the Tribunal upheld the penalty under Section 77 for late filing of a return. The decision was based on the fact that the return was filed late. Both appeals were decided in light of the Tribunal's observations, emphasizing the interpretation of the Notification and the payment of Service tax and interest prior to the show cause notice.This detailed analysis of the judgment provides insights into the issues addressed by the Appellate Tribunal CESTAT, Ahmedabad, regarding the liability for penalties under the Finance Act, 1994, and the interpretation of the relevant Notification for exemption from Service tax.