2016 (9) TMI 371 - AT - Service Tax

Tribunal waives penalty under Section 80 of Finance Act for confusion in tax treatment

The Tribunal allowed the appeal in favor of the appellant, M/s. Afcons Infrastructure Ltd., waiving the penalty imposed under Section 80 of the Finance ... Demand of service tax with interest - Section 73 and Section 75 of the FA, 1994 – imposition of penalty - Section 78 and 77 of the FA, 1994 – benefit of reduced penalty if paid within stipulated time – Chemplast Cuddalore – works contract service – composition scheme - mobilization advance – ST-3 returns - discharge of tax on demand along with interest - suppression of facts – Held that: - there was a confusion regarding applicability of the tax and the mechanism. In these circumstances, the appellant failed to show the advance amount in their ST-3 return and failed to discharge tax on the same. On being pointed out the appellant paid the disputed service tax along with interest – invocation of section 80 of the Finance Act, 1994 – penalty set aside – demand of tax and interest upheld – decided partly in favor of appellant. Issues:1. Failure to discharge service tax liability on mobilization advance.2. Allegation of suppression of facts and intent to evade payment of service tax.3. Adjudication confirming service tax demand, interest, and penalties.4. Challenge before Commissioner (Appeals) and subsequent appeal before Tribunal.5. Interpretation of relevant legal provisions and applicability of penalty.Issue 1: Failure to discharge service tax liability on mobilization advanceThe appellant, M/s.Afcons Infrastructure Ltd., received a mobilization advance for a project but did not discharge the service tax liability on the advance. The appellant adjusted a portion of the advance in running account bills and paid service tax under Works Contract Service, opting for a composite scheme. A balance amount remained unpaid, leading to a demand for service tax and interest.Issue 2: Allegation of suppression of facts and intent to evade payment of service taxA show-cause notice was issued to the appellant, alleging suppression of the advance amount in ST-3 returns to evade service tax payment. The appellant argued that there was no suppression, as they disclosed receiving the advance to the audit team. The confusion regarding tax applicability and payment mechanism for works contracts at the material time was highlighted, along with reliance on legal precedents and circulars to support their position.Issue 3: Adjudication and penaltiesThe impugned order confirmed the service tax demand, interest, and penalties under various sections of the Finance Act, 1994. The Commissioner (Appeals) modified the order, reducing the penalty subject to payment within a specified period. The appellant appealed before the Tribunal, challenging the order.Issue 4: Challenge before Commissioner (Appeals) and TribunalThe Commissioner (Appeals) modified the order, extending the benefit of reduced penalty, which led to the appellant appealing before the Tribunal. The Tribunal considered the arguments presented by both parties and analyzed the circumstances surrounding the failure to discharge the service tax liability on the mobilization advance.Issue 5: Interpretation of legal provisions and applicability of penaltyThe Tribunal noted the confusion prevailing at the material time regarding the tax treatment of works contracts and the appellant's failure to declare the advance amount in ST-3 returns. Considering the circumstances and the cooperative attempt by the appellant to pay the service tax before the show-cause notice, the Tribunal invoked Section 80 of the Finance Act to waive the penalty imposed on the appellant, ultimately allowing the appeal in favor of the appellant.In conclusion, the Tribunal's judgment focused on the complexities and uncertainties surrounding the tax treatment of mobilization advances for works contracts, ultimately leading to a decision to waive the penalty imposed on the appellant under Section 80 of the Finance Act.