2016 (12) TMI 1396 - AT - Service Tax

Dispute over Finance Act penalties modified on appeal. Upheld decision cites tax liability confusion.

The appeal involved a dispute over penalties under sections 76, 77, and 78 of the Finance Act, 1994, against a provider of 'works contract service.' The ... Waiver of penalty u/s 78 justified or not - discretionary authority to penalise - Held that: - the respondent entertained justifiable doubts about liability to pay tax as provider of ‘works contract’ or ‘commercial or industrial construction’ service. The appellant has undertaken renovation and repair service for military establishments and defence public sector undertakings - Considering the confusion that prevailed on both classification as well as on computation of taxable value of the service in these categories and the fact that appellant did not collect service tax from the recipients of the service, it would appear that the impugned order has not erred in dropping the penalty u/s 78 of the FA, 1994 - waiver justified - appeal rejected - decided against appellant. Issues:1. Imposition of penalty under sections 76, 77, and 78 of the Finance Act, 1994.2. Retroactive application of discretionary penalty provisions.3. Correctness of setting aside penalty under section 78.Analysis:1. The appeal involved a dispute regarding the imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994, against a provider of 'works contract service.' The Commissioner of Central Excise & Customs (Appeals) had held the appellant liable to pay service tax, interest, and penalties. The impugned order modified the penalties imposed by setting aside the penalty under section 78.2. The Revenue contended that the discretionary authority to penalize only became law effective from May 10, 2008, and the amendment did not have retrospective effect. The Revenue argued that the first appellate authority could not set aside one of the penalties imposed by the lower authority. Citing the decision of the Hon'ble Supreme Court in a similar case, the Revenue emphasized the non-retrospective nature of the amendment.3. The respondent's counsel argued that even though the proceedings related to a period before May 2008, the issue began with a show cause notice issued in October 2012. Therefore, the counsel contended that penalties under sections 77 and 78 could not be imposed, and the law did not require retrospective application to benefit the appellant.4. The crucial issue for determination was whether the impugned order correctly set aside the penalty under section 78 of the Finance Act, 1994. The respondent had doubts about the liability to pay tax due to confusion in classification and taxable value computation for services provided. As the appellant did not collect service tax from recipients and operated in a sector with unclear tax implications, the impugned order was deemed appropriate in dropping the penalty under section 78.5. The Tribunal found no reason to interfere with the first appellate authority's findings, considering the circumstances surrounding the confusion in tax liability and the appellant's compliance with tax collection.6. Ultimately, the appeal was rejected, and the decision was pronounced in court on July 8, 2016.