Tribunal overturns penalties, grants benefit of section 80 for service tax payment pre-notice

The Tribunal allowed the appeal, setting aside the penalties confirmed by the Commissioner (Appeals) under sections 77 and 78 of the Finance Act, 1994. The Tribunal upheld the adjudicating authority's decision to drop the penalty, granting the appellant the benefit of section 80 due to their payment of service tax before the show cause notice and their bonafide belief, influenced by their service tax consultant's advice and previous VAT payments. The Tribunal found the appellant had shown reasonable cause for non-payment, overturning the Commissioner (Appeals) decision.

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Issues:
Appeal against penalty under section 77 and 78 of the Finance Act, 1994 confirmed by Commissioner (Appeals).

Analysis:
The appellant was registered under commercial construction service but had provided services before registration without paying service tax. The proceedings were initiated for demand of service tax, interest, and penalty under sections 77 and 78 of the Finance Act, 1994. The adjudicating authority dropped the penalty invoking section 80 as the appellant paid service tax and interest before the show cause notice. However, the Commissioner (Appeals) confirmed the penalties citing lack of reasonable cause shown by the appellant.

The appellant argued that they hired a service tax consultant who advised them to pay service tax if services were provided before registration. They claimed a bonafide belief that service tax was not required for pre-registration services. The appellant contended that since they paid the tax before audit based on the consultant's advice, they should receive the benefit of section 80. The appellant challenged the Commissioner (Appeals) decision, stating that the penalty should not have been confirmed.

The respondent opposed the appellant's argument, stating that the appellant knew about the service tax requirement but chose not to pay unless audited. The respondent cited tribunal decisions to define reasonable cause for non-payment of service tax. The appellant rebutted, mentioning they paid VAT on services, believing it exempted them from pre-registration service tax liability.

After hearing both sides, the Tribunal noted the appellant's payment of service tax before audit and their bonafide belief due to VAT payments. The Tribunal agreed that a reasonable cause must be shown for non-payment but determined that the appellant's actions demonstrated such a cause. The Tribunal found in favor of the appellant, overturning the Commissioner (Appeals) decision and upholding the adjudicating authority's order granting the benefit of section 80.

In conclusion, the appeal was allowed, and the impugned order was set aside, with the Tribunal upholding the adjudicating authority's decision.

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