Tribunal Upholds Service Tax, Cancels Penalty for Delayed Payment

The Tribunal upheld the demand for service tax and interest but set aside the penalty imposed under section 78 of the Finance Act in a case involving delayed payment of service tax and interest, non-payment of service tax for services provided to customers, and a dispute over liability to pay service tax on specific services. The appellant's delay was attributed to the customer's refusal to pay service tax, and the Tribunal found the penalty harsh and unjustified due to lack of evidence of fraud or willful suppression. The appellant was directed to pay any shortfall in the verified amount already discharged.

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Issues:
1. Delayed payment of service tax and interest.
2. Non-payment of service tax for services provided to other customers.
3. Imposition of penalty under section 78 of the Finance Act.
4. Dispute regarding liability to pay service tax on specific services.
5. Verification of service tax liability already discharged by the appellant.

Analysis:
1. The appellants provided seismic job services and shot hole drilling services to M/s. ONGC. They delayed payment of service tax amounting to Rs. 2,67,31,766 and did not pay interest for the delay. Additionally, they did not pay service tax of Rs. 4,48,583 for services provided to other customers in May and June 2005. The adjudicating authority confirmed the demand of Rs. 2,71,80,349 as service tax for the period September 10, 2004, to March 31, 2007, along with interest. A penalty of Rs. 2.75 crores under section 78 of the Finance Act was also imposed.

2. The appellant argued that the services provided were not taxable when the bid document was filled, and they registered for service tax under Exploration of Mineral services in good faith. They contended that they had paid the entire service tax liability and disputed the penalty imposition. The appellant had also entered into a contract with another company for shot hole drilling services, where the service tax was not paid as the subcontractor had already remitted the tax.

3. The appellant contested the penalty imposition, citing a previous case where the Tribunal had set aside a similar penalty. They argued that there was no intention to evade payment of service tax and requested the penalty to be set aside. The respondent reiterated the findings in the impugned order, stating deliberate delay and non-payment of service tax by the appellant.

4. The Tribunal found that the issue of whether the drilling services were liable for service tax was subject to doubt and dispute. The appellant's delay in payment was attributed to ONGC's refusal to pay the service tax. The Tribunal noted that there was no specific allegation of fraud or willful suppression in the show cause notice. The penalty imposed was considered harsh and unjustified, leading to its setting aside.

5. The Tribunal directed the adjudicating authority to verify the amount already discharged by the appellant. If any shortfall was found, the appellant would be liable to pay the remaining service tax along with interest. The demand for service tax and interest was upheld, while the penalty under section 78 was set aside. The appeal was partly allowed on these grounds.

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