Appeal partially allowed, penalties set aside, service tax demand upheld. Immediate payment, confusion, precedents considered.

The tribunal partially allowed the appeal, setting aside penalties under sections 76 and 78 while upholding the service tax demand, interest, and penalty under section 77. The decision considered the appellant's immediate payment upon notification, confusion regarding liability for service tax on TDS, and precedents supporting penalty waivers in similar cases.

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Issues:
1. Liability to pay service tax on Tax Deducted at Source (TDS) portion.
2. Invocation of extended period for issuing show cause notice.
3. Imposition of penalties under sections 76 and 78.

Analysis:

Issue 1: Liability to pay service tax on TDS portion
The appellants, engaged in various services, availed consulting engineering services from a foreign entity. The contract required payment in instalments, with the appellant liable to deduct Tax Deducted at Source (TDS) and remit it to the Income Tax Department. The appellant failed to pay service tax on the TDS portion for the first three instalments but rectified this for the final instalment. A show cause notice was issued for non-payment of service tax on the TDS portion, which the appellant paid immediately upon audit team's notification. The appellant argued that the omission was unintentional and sought waiver of penalties.

Issue 2: Invocation of extended period for show cause notice
The department invoked the extended period for issuing the show cause notice due to the alleged non-payment of service tax on the TDS portion. The appellant contended that the non-payment was due to lack of awareness rather than deliberate evasion. The appellant's immediate payment upon notification was considered in the context of the extended period invocation.

Issue 3: Imposition of penalties under sections 76 and 78
The appellant challenged the penalties imposed, focusing on the confusion regarding liability to pay service tax on the TDS portion. The tribunal noted the confusion in this regard and referenced precedents where penalties were waived under section 80 of the Finance Act, 1994, in similar situations. Citing relevant case laws, the tribunal held that penalties under sections 76 and 78 should be set aside, while upholding the demand of service tax, interest, and penalty under section 77.

In conclusion, the tribunal partially allowed the appeal by setting aside the penalties imposed under sections 76 and 78, without affecting the service tax demand, interest, or penalty under section 77. The decision was based on the appellant's immediate payment upon notification, the confusion surrounding the liability to pay service tax on the TDS portion, and precedents supporting penalty waiver in such cases.

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