Tribunal sets aside penalty for service tax non-compliance, upholds demand and interest

The Tribunal set aside the penalty under Section 78 for failure to discharge service tax in a construction project, citing interpretational issues and relevant circulars clarifying liability. The demand for service tax and interest, along with the penalty under Section 77, were upheld. The appellant's appeal was partly allowed based on these findings.

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Issues: Penalty imposed under Section 78 for failure to discharge service tax in a construction project.

The appellant, engaged in commercial building construction, contested the penalty imposed for non-payment of service tax. The appellant had paid the service tax demand but disputed the penalty. The issue revolved around the liability to pay service tax under "Commercial or Industrial Construction Service" due to confusion and interpretational issues arising from circulars issued by the Board. The appellant argued that although the Order-in-Original (OIO) stated that service tax was collected, no separate collection was made by raising invoices. The appellant claimed that the failure to pay was due to the interpretational issue and requested the penalty under Section 78 to be set aside.

The Advocate for the appellant highlighted that the confusion regarding the liability to pay service tax was addressed in Circular No. 96/7/2007-ST and Circular No. 108/09-ST. The appellant, being a developer, was affected by the circulars clarifying the liability in cases of Joint Development of land. Additionally, the decision of the Hon'ble Guwahati High Court in the case of Magus Construction Pvt. Ltd. Vs. UOI was considered relevant. The appellant argued that there was no evidence of intentional evasion of tax, and the penalty under Section 78 was unjustified due to the interpretational nature of the issue.

After hearing both sides, the Tribunal found merit in the appellant's arguments. Considering the interpretational nature of the issue and the circulars clarifying the liability to pay service tax, the Tribunal held that the penalty under Section 78 was unwarranted. The impugned order was modified to set aside the penalty under Section 78 while upholding the demand for service tax and interest, along with the penalty under Section 77. The appeal was partly allowed on these grounds.

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