2018 (9) TMI 1731 - HC - Service Tax

High Court affirms Tribunal decision on service tax penalty; no penalty imposed under Act Sections 76 and 78.

The Commissioner of Service Tax-VI Versus M/s. Shreenath Motors Pvt. Ltd.

The High Court dismissed the appeal, affirming the Tribunal's decision not to impose a penalty under Sections 76 and 78 of the Act. The Court upheld the ... Imposition of Penalty - while Service tax demand upheld, the penalty was set aside following the decision of its Coordinate Bench in South City Motors Ltd. [2011 (11) TMI 408 - CESTAT, NEW DELHI] - whether penalty should be levied or not? - Held that:- There was reasonable cause for non payment of service tax making Section 80 of the Act applicable. It is not as though the confirmation of demand would ipso facto lead to penalty. In fact, Section 80 of the Act provides for non imposition of penalty, if there is a reasonable cause. This is available in ample measure in the present facts. Thus, no fault can be found with the impugned order of the Tribunal. The order dated 5th April 2016 of the Tribunal not imposing penalty is one on facts, no substantial question of law arises - Appeal dismissed. Issues:Challenge to order holding no penalty imposable under Sections 76 and 78 of the Act after confirming service tax demand; Applicability of Section 80 in cases involving suppression of facts.Analysis:1. Challenge to Penalty Imposition:The case involves an appeal challenging the order of the Tribunal dated 5th April 2016, which held that no penalty is imposable under Sections 76 and 78 of the Act. The Revenue contested this decision, arguing that the penalty should have been imposed despite confirming the service tax demand. The key contention was whether the Tribunal was right in setting aside the penalty while confirming the demand of service tax.2. Classification of Services and Tax Liability:The Respondent, a car dealer and selling agent for banking institutions, received commission from banks for granting loans to purchasers of vehicles. The dispute arose when the Revenue issued a Show Cause cum Demand Notice seeking to recover service tax for a period from July 2003 to March 2006. The Commissioner (Appeals) classified the services under 'business support service,' introduced in 2006, leading to the deletion of penalties under Sections 76 and 78 of the Act.3. Applicability of Section 80:The Tribunal, relying on the decision in South City Motors Ltd., held that the service tax was payable under 'business auxiliary service.' However, it concluded that no penalty could be imposed due to lack of clarity in classification and absence of malafide intent or suppression of facts. The Tribunal invoked Section 80 of the Act, which allows for non-imposition of penalty in cases where there is a reasonable cause for non-payment of service tax.4. Judicial Review and Dismissal of Appeal:The High Court upheld the Tribunal's decision, emphasizing that the confirmation of demand does not automatically warrant the imposition of a penalty. The Court found that Section 80 provides for non-imposition of penalty in cases with reasonable cause for non-payment, which was evident in the present situation. As the impugned order was not shown to be perverse, the Court dismissed the appeal, stating that no substantial question of law arose.In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision not to impose a penalty under Sections 76 and 78 of the Act, based on the reasonable cause for non-payment of service tax and the application of Section 80 in the absence of malafide intent or suppression of facts.