Tribunal grants relief to contractor, ruling penalty unsustainable due to timely payment of Service Tax.

The Tribunal ruled in favor of the appellant, a consulting engineer and contractor, in an appeal against the rejection of their appeal by the Commissioner (A). The Tribunal found that the appellant had paid the Service Tax and interest before the issuance of the Show Cause Notice (SCN), rendering the penalty under Section 78 unsustainable. The Tribunal set aside the penalty, granting relief to the appellant based on legal precedents.

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Issues:
- Appeal against rejection of appeal by Commissioner (A)
- Imposition of penalty under Section 78
- Payment of Service Tax and interest before issuance of SCN
- Interpretation of works contract regarding Service Tax collection

Analysis:
1. Appeal against rejection of appeal by Commissioner (A): The appellant, a consulting engineer and contractor, filed an appeal against the rejection of their appeal by the Commissioner (A). The appellant contended that they had not collected Service Tax from customers for the period 2013-15, but had paid the Service Tax liability along with interest and late fee. The Commissioner upheld the penalty, leading to the present appeal.

2. Imposition of penalty under Section 78: The appellant's consultant argued that the penalty under Section 78 was not sustainable as it was imposed contrary to binding judicial precedent. The consultant highlighted that the appellant opted for the Voluntary Compliance Encouragement Scheme (VCES) and paid the Service Tax accordingly. The appellant claimed unawareness of the tax liability, leading to non-registration and non-filing of ST-3 Return. The consultant emphasized that the Department should not have issued the SCN once the Service Tax was paid before the issuance of the notice.

3. Payment of Service Tax and interest before issuance of SCN: The appellant had paid the Service Tax and interest before the issuance of the Show Cause Notice (SCN). The consultant argued that the SCN demanding penalty was issued after the payment, which, according to Section 73(3) of the Finance Act, should not have been done. The appellant's case was supported by various legal decisions cited during the proceedings.

4. Interpretation of works contract regarding Service Tax collection: The Assistant Commissioner contended that the appellant had collected Service Tax as the contract value was inclusive of it. However, the appellant's consultant presented the works contract, demonstrating that the contract value did not include Service Tax. This discrepancy led to a factual error in the findings of the Original Authority and the Appellate Authority.

5. Judgment: After reviewing the submissions and evidence, the Tribunal found that the appellant had indeed paid the Service Tax and interest before the SCN was issued. The Tribunal agreed with the appellant's arguments supported by legal precedents and concluded that the penalty under Section 78 was not sustainable in law. The Tribunal set aside the penalty, allowing the appeal of the appellant with consequential relief, if any. The judgment was pronounced in Open Court on 31/12/2018.

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