Penalties under Sections 77 and 78 of Finance Act 1994 set aside after service tax paid before SCN issuance

CESTAT Kolkata allowed the appeal and set aside penalties imposed under Sections 77 and 78 of Finance Act, 1994. The assessee had paid service tax and interest before SCN issuance, making penalty under Section 78 unwarranted per established precedent. Regarding godown rent classification, the tribunal held land used for vehicle parking by bank was exempt from RIPS under specific exclusion clause. Since demand was unsustainable and returns were filed regularly, penalty under Section 77 was also inappropriate. All penalties and demands were set aside.

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Issues involved:
The judgment involves two main Issues:
(i) Imposition of penalty under Section 78 of the Finance Act, 1994 when service tax along with interest has been paid before the issuance of Show Cause Notice (SCN) and whether further penalty of Rs.5,000/- is imposable under Section 77 of the Finance Act, 1994.
(ii) Whether Service Tax of Rs.34,865/- is payable under the category of Renting Immovable Property Services (RIPS) for the income shown as 'godown rent' in the balance sheet during the period 2007-08 & 2008-09.

Issue (i) - Penalty under Section 78:
The Appellant had paid the Service Tax along with interest without raising any dispute before the SCN was issued. Citing Section 73(3) of the Finance Act, 1994, it was argued that penalty is not imposable in such cases. The Tribunal referred to a previous decision and held that imposition of penalty under Section 78 is not warranted. Therefore, the penalty under Section 78 was set aside.

Issue (ii) - Demand of Service Tax:
The Appellant earned income by letting out land to ICICI Bank for parking repossessed vehicles, recorded as 'godown rent'. The Authorities classified this income under RIPS for service tax levy. However, the exclusion of land used for parking from the definition of immovable property was not considered in the impugned order. The Tribunal examined the agreement with ICICI Bank, which indicated rates for parking vehicles. It was concluded that the land was used for parking, entitling the Appellant to exemption under the Finance Act. Therefore, the demand of Rs.34,865/- was deemed unsustainable and set aside.

Penalty under Section 77:
A penalty of Rs.5000/- was imposed under Section 77 for non-registration, late filing of returns, and non-payment of tax on time. However, since the demand was found unsustainable, the penalty under Section 77 was also set aside as the Appellant had been filing returns regularly.

In conclusion, the impugned order was set aside, and the appeal filed by the Appellant was allowed.

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