2024 (5) TMI 670 - AT - Service Tax

Service tax penalty under Section 77 not applicable when no services provided, filing obligation exists only when services rendered

M/s. K.S. Kars Pvt. Ltd. Versus Commissioner of Central Excise & Central Goods and Service Tax, Jaipur (Rajasthan) -

CESTAT NEW DELHI held that penalty under Section 77 of Finance Act, 1994 read with Rule 7C of Service Tax Rules, 1994 for non-filing of ST-3 returns is ... Levy of penalty u/s 77 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1994 - non-filing of returns - time limitation - HELD THAT:- The requirement to file the ST-3 Returns, as provided in Section 70 of the Finance Act, 1994, is only in the event where the services are provided. Once no service is provided, there is no liability to file the ST-3 Returns and in line thereto, the 3rd proviso to Rule 7C has been inserted that, where the service tax payable is nil, the central excise officer has been empowered to either reduce or waive the penalty, on being satisfied that there is sufficient reason. Time Limitation - SCN issued on 08.02.2019 is beyond the period of 5 years - HELD THAT:- The show cause notice issued on 08.02.2019 is beyond the period of 5 years and hence, the same is not sustainable - the demand set aside on the ground of limitation being beyond the period of 5 years. There are no merit in the impugned order and the same deserves to be set aside - appeal allowed. Issues Involved:Levy of penalty u/s 77 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules for non-filing of returns.Issue 1: Non-filing of ST-3 Returns for specific periodsThe appellant, registered for providing services of 'Repair, Reconditioning, Restoration, or Decoration of Motor Vehicles,' failed to file ST-3 returns for the periods October 2012 to March 2013 and April 2016 to September 2016. A show cause notice was issued for late fee/penalty, which was confirmed and upheld by the Commissioner (Appeals).Issue 2: Applicability of Rule 7C and Proviso for nil service taxThe appellant argued that as there were no service transactions during the relevant periods, they did not file ST-3 Returns. They relied on the 3rd proviso to Rule 7C, which empowers officers to reduce or waive penalties when service tax payable is nil. Citing precedents, the appellant contended that if no services were provided, there was no obligation to file returns, and penalties should be waived.Issue 3: Limitation on demand for penaltyThe appellant raised a limitation defense, stating that the show cause notice issued beyond 5 years for the period October 2012 to March 2013 was not sustainable. The Tribunal agreed and set aside the demand for being time-barred.Issue 4: Contrary views in multiple show cause noticesTwo show cause notices were issued for the period April to September 2016, with different outcomes in the adjudication. The appellant benefited from the earlier order dropping the demand due to lack of business activity during that period, leading to the present order being set aside and the appeal being allowed.In conclusion, the Tribunal found in favor of the appellant, emphasizing the need for authorities to consider specific provisions like the 3rd proviso to Rule 7C when penalties are imposed for non-filing of returns in cases of nil service tax liability. The appeal was allowed, setting aside the impugned order.