Diesel charges reimbursed to service providers excluded from assessable value but penalty under Section 78 upheld at 25%

CESTAT Chandigarh ruled that diesel charges reimbursed to service providers cannot be included in assessable value for service tax purposes, following Supreme Court precedent. However, the tribunal upheld penalty under Section 78 of Finance Act, 1994 for non-payment of service tax during 2008-2010, rejecting appellants' claims of financial difficulty and staff resignations as valid reasons. The penalty was reduced to 25% of the original amount after considering that appellants had already paid the tax and interest following departmental notices.

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Issues involved:
1. Imposition of service tax liability and penalties for non-payment and delayed payment.
2. Discrepancy in service tax liability on reimbursable expenses.
3. Invocation of extended period for penalty under Section 78 of Finance Act, 1994.

Detailed Analysis:

1. The appellant, a consulting engineering services provider, failed to discharge service tax liabilities for the period 01.04.2009 to 31.03.2010. The Central Excise Division requested payment and issued a Show Cause Notice for Rs. 46,36,744/-, which was confirmed by the original authority. The appellant claimed financial difficulties and delayed payment due to resignations of key officers. The Commissioner (Appeals) upheld the decision, leading to the current appeal.

2. The appellant argued that a service tax liability of Rs.2,19,175/- on reimbursable diesel expenses was wrongly imposed. The agreement clarified that such expenses were reimbursable, citing legal precedents to support their case.

3. The Department contended that the appellant did not pay service tax voluntarily, evidenced by multiple requests and summons. The appellant's failure to file returns and collect service tax from customers indicated an intent to evade payment. The Department invoked the extended period for penalty under Section 78.

4. The Tribunal analyzed the arguments and evidence. It found that the appellant's financial difficulties and officer resignations did not justify non-payment, especially as service tax was recovered from customers. The audit's lack of discrepancy findings did not negate the extended period invocation. The Tribunal allowed the appellant to pay 25% of the penalty, considering the circumstances.

5. Ultimately, the Tribunal partially allowed the appeal, reducing the penalty under Section 78 to 25% of the original amount specified in the Order-in-Original, emphasizing the importance of justice in the decision-making process.

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