2025 (3) TMI 781 - AT - Service Tax

Service tax demand of Rs 4,30,056 confirmed but penalties under Sections 77 and 78 set aside for petty contractor

M/s United Construction Versus Commissioner of Central Excise, Allahabad

CESTAT Allahabad held that while the service tax demand of Rs 4,30,056 was confirmed based on appellant's own calculations, penalties under Sections 77 ... Recovery of service tax with interest and penalty - Original Authority has determined the tax due from the appellant to be less than the amount claimed to be payable by the appellant as per the calculation chart submitted by the appellant, and paid by them - non application of the mind by the adjudicating authority - violation of principles of natural justice - HELD THAT:- From the computation made by the appellant and submitted before the original authority, it is evident that after claiming all the deductions, they admit that the service tax short paid by them was Rs 4,30,056.00/-. Both the authorities below have misdirected themselves as there was no contest by the appellant to the invocation of the extended period or the demand of service tax. Appellant has suo motto computed the service tax due. He made the submission to this effect before the original authority and also before the appellate authority. He also pleaded his lack of knowledge and status as petty contractor not having means to understand the complexity of taxation of services. Both the authority agreed to these submissions and have still gone on to impose penalties under Section 77 and 78 of the Finance Act, 1994. Undisputedly appellant is a petty contractor whose total turnover during the entire period of dispute i.e. from 16.06.2005 to 31.03.2010 was meager Rs 1,13,39,820/-. Taking note of undisputed findings with regards to status of appellant and his compliance/ intention to comply even before the adjudication/ appellate proceeding has been concluded there are no justification for not having considered extending the benefit of Section 80 of the Finance Act, 1994 and waiving of all the penalties imposable on the appellant. There are no merits in the impugned order to the extent it is in relation to the penalties imposed on the appellant. This is a fit case where penalties imposable under Section 77 and 78 should have been waived in terms of provisions of Section 80 of the Finance Act, 1994. Conclusion - i) The demand for service tax, as quantified by the adjudicating authority, is confirmed, but the penalties imposed are set aside. ii) There are no merit in the imposition of penalties, considering the appellant's status and compliance efforts. Appeal allowed in part. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in the judgment include: Whether the appellant was liable to pay the service tax amount demanded, including interest and penalties under Sections 77 and 78 of the Finance Act, 1994. Whether the appellant was entitled to deductions claimed for certain amounts not subject to service tax. Whether the extended period of limitation for demanding service tax was applicable. Whether penalties imposed under Sections 77 and 78 should be waived under Section 80 of the Finance Act, 1994, considering the appellant's status as a petty contractor and lack of knowledge.ISSUE-WISE DETAILED ANALYSIS1. Liability to Pay Service Tax and Deductions ClaimedThe legal framework involves the Finance Act, 1994, particularly Sections 73, 75, 77, and 78. The appellant was found to have provided taxable services but failed to discharge the full service tax liability. The appellant admitted to a shortfall in service tax payment, amounting to Rs. 4,30,056, after accounting for deductions.The Court noted that the appellant did not contest the demand on merit but disputed the quantification, citing deductions for amounts not subject to service tax, such as PF contributions and services provided before the tax applicability date. The Court found that the adjudicating authority confirmed a demand of Rs. 11,91,312, which was less than the appellant's admitted shortfall.2. Extended Period of LimitationThe extended period of limitation under Section 73(1) was invoked by the adjudicating authority. The appellant did not contest this invocation, and the Court observed that the appellant had admitted to the shortfall and had shown willingness to comply with tax obligations.3. Imposition of Penalties and Application of Section 80The appellant was penalized under Sections 77 and 78 for non-compliance with service tax provisions. However, the Court considered the appellant's status as a petty contractor with limited knowledge of tax laws. The Court found that both the adjudicating and appellate authorities failed to consider the appellant's lack of knowledge and intent to comply, which warranted the application of Section 80 to waive penalties.SIGNIFICANT HOLDINGSThe Court held that the penalties imposed under Sections 77 and 78 should be waived under Section 80, given the appellant's circumstances. The Court emphasized that the appellant's lack of contestation on the merits and willingness to comply indicated a bona fide interpretation of the law.Core Principles EstablishedThe judgment reinforces the principle that penalties should not be imposed where there is a bona fide interpretation of law and genuine intent to comply, particularly for small contractors with limited resources and knowledge.Final Determinations on Each Issue The demand for service tax, as quantified by the adjudicating authority, was confirmed, but the penalties imposed were set aside. The Court found no merit in the imposition of penalties, considering the appellant's status and compliance efforts.The appeal was partly allowed, setting aside the penalties imposed on the appellant.