2026 (2) TMI 335 - AT - Service Tax

Retreading of tyres taxable as maintenance and repair service; procedurally defective penalty set aside for lack of supporting findings.

Retreading of tyres was treated as taxable maintenance and repair service; the adjudicating authority imposed a penalty without corresponding findings, ... Retreading of tyres taxable as maintenance and repair service (interpretative question) - penalty u/s 78 of the Finance Act, 1994 (quasicriminal nature of penalty) - proviso to section 73(1) - extended period invocation and wilful suppression/intent to evade - bonafide belief / absence of wilful misstatement or suppression as defence to extended limitation and penalty - HELD THAT:- In this case, we find that in the finding portion of the Order-in-Original dated 28.10.2013, the Adjudicating Authority has only imposed penalty under Section 77 of the Finance Act, 1994 but in the order portion have imposed penalty under Section 78 which in our view is clearly unsustainable as it is settled position of law that the imposition of penalty is quasi criminal in nature and an improper finding or no finding would render the very imposition of penalty as bad in law. There was no discussion as to invocation of extended period and imposability of penalty under Section 78 of the Finance Act, 1994. For all these reasons, and since the appellant had paid the tax along with the interest and they are pleading only for non-imposition of penalty, in the facts and circumstances of the present case, we are of the view that the imposition of penalty under section 78 is not maintainable and so ordered to be set aside. As far as the imposition of penalty under Section 77 of the Finance Act, 1994 for a sum of Rs.3000/, the same was already set aside by the Appellate Authority. Thus, the appeal is partly allowed to the extent of setting aside the penalty imposed under Section 78 of the Finance Act, 1994. Issues: (i) Whether the penalty imposed under Section 78 of the Finance Act, 1994 is maintainable in respect of alleged nonpayment of service tax for retreading/repair services for the period April 2009 to September 2011.Analysis: The question involves (a) applicability of extended period based on alleged suppression with intent to evade, (b) valuation principles distinguishing service component from material component under Section 67 and related notifications/circulars, and (c) whether a bona fide, interpretative view about tax liability precludes imposition of penalty. The matter also engages the settled principle that penalties are quasicriminal in nature and require proper findings as to culpability before imposition. The Tribunal notes that the tax and interest were paid, that the substantive issue of taxability involved interpretative legal questions later authoritatively decided, and that the adjudicatory orders lacked clear findings justifying invocation of Section 78.Conclusion: Penalty under Section 78 of the Finance Act, 1994 is not maintainable and is set aside in favour of the assessee.