No Penalty u/s 78 of Finance Act in absence of Misrepresentation or Suppression of fact to Evade Payment of Service Tax: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no penalty under 78 of  Finance Act, 1994 in absence of misrepresentation or suppression of  fact to evade payment of service tax.

Scaria Thomas & Co, the appellant are engaged in the construction service under the category of finishing and painting of various projects and buildings. The appellant has regularly been filing their ST-3 returns and have also been paying service tax after availing the benefit of Notification No. 01/2006-ST dated 01.03.2006 wherein the abatement of 67% of the value has been availed by the appellant while paying service tax.

The department has detected that the appellant has been engaged in “painting service” which are covered under “completion and finishing service” in relation to building or civil structures and sub-clause (b) of Clause (30a) of Section 65 of Finance Act, 1994 which has specifically mentions that “Painting Services” are covered under “Completion and Finishing Services” in relation to construction of residential complex service.

A show cause notice was issued demanding service tax of Rs. 55,08,924/- under Section 73(1) of Finance Act, 1994 for extended time proviso, penal provisions under Section 76, 77 and 78 have also been invoked. All the charges as proposed in the show cause notice have been confirmed.

The Counsel appearing on behalf of the appellant has contended that so far as the demand on merit is concerned, they agree with the point of view taken by the department. However, it was argued that the show cause notice has been issued demanding service tax under the extended time period of five years which is legally not sustainable.

In the ST-3 returns , it has clearly been mentioned that the appellant have declared their service correctly i.e. “Construction Service (Painting)” under the category of service tax payable. They have also indicated the percentage of abatement claimed by them. Thus, it has been emphasized that there has been no suppression of facts on the part of the appellant therefore extended time proviso for demanding service in this case is legally not tenable. The appellant have also been claiming the benefit of Notification No. 1/2006-ST dated 01.03.2006. The amount of taxable value for the service tax has also been declared by them correctly after availing abatement as per Notification No. 1/2006-ST.

Since there is no element of the misrepresentation or suppression of facts with an intent to evade payment of service tax and therefore the two-member bench comprising Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar Member (Technical) set-aside the demand of service tax under the extended time proviso under Section 73(1) of Finance Act, 1994. Further set aside the penalty under Section 78 of the Finance Act, 1994 .

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates