No penalty Leviable u/s 76 of Finance Act in absence of Element of Fraud, Collusion and Wilful suppression of fact: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal( CESTAT) has held that penalty under section 76 of the Finance Act, 1994 in the absence of elements of fraud, collusion and wilful suppression of fact.

Shri Amal Dave, Advocate appeared for the Appellant and Shri Vijay G Iyengar, Assistant Commissioner (AR) appeared for the Respondent.

R C Patel, the appellant is engaged in providing services such as laying, jointing and testing pipes for water supply/drainage/effluent pipeline/ MLD water scheme, etc. provided to Gujarat Industrial Development Corporation. The department contended that the activity undertaken by the appellant i.e. of laying down of the pipes for water supply, drainage or affluent pipeline for the GIDC falls under the category of the Commercial and Industrial Construction service as defined under Section 65(25b) of the Finance Act, 1994.

 Further viewed that the appellant had availed the abatement under Notification No.1/2006-CE dated 01.03.2006 without fulfilling the necessary conditions for availing the benefit of such notification for the period 2007-08 to 2010-11 and thereby the appellants have failed to pay service tax properly to the Government exchequer which resulted in short payment of service tax amounting to Rs. 3,27,05,009/-.

The show cause notice was issued for the amount of the service tax invoking the provisions of Section 73(1) of the Finance Act, 1994, Section 75 and penal provisions under Sections 76,77 & 78 of the Finance Act, 1994. The matter has been adjudicated by the Commissioner where all of the charges alleged in the Show cause notice have been confirmed.

The appellant submitted that it is wrong on the part of the show cause notice to allege that they have taken abatement of 66% of the value by availing the Notification No. 1/2006 rather it was submitted that they have paid the service tax under Works Contract Service for the income earned by them by executing a work for GIDC.

It has forcefully been contended that since the contract of laying down the pipeline for the GIDC was a composite contract of supply of material in the form of the pipes and other materials and service component of laying down of pipes for the supply of water/drainage, affluent etc. as per the engineering designs. 

Since the contract was composite involving both supplies of raw material and service, they have rightly classified their work under the Works Contract Service and paid the service tax as per the provision of the Works Contract Service.

A two-member bench comprising Mr Ramesh Nair, Judicial Member and Mr C L Mahar, Technical Member observed that the activity undertaken by the appellant is properly classifiable under Works Contract Service and since they have already paid service tax under the Works Contract Service,

 It was evident that the assessee has been regularly filing their service tax returns under the Works Contract Service as well as they have entered into correspondence with the department from August 2008 up to 20th October 2008.

In the absence of the element of fraud, collusion or wilful misstatement or suppression of facts and the demand is barred by limitation, the CESTAT set aside the impugned Order-In-Original.

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