Service Tax Penalty Imposed not Permissible as Land Belongs to Govt of Meghalaya, Not Intended for Sale: CESTAT Allows Appeal [Read Order]

The Customs, Excise and Service Tax AppellateTribunal (CESTAT), Kolkata Bench, allowed an appeal wherein the penalty imposed was not permissible as the subject land belonged to the Government of Meghalaya which is not intended for sale to prospective customers.

The facts of the case are that the appellant entered into an agreement with the Government of Meghalaya for construction on the land owned by the Govt. of Meghalaya. The appellants paid service tax by availing Notification No. 01/2006 -ST dated 01.03.2006 at the rate of 33% of the gross taxable value during the period 2009-10 to June, 2012. The appellant also took cenvat credit on some of the input service, which has been used by the appellant for providing output taxable service.

Then from July, 2012, the appellant was paying service tax at the rate of 25% of the gross taxable value in terms of SI.No. 12 of Notification No. 26/2012-ST dated 20.06.2012.

It had been pointed out that he has not paid the service tax on renting of immovable property service. The show cause notice issued to him proposed the demand with interest and penalty of INR 10,000/- under Section 77 and penalty of INR 4,28,67,131/- under Section 78 of the Finance Act, 1994.

The counsel for the appellant, M/s Asian Housing & Constructions Pvt. Ltd., submitted that the appellant has already paid the cenvat credit along with interest, thus the benefit of Notification No. 01/2006-ST cannot be denied to him.

The tribunal observed that the benefit cannot be denied as the reversal of cenvat credit amounts to non-availament of cenvat credit on the input service. The demand was thus held to be unsustainable under construction services as they have paid the service tax under Works Contract Services.

The two member bench of the CESTAT, comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member), held that the penalty is not imposable, that the demand has been set aside and the appellant has paid the total service tax payable by them.

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