Om Sai Fabricators Vs Commissioner of CE & ST (CESTAT Mumbai)
Conclusion: As appellant had not taken registration and had not filed ST-3 returns within the prescribed time, penalty imposed under Section 77 was justified.
Held: Appellant was liable to pay service tax of Rs.1,25,36,776.00 (Rupees one crore twenty five lakh thirty six thousand seven hundred seventy six only) during the period 2006-07 to 2008-09 under section 73(2) of the Finance Act, 1994. It was noted that the noticee was charging and collecting service tax from their clients on the taxable service provided but not depositing the same with the Government exchequer, therefore, investigations were initiated against the appellant. Appellant thus contravened the provisions of section 66, section 68, and section 70 of the Finance Act, 1994 read with rule 5, 6 & 7 of the Service Tax Rules, 1994 in as much as – they had failed to determine and pay the service tax due on the service rendered to their customers as per the provisions of section 66 and section 68 ibid read with rule 6 ibid they had failed to submit returns in the form ST 3 to the service tax department on due date as per the section 70 ibid read with rule 7 ibid; they had failed to maintain proper records under rule 5 ibid. It was held that the penalty was for statutory offence. Section 11AC was only a mechanism for computation and the quantum of penalty. It was stated that the consequences of fraud etc. relate to the extended period of limitation and the onus was on the revenue to establish that the extended period of limitation was applicable. Once that hurdle was crossed by the revenue, the assessee was exposed to penalty and the quantum of penalty was fixed. It was pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated “which he knows or has reason to believe”. The said clause referred to wilful action. What was inferentially provided in some respects in Rule 173Q, now stood explicitly provided in Section 11AC. Where the outer limit of penalty was fixed and the statute provided that it should not exceed a particular limit, that itself indicated scope for discretion but that was not the case here. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section was applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That was what Dharamendra Textile decide. As appellant had not taken registration and had not filed ST-3 returns within the prescribed time, penalty imposed under Section 77 was justified. It was now settled law that once the tax was demandable the interest as prescribed by law would automatically follow.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal is directed against order in original No 51/AT(S-1)/COMMR/RGD/12-13 dated 16.11.2012 of the Commissioner Central Excise Raigad By the impugned order Commissioner held as follows:
“a) I determine service tax of Rs.1,25,36,776.00 (Rupees one crore twenty five lakh thirty six thousand seven hundred seventy six only) as payable by Shri Sukhdeo Vasudeo Yadav, the Proprietor of M/s Om Sai Fabricators during the period 2006-07 to 2008-09 as discussed supra under section 73(2) of the Finance Act, 1994;
b) I order appropriation of. Rs. 9,45,516.00 paid by Shri Sukhdeo Vasudeo Yadav, the Proprietor of M/s Om Sai Fabricators towards the said services against the amount confirmed as at (a) above and the balance amount shall be paid forthwith by them;
c) I order payment of interest by Shri Sukhdeo Vasudeo Yadav, the Proprietor of M/s Om Sai Fabricators on the delayed payment of service tax at the appropriate rates and as applicable in force under section 75 of the Finance Act, 1994;
d) I impose penalty of Rs.1,25,36,776.00 (Rupees one crore twenty five lakh thirty six thousand seven hundred seventy six only) on Shri Sukhdeo Vasudeo Yadav, the Proprietor of M/s Om Sai Fabricators under the provisions of section 78 of the Finance Act, 1994.
e) I do not impose penalty under section 76 of the Finance Act, 1994, as discussed supra;
f) I impose a penalty of Rs 5,000/- (Rupees Five thousand only) on Shri Sukhdeo Vasudeo Yadav, the Proprietor of M/s Om Sai Fabricators under the provisions of section 77 the Finance Act, 1994.”
2.1 Based on intelligence that the noticee is charging and collecting service tax from their clients on the taxable service provided but not depositing the same with the Government exchequer investigations were initiated against the appellant. It was noticed that the noticee charged service tax separately in few of the invoices whereas in other cases no service tax was shown separately; that they have obtained service tax registration but not followed the proper procedure; that being a sub-contractor, the noticee did not discharge service tax liability under advice from Gammon India Ltd.
2.2 Appellant thus contravened the provisions of section 66, section 68, and section 70 of the Finance Act, 1994 read with rule 5, 6 & 7 of the Service Tax Rules, 1994 in as much as –
i. they have failed to determine and pay the service tax due on the service rendered to their customers as per the provisions of section 66 and section 68 ibid read with rule 6 ibid;
ii. they have failed to submit returns in the form ST 3 to the service tax department on due date as per the section 70 ibid read with rule 7 ibid;
iii. they have failed to maintain proper records under rule 5 ibid.
2.3 Accordingly a notice dated 21.10.2011 was issued to appellant, requiring them showing cause as to why:
i. service tax totally amounting to Rs. 1,25,36,776.00 not paid during the period from 2006-07 to 2008-09, should not be demanded and recovered from them, under the proviso to sub-section (1) of section 73 of chapter V of the Finance Act, 1994 read with the provisions of section 68 ibid;
ii. the sum of Rs. 9,45,516.00 already paid by them should not be appropriated against the said demand;
iii. interest on the delayed/non-payment of service tax, at the appropriate rates and as applicable in force should not be recovered from them under section 75 of the Finance Act, 1994;
iv. penalty should not be imposed on them under the provisions of section 76, section 77 and section
78 of the Finance Act, 1994;
2.4 The show cause notice has been adjudicated as per the impugned order referred in para 1 above. Aggrieved appellant have filed this appeal.
3.1 We have heard Shri Neerav Mainkar, Advocate for the appellant and Shri Anand Kumar, Additional Commissioner, Authorized Representative for the revenue.
3,2 Arguing for the appellant learned counsel submits-
> The Appellant was sub-contractor to Gammon India Ltd (Main Contractor) for the “Dahej Uran Pipeline Project”. The Appellant was not charging ST to the Main Contractor as the Main Contractor had informed that they were paying ST on the entire contract value, as such, the Appellant was not required to pay ST. Statement of the Appellant were recorded on , 10-11-2008 and 21-11-2008 wherein has admitted of non-payment of St on sub contract value raised to the Main Contractor.
> Denial of Abatement of 67% (Notification No. 15/2004-ST: The Gross Amount does not include “Free Supply” and the Abatement under Notification No 15/2004-ST dated 10-09-2014 should be granted. This issue is no more res-integra in terms of decision in case of Bhayana Builders (P) Ltd 2013(32) S. T. R. 49 (Tri-LB) affirmed by Supreme Court 2018 (10) GSTL 118 (S. C.)
> BONAFIDE BELIEF: The Main Contractor who is Multinational Company had issued Certificate dated 18-07 2007 to the Appellant certifying that the Appellant need not pay or charge ST as the Main Contractor is paying the ST on entire Contract. The Appellant had no reason to doubt of the same. The Main Contractor vide letter 30-112009 provided all the Challans evidencing payment of Service Tax on the entire contract value which includes values of sub-contract of the Appellant. The copies of Challans of the Main Contractor are enclosed. These facts were never verified by the Investigation Agency. Thus, the Appellant had Bonafide belief which was backed by evidentiary documents.
> Conflicting decisions & instruction during disputed period:
