Case Law Details
Commissioner of GST & Central Excise Vs The Commissioner (CESTAT Chennai)
CESTAT Chennai held that imposition of penalty unsustainable as non-payment of service tax on renting of immovable property service was on account of confusions and litigations.
Facts- The respondent was issued Show Cause Notice dated 9.10.2012 proposing to demand service tax under the category of ‘Renting of Immovable Property Service’ for the period from 1.6.2007 to 31.12.2011. After due process of law, the adjudicating authority confirmed the demand along with interest. But, however, did not impose any penalty invoking section 80 of the Finance Act, 1994. Aggrieved by the order of not imposing any penalty, the department has come in appeal before the Tribunal.
Conclusion- Held that we do not find any ground to take a different view as there was indeed confusions and litigations with regard to the payment of service tax on renting of immovable property service. In the case of ETA Engineering Ltd. Vs. CCE, Chennai reported in 2006 (3) STR 429 (Tri. LB), the Tribunal observed that the appellants being under bonafide doubt whether their activity was taxable or not, there existed a reasonable cause for non-payment of tax. The penalties were set aside in terms of sec. 80 of the Act. It was held that of Section 80 has an overriding effect over other sections. In the present case, there is nothing brought out by evidence that the respondent, Municipality had not paid the service tax with deliberate intention to evade tax. Instead there was confusion going on as to the levy of tax itself.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The respondent was issued Show Cause Notice dated 9.10.2012 proposing to demand service tax under the category of ‘Renting of Immovable Property Service’ for the period from 1.6.2007 to 31.12.2011. After due process of law, the adjudicating authority confirmed the demand along with interest. But, however, did not impose any penalty invoking section 80 of the Finance Act, 1994. Aggrieved by the order of not imposing any penalty, the department has come in appeal before the Tribunal.
2. The learned AR Shri R. Rajaraman appeared and argued for the department. It is submitted by the learned AR that there are no grounds for waiving the penalties under sec. 76, 77 and 78 proposed in the Show Cause Notice. The leviability of service tax under the category of renting of immovable property service was under confusion during the initial period when it was introduced in the year 2007. Various service providers including landlords and tenants filed writ petitions before various High Courts. The Government vide Finance Act, 2010 amended section 65(105)(zzzz) retrospectively with effect from 1.6.2007 setting at rest the confusion with regard to taxability of the service of renting of immovable property. To mitigate the difficulties of the service providers of this category, the Government vide Finance Bill 2012 introduced sub-section (2) to section 80 providing for waiver of all penalties subject to the condition that the service tax amount along with interest in full is paid within a period of six months from the date on which the Finance Bill, 2012 receives the assent of the President of India. The Finance Bill, 2012 was assented by the President of India on 28.5.2012. If the service provider pays all dues along with interest on or before 27.11.2012, the waiver of penalties under sub-section (2) of section 80 would be applicable. The respondent in this case did not pay the service tax for the period in question till the appeal was filed. Therefore, they are not eligible for the waiver of penalty as provided under sub-section (2) of section 80 of the Finance Act, 1994.
3. It is submitted by the learned AR that though the adjudicating authority recorded that the respondent is not eligible for the waiver under section 80(2) has however erroneously extended the benefit of waiver under section 80(1) of the Act ibid stating that there existed a genuine confusion as to taxability of renting of immovable property service. It is also discussed that the respondent being a government body, there is no motive for non-payment of service tax. The learned AR submitted that once the section has been amended in 2010 retrospectively with effect from 1.6.2007, such contentions put forward by the respondent ought not to have been considered by the adjudicating authority. Further, despite many reminders, the respondent has furnished details only on 28.6.2011. After the amendment, there was no confusion with regard to the payment of service tax under the said category of renting of immovable property. The respondent ought to have paid service tax. The waiver granted under sub-section (1) of section 80 of the Act is not applicable to the facts of the case.
4. To support the contentions, the learned AR relied upon the decision in the case of Commissioner of Service Tax Vs. Motor World – 2012 (27) STR 225 (Kar.) to argue that only in the cases where there is a honest belief founded upon reasonable grounds the benefit of section 80 can be extended. In the case of Amman Steel Corporation Vs. CCE, Trichy – 2011 (22) STR 563 (Tri. Chen.), the penalty was waived as there was a bonafide doubt entertained by the appellant as to the person who has to discharge the service tax on goods transport agency service. Only if there existed a bonafide doubt, the benefit under sec. 80 can be allowed. In the present case, even after the Government has granted time to the arrears of service tax with interest, as per sub-section (2) of section 80, the appellant has not paid up the liability within the prescribed time. The learned AR prayed that the appeal may be allowed.
5. None appeared for the respondent. The notice issued on 11.3.2023 informing the date of hearing as 15.3.2023 was served on the respondent. Even then, there has been no appearance for the respondent on 15.3.2023 and 12.4.2023. Today also there is no appearance on behalf of the respondent. Hence the matter has been taken up for disposal after hearing the learned AR for the Department and perusal of the records.
6. The issue is with regard to the penalties proposed under section 76, 77 and 78 in the Show Cause Notice which have been dropped by the adjudicating authority by invoking sub-section (1) of section 80 of the Finance Act as it stood during the disputed period.
7. The demand of service tax has been confirmed under the category of ‘Renting of Immovable Property Service’ as defined under sec. 65(105)(zzzz). The said services were made taxable with effect from 1.6.2007. Several litigations were filed before various High Courts challenging the levy of service tax on renting of immovable property service. In the case of Home Solutions Retail India Ltd. Vs. Union of India reported in 2009 (14) STR 433 (Del.), the constitutional validity to levy service tax on renting of immovable property was challenged. The Hon’ble High Court held that the activity of renting of immovable property is not liable to levy of service tax but the services in relation to renting of immovable property is taxable. Thereafter, the Government brought forth amendment in the said section vide Finance Act, 2010. The amendments were given retrospective application with effect from 1.6.2007. The said decision of the Hon’ble High Court of Delhi was appealed before the Hon’ble Supreme Court as reported in 2009 (15) STR J23 (SC). Writ petitions were filed before the Hon’ble High Court of Delhi pursuant to the amendments also. However, the judgment passed by the Hon’ble High Court of Delhi in the Home Solutions was overruled by a Full Bench of the Hon’ble High Court as reported in 2011 (24) STR 129 (Del.) wherein it was held that in view of the amendment, the levy of service tax is valid. In the above context, Finance Bill, 2012 introduced sub-section (2) of section 80 which extended and prescribed time limit to pay the tax and for waiver of the penalty on the condition that tax with interest is paid within six months from 28.5.2012.
8. The impugned order has been passed on 31.3.2013. The adjudicating authority has considered in paragraphs 12.2 to 12.5 the reason for waiving the penalty by applying sub-section (1) of section 80 of the Finance Act. Sub-section (1) of section 80 which was in force at that time reads as under:-
“Section 80. Penalty not to be imposed in certain cases. (1) Notwithstanding anything contained in the provisions of section 76, section 77 or first proviso to sub-section (1) of section 78 no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure”.
9. In the present case, it cannot be disputed that there was confusion with regard to the levy and liability to pay the service tax under the category ‘renting of immovable property service’. There were several litigations pending before various forums. The amendment brought forth in section 65(105)(zzzz) vide Finance Act, 2010 made the provisions applicable retrospectively. Later, the Government also introduced sub-section (2) of section 80 granting time for the assessees to pay up the liability along with interest. However, subsection (2) of section 80 does not bar the application of sub-section (1) of section 80. The Commissioner has recorded that there was confusion during the relevant time and the respondent was under bonafide belief that there was no liability to pay service tax. It is also noted by the Commissioner that being a statutory authority, under the Government, there cannot be any malafide intention to evade payment of service tax. It was thus held that there exists reasonable cause on the part of the respondent for the failure in discharging the service tax liability. 10. On going through the discussions made by the adjudicating authority, we do not find any ground to take a different view as there was indeed confusions and litigations with regard to the payment of service tax on renting of immovable property service. In the case of ETA Engineering Ltd. Vs. CCE, Chennai reported in 2006 (3) STR 429 (Tri. LB), the Tribunal observed that the appellants being under bonafide doubt whether their activity was taxable or not, there existed a reasonable cause for non-payment of tax. The penalties were set aside in terms of sec. 80 of the Act. It was held that of Section 80 has an overriding effect over other sections. In the present case, there is nothing brought out by evidence that the respondent, Municipality had not paid the service tax with deliberate intention to evade tax. Instead there was confusion going on as to the levy of tax itself. The Tribunal in the case of Sree Venkateswara Hi-Tech Machinery Vs. CCE, Coimbatore reported in 2007 (6) STR 139 (Tri. Chennai). The relevant para reads as under:-
“As rightly pointed out by learned Consultant, the original authority ruled out intention on the part of the assessee to evade Service Tax vide para 12 of its order. This finding of the original authority, which is equivalent to saying that the assessee had been maintaining a bona fide belief that they were not liable to pay Service Tax on the services in question, was not challenged by the Revenue and, therefore, it was not open to learned Commissioner (Appeals) to substitute his ‘satisfaction’for the ‘satisfaction’recorded by the lower authority for purposes of Section 80 of the Finance Act. Once it was found by the original authority that there was reasonable cause for the failure of the assessee to pay Service Tax in time, the proposal to impose penalties on them under Sections 76 and 77 should have been dropped inasmuch as the assessee had, by showing such reasonable cause for the failure to pay tax in time, established a case for exoneration from penalty under Section 80. On the facts of the case, the Tribunal’s Larger Bench decision cited by learned Consultant seems to be supportive of the appellant’s case.”
11. In the case of Raghuvir Motors Agencies Pvt. Ltd. Vs. CCE, Aurangabad reported in 2017 (4) GSTL 57 (Tri. Mum.), the Tribunal set aside the penalty observing as follows:-
“As regards penalty imposed under Section 76 of the Finance Act, we find that since the issue of service tax liability on ‘renting o f immovable property’ was in dispute and retrospective amendments was made and one of the issue is still pending before the Apex Court, we find that the appellant has made out a justifiable cause for setting aside the penalty as per Section 80 of the Finance Act, 1994 as applicable during the relevant period. Accordingly, by invoking the provisions of Section 80 of the Finance Act, 1994 we set aside the penalty imposed by the lower authorities.”
12. In Kerala Cooperative Deposit Guarantee Fund Board Vs. CCE, Thiruvanthapuram reported in 2020 (42) GSTL 89 (Tri. Bang.), the Tribunal set aside the penalty observing that mens rea cannot be attributed to a body constituted under statute.
13. From the discussions above, we find no reasons to interfere with the impugned order. The same is sustained. The appeal filed by Revenue is dismissed.
(Pronounced in open court on 13.6.2023)
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