Case Law Details
Smt. M. Rajeswari Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Introduction: The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) recently delivered a significant judgment quashing penalties imposed in a tax dispute case. In the case of Smt. M. Rajeswari vs. Commissioner of GST & Central Excise, several legal complexities were involved, leading to the tribunal’s decision.
Detailed Analysis:
1. Background of the Case: This case revolves around appeals filed against Order-in-Appeal No. 36 to 38 of 2022, issued by the Commissioner of Central Tax (Appeals), Coimbatore (impugned orders). The appellants are engaged in the “Renting of Immovable Property Service.”
2. Service Tax Demand: The Service Tax authorities treated the appellants as an ‘association of persons’ and demanded service tax collectively. The original authority confirmed a service tax demand of Rs.13,67,139/- along with other adjudicatory liabilities. On appeal, the Commissioner (Appeals) upheld the order of adjudication.
3. Tribunal’s Earlier Ruling: The appellants then appealed to the CESTAT, which, in its Final Order No. 40224 to 40240/2019 dated 21.1.2019, allowed the appeals. The matter was remanded to the adjudicating authority to verify the threshold limit of individual co-owners applicable during the relevant period.
4. Adjudication and Penalties: The adjudicating authority calculated the threshold limit of service tax demand for three individuals based on relevant notifications and imposed a service tax demand of Rs.20,556/- each on the appellants. Penalties were also imposed under sections 77 and 78 of the Finance Act, 1994.
5. Appeal to CESTAT Chennai: The Commissioner (Appeals) upheld the order, leading to the appellants’ appeal before the CESTAT Chennai. The central issue pertained to the imposition of penalties, as the appellants did not dispute the service tax demand and interest, which they had already paid.
6. Appellant’s Argument: The appellant’s counsel argued that penalties should be waived, citing precedents such as R.K. Refreshment & Enterprises (P) Ltd. vs. CCE, Raipur and Aviacon (India) vs. CCE, Delhi. These cases, similar to the present one, had penalties waived under section 80 of the Finance Act, 1994, as the service tax liability and interest had been discharged.
7. Revenue’s Response: The learned Additional Commissioner (AR) representing the revenue supported the findings in the impugned order, asserting that penalties should be confirmed.
8. CESTAT Chennai’s Decision: The tribunal considered the case’s limited scope, which focused on the imposition of penalties. Notably, it acknowledged that “Renting of Immovable Property Services” had faced constitutional challenges. Courts had even granted a stay on related amendments. The Apex Court had ordered all such cases to be deferred until a specific matter was decided.
9. Reasonable Cause Shown: Given the pending constitutional challenge and the interpretational nature of the dispute, the tribunal recognized a reasonable cause for the delayed payment of duty. The legal complexities led to the appellants’ second round of litigation before the tribunal.
10. Penalty Waiver: The tribunal concluded that invoking penalties in such circumstances was unjustified. Section 80 of the Finance Act, 1994 allows for the waiver of penalties when reasonable cause is demonstrated.
Conclusion: The CESTAT Chennai’s decision to quash penalties in the tax dispute case of Smt. M. Rajeswari vs. Commissioner of GST & Central Excise highlights the significance of considering reasonable causes in penalty proceedings. The pending constitutional validity challenge and legal complexities were pivotal factors leading to the tribunal’s ruling. This case serves as a reminder of the importance of fairness and reasonableness in tax dispute resolution.
FULL TEXT OF THE CESTAT CHENNAI ORDER
These appeals are filed by the appellants against Order-in-Appeal No. 36 to 38 of 2022 dated 22.4.2022 passed by the Commissioner of Central Tax (Appeals), Coimbatore (impugned orders). The appellants are in second round of litigation before this Tribunal.
2. Brief facts of the case are that the appellants are engaged in “Renting of Immovable Property Service”. Show Cause Notice was issued to them treating them as ‘association of persons’ and service tax was demanded from them collectively. The original authority vide Order in Original dated 29.4.2014 confirmed the service tax demand of Rs.13,67,139/- along with other adjudicatory liabilities. On appeal, Commissioner (Appeals) upheld the order of adjudication. The appellants preferred appeals before this Tribunal who vide Final Order No. 40224 to 40240/2019 dated 21.1.2019 while allowing the appeals remanded the matter to the adjudicating authority for the limited purpose of verifying the threshold limit of the individual co-owners as may be applicable during the relevant period of dispute. As per the directions of the Tribunal, the adjudicating authority vide Order in Original dated 16.3.2021 proceeded to calculate the threshold limit of the service tax demand of three individuals based on the Notifications No. 4/2007-ST dated 1.3.2007 and No. 8/2008-ST dated 1.3.2008 and confirmed service tax demand of Rs.20,556/- each on the appellants by invoking extended period of limitation along with interest under the category of ‘Renting of Immovable Property Services’ under section 73(2) of the Finance Act, 1994 for the period 1.6.2007 to 31.3.2012. The adjudicating authority also imposed penalties under sections 77 and 78 of the Finance Act, 1994 while refraining from imposing penalty under sec. 76 of the said Act. In appeal, the Commissioner (Appeals) upheld the order. Hence the appellants are before this Tribunal.
3. No cross-objection has been filed by the respondent-department.
4. We have heard Shri R. Balagopal, learned consultant for the appellants and Ms. O.M. Reena, learned Additional Commissioner (AR) for the respondent-department.
5. The learned consultant for the appellants submitted that the appellants are not disputing the service tax demand and the interest as they have already paid the entire service tax liability along with interest. He restricted the appeals only to setting aside the imposition of penalties on the appellants. He relied on the decisions of the Tribunal in the case of R.K. Refreshment & Enterprises (P) Ltd. Vs. CCE, Raipur – 2018 (14) GSTL 281 (Tri. Del.) and Aviacon (India) Vs. CCE, Delhi – 2017 (7) GSTL 356 (Tri. Del.) to contend that in similar circumstances, this Tribunal vide the orders cited above has waived the penalty imposed on the renting of immovable property service by invoking the provisions of sec. 80 of the Finance Act, 1994. He prayed that the penalties may be waived in these appeals as the appellants have already discharged the service tax liability along with interest.
6. MS. O.M. Reena, learned Additional Commissioner (AR) supported the findings in the impugned order. She submitted that but for the detection by the officers, the same would not have come to light and the authorities have rightly invoked the extended period and the penalties may be confirmed.
7. I have heard the submissions made by both the sides. The impugned order is restricted to imposition of penalties on the appellants and the demand for duty and interest is not an issue. Appellants prayer is also with regard to penalty only. “Renting of Immovable Property Services’ have been brought under the purview of Service tax with effect from 1.6.2007. Hon’ble High Court of Delhi, in the case of M/s Home Solution Retail India Ltd & Others v UOI and Ors. 2010 (19) STR 3 (Del.) held that renting per se cannot be regarded as service. Hence, no service tax could be levied on the activity of renting per se. Subsequently changes made by the Finance Act, 2010 in respect of enlargement of scope of Renting of Immovable Property Services’ was challenged by the assessees’ PAN India and during the impugned period, the courts had taken a view that the amendment was unconstitutional and had even granted a stay in this regard. Further, the Apex Court vide its order in Union Of India vs UTV News Ltd., [2018 (13) GSTL 3 (SC)], while examining a question directly relatable to the scope and ambit of Entry 49 of List II of the Seventh Schedule to the Constitution of India dealing with “Taxes on lands and buildings” has categorically ordered all the cases on this issue to be deferred until the matter before the nine judges Bench in Mineral Area Development Authority and others Vs. Steel Authority of India and others ((2011) 4 SCC 450) is decided. In a case where the constitutional validity of the levy is yet to be decided the dispute is interpretational in nature. Hence reasonable cause has been made out for delayed payment of duty. In fact, due to legal complexities, the appellants are in the second round of litigation before this Tribunal. I, therefore, agree with the appellant that invocation of penalty in such a situation is not justified as per section80 of the Finance Act, 1994 due to the reasonable cause shown.
8. Thus, the part of the impugned orders i.e. Order-in-Appeal No. 36 to 38 of 2022 dated 22.4.2022 passed by the Commissioner of Central Tax (Appeals), Coimbatore relating to penalties alone are set aside and the appeals are allowed with consequential relief, if any, as per law. The appeals are disposed off accordingly.
(Pronounced in open court on 20.9.2023)
