Service Tax Penalty justified for deliberate misclassification to evade Tax

Chimes Aviation P Ltd. Vs Commissioner, Service Tax (CESTAT Delhi)

The appellant is in the business of imparting training and coaching to individuals in the field of flying aircrafts for obtaining commercial licenses and private licenses from the Director General of Civil Aviation. The appellant, after receiving the requisite permission, also started operating the aircraft on a need basis or charter service and obtained registration as a service provider of the taxable services “transportation of passengers by air” and “commercial training and coaching”.

The issue involved in these appeals is as to whether the services provided by the appellant would be taxable under the head “transportation of passengers by air” ⁵ which became taxable w.e.f. 01.07.2010 or would be taxable under “supply of tangible goods”⁶ w.e.f 16.05.2008.

In order to appreciate the contentions that have been advanced by the learned counsel for the appellant and the learned authorised representatives appearing for the Department, it would be necessary to examine the taxable services provided under the head ‘TPA’ as contended by the appellant and ‘STG’ as contended by the Department.

It is is evident from the Grounds of Appeal, the appellant has stated that with effect from 01.07.2010, the Appellant started paying the Service Tax by classifying the same under transport of passengers by Air Services (TPA) and not under supply of Tangible Goods Services (STGU) as is observed by the department. It, thus becomes apparent that initially, in order to seek refund of the amount already paid for the previous period (2009-10 and 2010-11 i.e. from 01.04.2009 to 30.06.2010), they classified their services under a wrong head (transport of passenger by air service/TPA) and stuck with the same later on. When the department’s view was made clear to the Appellant, the insistence on their part to deliberately classify their services under a different head shows their intention of escaping their liability for the previous period which amount to non­compliance with statutory obligations. The Appellants have relied upon various case laws but in the instant case the facts of the case are different and there is nothing on record to suggest that the circumstances/conditions as prevailed in the cited judgment are also existing vis-à-vis the present case. In the cases relied upon the Appellants, there is a certain element of technical or venial breach of a provision of law on the part of the concerned party which in turn has served as a pointer of bona-fide default on the part of that party, but in the instant case, the intentional mis­classification of the services rendered cannot be termed as a technical or venial breach of any provision on their part. As discussed above, the Appellants have also failed in proving their bona-fide in as much as the fact that they knew the exact classification of the services rendered by them and still failed to discharge their tax liability under the proper classification. It is not a case where there was any confusion with regard to the correct classification of service, rather they have deliberately defied the correct payment of Service Tax. In view of foregoing, when the offence of deliberately mis-classifying their services on the part of the Appellants is proved beyond doubt, the said act deserves to be penalized and accordingly, the observation with regard to imposition of penalty under Section 77(1)(a) and Section 77(2) of the Finance Act, 1994 made in the impugned order is vindicated.”

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