The case of Scaria Thomas & Co vs. Commissioner of Central Excise & ST (CESTAT Ahmedabad) delves into the application of penalties under Section 78 of the Finance Act in a service tax matter. This article provides a detailed analysis of the case, focusing on the absence of penalties due to the absence of misrepresentation or suppression of facts.
1. Background of the Case: The appellant in this case is engaged in the construction service, specifically finishing and painting projects and buildings. They have consistently filed ST-3 returns and paid service tax, availing the benefit of a specific notification.
2. The Department’s Inquiry: During a departmental inquiry, it was discovered that the appellant’s painting services fell under the category of “completion and finishing service” related to construction. The department issued a show cause notice demanding service tax of Rs. 55,08,924 under Section 73(1) of the Finance Act, 1994, along with invoking penal provisions under Section 76, 77, and 78.
3. Appellant’s Argument: The appellant acknowledged the demand on merit but contested the extension of the time period for demanding service tax. They argued that they had correctly declared their service as “Construction Service (Painting)” in their ST-3 returns, indicating the absence of any suppression of facts. They also claimed that the benefit of abatement was availed as per the available notification.
4. Tribunal’s Decision: Upon examination of the case, the tribunal found that the appellant had consistently declared their service activity correctly in their ST-3 returns, including the correct classification and abatement. The findings of the Adjudicating Authority suggesting suppression of facts were factually incorrect. Therefore, the tribunal set aside the demand for service tax under the extended time proviso of Section 73(1) of the Finance Act, 1994.
5. No Imposition of Penalty: Furthermore, since there was no element of fraud, misrepresentation, or suppression of facts with the intent to evade service tax, the tribunal ruled that the penalty under Section 78 of the Finance Act, 1994, was not applicable in this case. Consequently, the penalty imposed in the impugned order-in-original was set aside.
6. Conclusion: In the case of Scaria Thomas & Co vs. Commissioner of Central Excise & ST (CESTAT Ahmedabad), the tribunal’s decision emphasized that penalties under Section 78 of the Finance Act, 1994, should only be imposed in cases involving fraud, misrepresentation, or the suppression of facts with the intent to evade service tax. Since none of these elements were present, the penalties were not applicable, highlighting the importance of accurate reporting in tax matters.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the matter are that the appellant are engaged in the construction service under the category of finishing and painting of various projects and buildings. The appellant has regularly been filing their ST-3 returns and have also been paying service tax after availing the benefit of Notification No. 01/2006-ST dated 01.03.2006 wherein the abatement of 67% of the value has been availed by the appellant while paying service tax. During enquiry initiated by the department, the department has detected that the appellant has been engaged in „painting service‟ which are covered under „completion and finishing service‟ in relation to building or civil structures and sub-clause (b) of Clause (30a) of Section 65 of Finance Act, 1994 which has specifically mentions that “Painting Services” are covered under Completion and Finishing Services” in relation to construction of residential complex service. A show cause notice was issued demanding service tax of Rs. 55,08,924/- under Section 73(1) of Finance Act, 1994 for extended time proviso, penal provisions under Section 76, 77 and 78 have also been invoked. The matter has been adjudicated vide impugned order-in-original dated 28.03.2014 where-under all the charges as proposed in the show cause notice have been confirmed.
2. The learned Counsel appearing on behalf of the appellant has contended that so far as the demand on merit is concerned, they agree with the point of view taken by the department. However, it was argued that the show cause notice has been issued demanding service tax under the extended time period of five years which is legally not sustainable. The Learned advocate taken us to ST-3 returns which have been filed by the appellant for the period 2010-11 wherein it has clearly been mentioned that the appellant have declared their service correctly i.e. “Construction Service (Painting)” under the category of service tax payable. They have also indicated the percentage of abatement claimed by them. Thus, it has been emphasized that there has been no suppression of facts on the part of the appellant therefore extended time proviso for demanding service in this case is legally not tenable. It has further been mentioned that all the relevant details were being filed by them in their ST-3 returns and no facts have been suppressed or misdeclared by them. The claim of 60% abatement under Notification No. 1/2006-ST was availed in normal course as it was available for all the construction services
3. We have also heard the learned AR who has reiterated the findings of the order-in-original.
4. Having heard both the sides and on perusal of record of the appeal, we find that the appellant has regularly been filing ST-3 returns. Learned advocate took us to the contents of ST-3 return which have been submitted by the appellant from 2008-09 to 2012-13. We find that the appellant have regularly being declaring their service activity correctly in the return. They have also been claiming the benefit of Notification No. 1/2006-ST dated 01.03.2006. The amount of taxable value for the service tax has also been declared by them correctly after availing abatement as per Notification No. 1/2006-ST. The Adjudicating Authority in the impugned order-in-original, in Para 18.8, has mentioned as follows:-
“18.8. …… …… …… …… ……
I gone through the ST-3 return form the period 04/2011 to 06/2013 wherein they filed return for two services (1) mentioned at category of service is mentioned “Construction Services in respect of Commercial or Industrial Buildings and Civil Structures’ (ii) mentioned at category of service is mentioned “Construction of RES. Complex’ and they never mentioned in the ST-3 return that their firm is providing painting service and therefore they suppress the facts to the department and therefore the case laws relied upon by them is not squarely applicable in this case.”
The findings of the learned Adjudicating Authority as given above is factually incorrect as it can be seen from ST-3 returns which are available in the file and are scanned below for ready reference:-
5. From the above scanned copies of ST-3 returns, it can be seen that the appellant have correctly classified the taxable service mentioning “Construction Service (Painting)”. They have also declared abatement under Notification No. 1/2006-ST. We thus find that there is no element of the misrepresentation or suppression of facts with an intent to evade payment of service tax and therefore we set-aside the demand of service tax under the extended time proviso under Section 73(1) of Finance Act, 1994.
6. In view of the above discussion, we also find that since the elements of fraud, mis-statement or suppression of facts etc. with an intent to evade service tax are not present in the matter therefore, we are of the view that penalty under Section 78 of the Finance Act, 1994 is not imposable in this case. Accordingly, the penalty imposed in the impugned order-in-original under Section 78 of the Finance Act, 1994 against the appellant is set-aside.
7. In view of the above we set-aside the demand for the extended time proviso under Section 73 of the Finance Act, 1994. The demand for the normal period is confirmed. The appeal is partly allowed in the above manner.
(Pronounced in the open court on 11.09.2023)