No Penalty if there is a Classification Dispute over Service Tax Payment, CESTAT

Non-payment of service tax arising out of a dispute in interpretation of classification of services cannot be punished with the levy of a penalty, the Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled..The decision was rendered by a bench comprising SK Mohanty, Member (Judicial) and B. Ravichandran, Member (Technical)..In the appeal drafted and argued by Advocate Rudrajyoti Nath Ray, against the order of the Tribunal, the appellant company, a government of India undertaking under the Ministry of Steel, contended that the non-payment of service tax was due to the disputed nature of the interpretation of various definitions of the service provided, and there was no mala fide intent of tax evasion. Hence, the penalty imposed under Section 76 of the Finance Act should be waived off, and the company should be given the benefit under Section 80 of the Act..Although the Commissioner of Central Excise & Customs, Raipur observed that the non-payment “resulted on account of different interpretation of the relevant definitions” and that “it would not be justified to allege there existed intent to evade payment of service tax”, it imposed a penalty of Rs. 3,65,22,706 under Section 76 of The Act. This, despite the fact that even before the Commissioner issued his order on 30 July 2007, the company had, on 13 July 2007 paid the entire amount of the service tax which was due..In order to buttress its contention, the appellant company cited the judgement of the Allahabad High Court in CCE v. Auto World, in which the Court struck down the penalty imposed in a similar set of circumstances..The Tribunal noted that the Commissioner had observed in his order that there was a reasonable cause for non-payment of service tax. It also noted that appellant company, which is a Government of India undertaking, has fully discharged the service tax with applicable interest before the service tax liability was even confirmed in the first adjudication order. Further, being a government company, there is the presumption of non-existence of any mala fide intent on its part..Having made the above observations, the Tribunal went on to hold that the appellant company’s case was a fit one for for invoking the provision of Section 80 for waiver of penalty under Section 76 of the Finance Act, because,.“Though Section 76 penalty is not with reference to mala fide intent, we note that this is also a penal provision for non-payment of service tax in time. Section 80 provides for waiver of penalty under Section 76 if reasonable cause is shown for non-payment of tax in time.”.Thus, the Tribunal set aside the Commissioner’s Order and allowed the appeal with reference to the penalty under Section 76..Read the order:.Click here to download the Bar & Bench Android App