By TIOL News Service

MUMBAI, FEB 23, 2015: THE Appellants are engaged in providing helicopter charter service mainly for corporates such as ONGC undertaking offshore activities. It is the view of the department that the said activity attracted ST under the category of "Supply of tangible Goods for Use".

SCNs were issued for the period 16/05/2008 to 31/03/2011 demanding total ST of Rs.67 crores.

The demands were confirmed along with penalties and interest.

Before the CESTAT, while seeking a stay from recovery in the matter, the appellant submitted that they have been discharging ST under the category of 'Air Transport of Passenger' since the year 2010.

The Bench inter alia observed -"Whether operating helicopter on charter basis for transport of passengers would merit classification under 'Air Transport of Passenger Service' or under the category of 'Supply of Tangible Goods for Use' is a complicated and contentious issue - considering the fact that the appellant has paid a sum of about Rs 37 crores as against the amount demanded, same is considered sufficient for the purpose of hearing of the appeal - Pre-deposit waived & Stay granted."

We reported this as 2013-TIOL-1995 -CESTAT-MUM.

When the appeal was heard, there was a difference of opinion on the issue of imposition of penalty. Nonetheless, both the Members agreed that the appellant is liable to pay service tax under the category of "SOTG". Resultantly, the matter was referred to the third Member.

Kindly see 2013-TIOL- 1996-CESTAT-MUM.

The following is the difference of opinion referred -

i) Whether the appellant is liable to penalty under the provisions of Sections 76 & 78 of the Finance Act, 1994 as held by the Hon'ble Member (Technical) relying on the decision of the Hon'ble High Court of Kerala in the case of Krishna Poduval - 2006-TIOL-77-HC-KER-ST, the hon'ble Apex Court's decision in the case of Chairman SEBI Vs Shriram Mutual Fund & another - 2006-TIOL-72-SC-SEBI, the decision of the Hon'ble High Court of Gujarat in the case of Neminath Fabrics - 2011-TIOL-10-HC-AHM-CX and the Larger Bench decision in the case of Union Quality Plastics Ltd.- 2013-TIOL-1072-CESTAT-AHM-LB;

OR

ii) The appellant is not liable to penalty under Sections 76 & 78 of the Finance Act, 1994 on the ground that there was reasonable cause on the part of the appellant in non-payment of service tax as held by the Hon'ble Member (Judicial).

The Third Member (T) on reference has passed an order recently.

He observed that in respect of first demand [Period 16 th May 2008 to March 2009], penalty is imposed under Section 78 whereas in respect of remaining two [April 2009 to March 2011], it is under Section 76.

After extracting the provisions of both the sections as prevailing at the relevant time, the Member (T) observed -

Penalty u/s 78 of FA, 1994:

+ In the present case, penalty under Section 78 is imposed in respect of the first show cause notice which pertains to the period from 16 th May 2008 to March 2009. The service tax under the category of 'supply of tangible goods' was introduced with effect from 16th May 2008.

+ In fact, immediately after the introduction of service tax under the category of 'supply of tangible goods', the appellant had taken the registration on 2 nd July 2008. Thus the facts that they were under the said business was not only informed to the department but they also took registration for the same. Under the circumstances, it cannot be said that there was any suppression of facts.

+ In view of the fact that the appellant has taken the registration as early as on 2nd July 2008, the appellant has also billed to their customers for the service tax element and on raising dispute about the levy by few customers, the appellant took the legal opinion on 22 nd October 2008 and also the fact that when the Revenue started investigation, they started paying the service tax and the first payment was made on 22nd January 2009, in my view, the ingredients to impose penalty under Section 78 for the period 16 th May 2008 to March 2009 are missing.

Under the circumstances, in my view, penalty under Section 78 imposed in the first show cause notice is not sustainable.

Penalty u/s 76 of FA, 1994:

+ Period involved in these two show cause notices is from April 2009 to March 2011. It is also to be noted that legal opinion was taken by the appellant as early as on 22 nd October 2008 and the Revenue had started investigation and recorded the statements of the appellant in January 2009. In fact, the appellant also paid part of the duty on 22 nd January 2009 and on various dates, during February, March etc. of 2009. Thus, from January 2009 onwards it was very clear to the appellant that the duty is required to be paid under the “supply of tangible goods' category.

+ A bare reading of the Section would show that the penalty is imposable under the said Section on a person who fails to pay tax. The said Section does not stipulate any contumacious conduct on the part of the taxpayer. Whatever the reason for the failure to pay the tax may be, the penalty under the said Section 76 is imposable. No mens rea is required for imposition of penalty under the said Section.

+ I also observe that from January 2009 onwards, the appellant is paying duty but they are not paying the full duty amount but only part of the amount as is clear from the following table -

+ It would be seen from Section 80 that it is for the appellant to prove that there was reasonable cause for the said failure. In the present case while there can be arguments or reasons for the period upto March 2009 for failure to pay the duty, there does not seem to be any valid ground for non-payment of duty after April 2009. In view of the said position, in my considered view, penalty for the period April 2009 to March 2011 cannot be waived under Section 80 of the Finance Act .

Conclusion:

+ I agree with Member (Judicial) as far as imposition of penalty under Section 78 of the Finance Act in respect of the first show cause notice is concerned. [i.e penalty not imposable]

+ As far as penalty under Section 76 in respect of the second and third show cause notices is concerned, I agree with Member (Technical). [i.e penalty is imposable]

And so, the Majority decision is -

++ Services rendered by the appellant in charter hire of helicopters to various corporate for offshore operations is classifiable under “supply of tangible goods for use” service. Consequently we uphold the demand of service tax under the said category along with interest thereon. However, wherever the appellant has not collected service tax separately from the customers, the consideration received shall be treated as cum-tax and the service tax demand ought to be recomputed. The claim of the appellant for payment of Rs.10,31,53,803/- towards service tax dues shall be verified and if found correct, the same shall be deducted from the amount due from the appellant. We also uphold the denial of CENVAT taken of Rs.2,33,09,951/-. The appellant shall forthwith reverse the said credit, if not already done. The appellant shall also be liable to pay interest on the credit wrongly availed from the date of taking the credit to the date of reversal in accordance with law.

++ Uphold the imposition of penalties on the appellant under Section 76 & 77 of the Finance Act, 1994 for the default in payment of service tax and for non-compliance of statutory provisions relating to the service tax. However, we set aside the penalties imposed under Section 78 of the Finance Act, 1994. The penalty of Rs.2,000/- imposed under Rule 15(3) of the Cenvat Credit Rules, 2004 is also upheld.

(See 2015-TIOL-380-CESTAT-MUM)