By TIOL News Service

MUMBAI, JUNE 07, 2016: THE appellant is a Proprietary Concern engaged in providing ‘Erection, Commission & Installation services to M/s. Maharashtra State Electricity Distribution Company Ltd (M/s. MSEDCL). On the basis of intelligence it was found that appellant was providing erection, commission and installation services with material and paying service tax only on labour charges instead of total service charges, hence paying less service tax than what is required to be paid by them.

A SCN was issued for the recovery of differential service tax of Rs.2,80,78,694/-.

The CCE, Aurangabad confirmed the demand of Rs.26,36,363/- for the period from 1/7/2012 to 31/3/2013 and the tax demand pertaining to the period prior to 1/7/2012 was dropped on the ground that the services in question were exempted by the government vide section 11CNotification No. 45/10-ST dated 20/7/2010.

The appellant is before the CESTATonly for waiver of penalty imposed u/s 78 and late fee for delayed filing of ST-3 returns u/s 70 of the FA, 1994 r/w Rule 7C of STR, 1994.

It is submitted that the appellant is providing service exclusively to State Government company i.e. M/s. MSEDCL, therefore, all the transactions are legitimate and there is no malafide intention on their part; though SCN demanded tax in excess of Rs.2crores what was confirmed was only Rs.26 lakhs in view of the s.11C notification; which further indicates that there was confusion on the liability per se ; that the services become liable to tax w.e.f 01.07.2012; even in the negative list,distribution utility services is listed in negative list which also creates confusion whether the service of the appellant is also covered under that negative list and, therefore, not taxable; out of demand amount i.e. Rs.26lacs, an amount of Rs.19lacs was paid before issuance of SCNand remaining amount thereafter along with interest but before adjudication. Inasmuch as penalty is not imposable u/s 78 of FA, 1994 as also late fee u/r 7C of STR, 1994 for delay in filing returns, pleaded the appellant.

The AR reiterated the findings of the CCE and further submitted that from 1/7/2012 it became clear that services of the appellant are taxable and, therefore, subsequent to that it cannot be said that there is bonafide belief necessitating imposition of penalty u/s 78 as well under the STR, 1994.

The Bench observed –

++ As regards the penalty under Section 78, the appellant have entertained bonafide belief in non payment of service tax for the reason that the show cause notice demanded the service tax for an amount of Rs.2.80crore for the period April, 2008 to March, 2013 whereas in the impugned order the demand was reduced to Rs.26.36lacs which is for the period July, 2012 to March, 2013, this shows that there was serious confusion among the assessee as well as department about the levy of service tax on the services provided to State Government Electricity distribution companies. This confusion stand confirmed on the ground that to remove the confusion on the issue, the exemption notification no. 45/2010-ST by which the said service was made exempted from retrospective effect.

++ It is also observed that even from July, 2012 the negative list of services was introduced in the Union Budget 2012 wherein electricity distribution utility services listed in the negative list. This entry further created confusion that whether the appellant is falling under the negative list or otherwise. Therefore as per the above confusion, it is clear that the appellant entertained bonafide belief and hence not paid the service tax. ++ However, when the issue was made clear the entire service tax demand confirmed has been paid before adjudication alongwith interest. I, therefore, find that appellant have shown reasonable cause for non-payment of service tax on due date. Accordingly they have made out a case for waiver of penalty in terms of Section 80 of the Finance Act, 1994. I therefore waive the penalty imposed under section 78 invoking Section 80 of the Finance Act.

++ As regard the late fee, I find that admittedly the service tax was confirmed only for the period July, 2012 to March, 2013 therefore no late fee can be charged for delay in filing/non filing of ST-3 returns for the period prior to 1/7/2012. However, the service tax liability confirmed and admittedly paid by the appellant for the period July, 2012 to March,2013, the appellant was duty bound to file ST-3 returns for this period on due date therefore the appellant is liable for late fee for non filing / delayed filing of ST-3 returns for the period July, 2012 to March, 2013 in terms of Section 70 read with Rule 7C of Service Tax Rules, 1994.

The appeal was partly allowed.

(See 2016-TIOL-1355-CESTAT-MUM)