2010 (7) TMI 297 - AT - Service Tax

Appellant is a partnership firm - service was introduced for the first time in September 2004 - appellant not be aware of the changes in the law - He submitted that as soon as the department informed them they contacted the consultants and after taking advice from the consultants promptly obtained a registration and paid the service tax - he submitted that it cannot be said that appellants had suppressed the fact of providing service from the department attracting extended period for issue of show cause notice and imposition of penalty under Section 78 of Finance Act 1994 - Held that - before issue of show cause notice service tax and interest was paid the benefit of Section 73(3) of Finance Act 1994 would be available to the appellants and therefore the show cause notice should not have been issued to the appellants - penalties under Section 76 and Section 78 of Finance Act are set aside and the matter is remanded to the original adjudicating authority

Summary

Issues:
1. Imposition of penalty under Sections 76, 77 & 78 of Finance Act, 1994.
2. Appellant's awareness of newly introduced service and subsequent compliance.
3. Treatment of amount received as inclusive of service tax.

Analysis:

Imposition of Penalty under Sections 76, 77 & 78:
The case involved the imposition of penalties under various sections of the Finance Act, 1994, against the appellants. The appellants had provided services without initially paying service tax, leading to a show cause notice proposing penalties. The dispute primarily revolved around the validity of imposing penalties under Sections 76, 77, and 78 of the Finance Act.

Appellant's Awareness and Compliance:
The appellants, a small partnership firm, argued that they were unaware of the newly introduced service tax, which was implemented in September 2004. Upon being informed by the department, they promptly registered and paid the service tax with interest. The advocate contended that this demonstrated the appellants' bona fide intentions and negated the need for penalties under Section 78. The advocate also raised the issue of cum tax value treatment, citing a relevant case law to support their position.

Treatment of Amount Received as Inclusive of Service Tax:
A crucial aspect of the case involved the treatment of the amount received by the appellants as inclusive of service tax. The advocate relied on a specific case law to argue for cum tax value adoption when tax is not collected separately. The Tribunal agreed with this argument, emphasizing the applicability of Section 67 of the Finance Act, 1994, in determining the treatment of the received amount.

In conclusion, the Tribunal set aside the penalties under Sections 76 and 78 of the Finance Act. The matter was remanded to the original adjudicating authority for recalculating the correct amount of service tax payable by considering the amount received by the appellants as inclusive of service tax. The decision highlighted the importance of timely compliance, awareness of tax regulations, and the correct treatment of amounts in service tax matters.