2009 (3) TMI 143 - AT - Service Tax

Waiver of penalty held that - that respondents is a proprietorship firm. They are labour contractors. They supplied the labours to the said company. It is seen from the impugned order that they were not aware of the applicability of the service tax. They have also not collected the tax from the said company. However they have deposited the tax as soon as it came to their knowledge. The Commissioner (Appeals) extended the benefit of Section 80 of the Act as the respondents proved that there was a reasonable cause for the said failure. It is also noted that the respondent deposited the tax with interest long before issue of the show cause notice order of commissioner (Appeals) waiving the penalty sustained.

Summary

Issues:
Applicability of service tax on Manpower Recruitment Agency Services, imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994, benefit of Section 80 of the Act for reasonable cause, deposit of tax before issuance of show cause notice.

Analysis:
The case involved a dispute regarding the applicability of service tax on Manpower Recruitment Agency Services provided by the respondent to a company. The respondent admitted to supplying manpower but claimed ignorance of the tax applicability. They later registered for service tax and paid Rs. 4,32,352. A show cause notice was issued proposing penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The Original Authority confirmed the tax demand, interest, and imposed penalties. The Commissioner (Appeals) set aside the penalties under Section 80 of the Act, leading the Revenue to file an appeal.

The Revenue argued that ignorance of the law is not a reasonable cause for non-payment of tax, justifying penalty imposition. They cited precedents to support their stance. However, the Tribunal noted that the respondent, a proprietorship firm, was unaware of the tax applicability, did not collect tax from the company, but promptly paid upon realization. The Commissioner (Appeals) found a reasonable cause for the failure and set aside the penalties under Section 80.

In response to the Revenue's reliance on case laws, the Tribunal highlighted the bona fide belief of the respondent in providing services based on proper documents. Precedents were presented where timely tax deposits before show cause notices led to penalty waivers. The Tribunal referenced cases like Commissioner of Central Excise Vs. Malancha Photographer and Flyingman Air Courier Pvt. Ltd. to emphasize the importance of bona fide belief in penalty impositions.

After considering the arguments and precedents, the Tribunal upheld the Commissioner (Appeals)'s decision to set aside the penalties, concluding that there was no reason to interfere. Consequently, the appeal filed by the Revenue was rejected. The judgment was dictated and pronounced in open court on 19.03.2009.