2010 (3) TMI 591 - AT - Service Tax

Penalty - assessees herein are engaged in the construction of residential flats for and on behalf of their clients - neither registered themselves with the Department nor paid service tax for the service rendered - fall under the category of construction of residential complex liable to service tax in terms of section 68 of the Finance Act 1994 - recovery of service tax and education cess with interest - imposition of penalty under sections 76 77 and 78 ibid - paid sales tax on such contract - contract was indivisible - service tax liability arises only with effect from 1-6-2007 which is subsequent to the period in dispute Held that - set aside the impugned order and remand the case for fresh decision to the adjudicating authority who shall consider the pleas advanced by the assessees before him and pass fresh order on whether assessees are liable to penalty after extending them a reasonable opportunity of being heard in their defence.

Summary

Issues:
1. Liability of service tax on construction of residential flats.
2. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.
3. Applicability of tax liability on works contract.
4. Consideration of legal plea based on case law.

Analysis:

1. The assessees were engaged in constructing residential flats without registering or paying service tax. The department issued a show-cause notice for recovery of service tax, education cess, and penalties under sections 76, 77, and 78 of the Finance Act, 1994. The penalties were partially upheld by the lower appellate authority, leading to this appeal. The assessees argued that they were liable for tax only from 1-6-2007 due to works contract being indivisible. The Tribunal decided to remand the case for fresh consideration by the adjudicating authority based on this legal plea, as it was not raised earlier.

2. The Tribunal emphasized that even though the assessees did not challenge the tax liability, they could not be automatically held liable for penalties. The decision in Diebold Systems (P.) Ltd. v. CST was cited in support of this argument. The Tribunal directed the adjudicating authority to reassess the penalty imposition after considering the assessees' pleas and providing them with a fair opportunity to present their defense.

3. The Tribunal set aside the penalties under section 76 and remanded the case for fresh decision. The reassessment of the penalties was deemed necessary due to the legal plea raised by the assessees regarding the tax liability arising from works contracts. The Tribunal highlighted the importance of considering all relevant arguments, even if not previously raised before the lower authorities.

4. In conclusion, both the appeals, one by the assessees against the penalties and the other by the revenue against the setting aside of penalty under section 76, were allowed by way of remand. The adjudicating authority was instructed to reevaluate the penalties imposed, taking into account the legal arguments presented by the assessees and providing them with a fair chance to present their case.