2025 (4) TMI 967 - AT - Service Tax

Levy of penalties - suppression of facts or not - failure to furnish information and failure to pay service tax electronically - benefit of cum-tax valuation under Section 67(2) of the Finance Act 1994 - extended period of limitation - HELD THAT - The Appellant had collected the amounts in terms of the MOU signed between them and M/s Ansal Properties M/s Sputnik Realtors Pvt. Ltd. with respect to the commission per acre to be paid to them. The fact about these amounts being collected by them was never disclosed by them to the Revenue Authorities or in their ST-3 Returns. Thereby they suppressed the value of taxable services being provided by them with a intent to evade payment of tax. From the impugned order it is evident that Appellant was aware that tax was due in respect the said amount and they agreed to discharge service tax liability of this amount during the relevant period. There is no dispute with regards to the amount of service tax demanded from the Appellant. The Appellant do not dispute the same. That being so by not reflecting these tax liabilities in their ST-3 Return Appellant have deliberately knowingly suppressed the relevant facts from the Revenue Authorities with intent to evade payment of tax. Thus their cannot be any dispute with regards to the penalties imposed upon them under Section 78 in terms of decision of Hon ble Supreme Court in the case of UOI V/s Rajasthan Spinning Weaving Mills 2009 (5) TMI 15 - SUPREME COURT . While this option to pay 25% of the amount confirmed was extended in Order-In-Original the same has not been extended in the impugned order by the Commissioner (Appeals) whereby major amount of demand has been dropped (demand confirmed by Order-In-Original is Rs.78, 79, 420/-and by Order-In-Appeal is only Rs.7, 96, 139/-) it was thus necessary for the Commissioner (Appeals) but have specifically extended this benefit of payment of penalty at 25% of the tax short paid in terms of this provisions. Conclusion - The benefit extended in terms of this Section to the Appellant for payment of entire amount of tax with interest and 25% penalty within 30 days of the receipt of this order. Appela disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the appellant suppressed taxable value of services with intent to evade service tax, thereby attracting penalties under Section 78 of the Finance Act, 1994.
• Whether penalties under Sections 77(1)(c) and 77(1)(d) of the Finance Act, 1994 for failure to furnish information and failure to pay service tax electronically were justified.
• Whether the appellant was entitled to the benefit of cum-tax valuation under Section 67(2) of the Finance Act, 1994, reducing the taxable service value and consequent tax liability.
• Whether the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 was rightly invoked for demand of service tax for the period 2013-14 to 2015-16.
• Whether the appellant was entitled to the option of paying penalty at 25% of the tax amount along with interest under Section 78(2) read with Section 73 and 75 of the Finance Act, 1994, as modified by the Commissioner (Appeals).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Suppression of Taxable Value and Penalty under Section 78

Legal Framework and Precedents: Section 78 of the Finance Act, 1994 imposes penalty for non-payment of service tax due to suppression of facts or mis-declaration with intent to evade tax. The Supreme Court in UOI v. Rajasthan Spinning & Weaving Mills (2009) held that deliberate suppression of facts with intent to evade tax attracts penalty under Section 78.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant was registered under 'Real Estate Agent Service' and 'Business Auxiliary Service' and had entered into MOUs with clients stipulating commission payments. The appellant received substantial amounts as commission but did not disclose these amounts in their Service Tax Returns (ST-3). The Revenue procured 26AS statements revealing gross receipts significantly higher than those declared in ST-3 returns. The Tribunal observed that the appellant was aware of the tax liability on these amounts and agreed to discharge the service tax but deliberately suppressed the taxable value in returns.

Key Evidence and Findings: The 26AS statements for financial years 2013-14 to 2015-16 showed receipt of Rs. 60,26,08,175 against which the appellant declared only Rs. 4,55,970 in ST-3 returns. The demand of Rs. 78,79,420 as service tax was confirmed. The appellant did not dispute the tax demand but challenged the penalty under Section 78.

Application of Law to Facts: The Tribunal held that suppression of taxable value with intent to evade tax was established. The appellant's failure to disclose the commission income in returns constituted deliberate suppression under Section 78.

Treatment of Competing Arguments: The appellant argued absence of contumacious conduct or deliberate violation and failure of the Department to prove ingredients of Section 78. The Tribunal rejected these contentions based on documentary evidence and the appellant's own admission of tax liability.

Conclusion: Penalty under Section 78 was rightly imposed for suppression of taxable value with intent to evade tax.

Issue 2: Penalties under Sections 77(1)(c) and 77(1)(d)

Legal Framework: Section 77(1)(c) penalizes failure to furnish information or records as required, and Section 77(1)(d) penalizes failure to pay service tax electronically.

Court's Reasoning: The Commissioner (Appeals) vacated penalties under these sections after considering that penalty under Section 78 was already imposed for the same cause.

Conclusion: Penalties under Sections 77(1)(c) and 77(1)(d) were set aside to avoid double penalization.

Issue 3: Benefit of Cum-Tax Valuation under Section 67(2)

Legal Framework: Section 67(2) of the Finance Act, 1994 allows for valuation of taxable services on a cum-tax basis where the consideration includes service tax.

Court's Reasoning: The Commissioner (Appeals) examined the MOUs and commission bills and found that commission amounts were inclusive of service tax. Accordingly, the appellant was eligible for cum-tax valuation benefit, reducing the taxable value and consequent tax liability to Rs. 7,96,139 for FY 2013-14 and 2014-15.

Application to Facts: The Tribunal accepted the Commissioner (Appeals)'s modification of the demand to Rs. 7,96,139 after cum-tax valuation benefit.

Conclusion: The appellant was entitled to cum-tax valuation benefit, reducing their tax and penalty liability.

Issue 4: Invocation of Extended Period of Limitation

Legal Framework: Proviso to Section 73(1) of the Finance Act, 1994 allows extended period of limitation where taxable service value is suppressed with intent to evade tax.

Court's Reasoning: The Tribunal found that the appellant suppressed taxable value deliberately; hence, invocation of extended limitation period was justified.

Conclusion: Extended period of limitation was properly invoked for the demand.

Issue 5: Option to Pay Penalty at 25% of Tax Amount under Section 78(2)

Legal Framework and Precedents: Section 78(2) provides that where the penalty amount is modified by appellate authority, the person liable has the option to pay penalty at 25% of the tax amount along with interest within 30 days. The Ahmedabad Bench in Kalpesh Founders & Engineers (2009) held that failure to grant this option is illegal and the fault lies with authorities, not the assessee. This principle was upheld by the High Court and Supreme Court in subsequent appeals.

Court's Reasoning: The original adjudicating authority had extended the option to pay 25% penalty, but the Commissioner (Appeals) did not extend this benefit after modifying the demand downward. The Tribunal held that the benefit must be extended as per Section 78(2).

Application to Facts: The Tribunal granted the appellant the option to pay the entire tax with interest and 25% penalty within 30 days of receipt of the order.

Conclusion: The appellant was entitled to the option to pay reduced penalty under Section 78(2).

3. SIGNIFICANT HOLDINGS

"The appellant was liable to pay Service tax amounting to Rs.7,96,139/- after extending the benefit of cum-tax value against which the appellant had already deposited Service tax of Rs.56,358/ as per ST 3 return. As such, the appellant is required to pay differential Service tax of Rs.7,39,781/- along with interest and mandatory penalty equal to this amount of Service tax under Section 78 of the Act."

"By not reflecting these tax liabilities in their ST-3 Return appellant have deliberately knowingly suppressed the relevant facts from the Revenue Authorities with intent to evade payment of tax. Thus there cannot be any dispute with regards to the penalties imposed upon them under Section 78 in terms of decision of Hon'ble Supreme Court in the case of UOI V/s Rajasthan Spinning & Weaving Mills."

"Where the Commissioner (Appeals), the Appellate Tribunal or the court modifies the amount of service tax determined under sub-section (2) of section 73, then the amount of penalty payable under sub-section (1) and the interest payable thereon under section 75 shall stand modified accordingly... the person who is liable to pay such amount of service tax, shall also be liable to pay the amount of penalty and interest so modified."

"Failure to grant option to pay penalty at 25% of the tax amount within 30 days is illegal and the fault lies with the authorities and not with the assessee."

Final determinations:

• The demand of service tax after cum-tax valuation benefit was confirmed at Rs. 7,96,139.
• Penalty under Section 78 was upheld for suppression with intent to evade tax.
• Penalties under Sections 77(1)(c) and 77(1)(d) were vacated to avoid double penalty.
• Extended period of limitation was validly invoked.
• The appellant was granted option to pay penalty at 25% of the tax amount along with interest within 30 days.