Service Tax on Renting of Immovable property paid with interest – Penalty under Section 76 of Finance Act, 1994

Shri Mahesh Vaktawarmal Rathod Vs. Commissioner Of Central Excise, Pune-III [2015-TIOL-178-CESTAT-MUM]

Shri Mahesh Vaktawarmal Rathod (“the Appellant”) rented out their premises to M/s Loot India Pvt. Ltd. Renting of immovable property was rought under the Service tax net under erstwhile Section 65(105)(zzzz) of the Finance Act,1994 (“the Finance Act”) w.e.f. June 1, 2007. The levy was challenged by M/s Retailers Association of India and the matter travelled to the Hon’ble Supreme Court. The Hon’ble Supreme Court vide its Order dated October 14, 2011 stayed the operation of levy (only in respect of Service tax liability from June 1, 2007 to September 30, 2011) subject to certain conditions, such as payment of specified portion of the Service tax to be in installments. In the present case, the Appellant paid the Service tax on December 12, 2012 with interest and also filed the Service tax returns.

However, the Appellant was asked to deposit penalty under Section 76 of the Finance Act, which was upheld by the Ld. Commissioner (Appeals). Being aggrieved, the Appellant filed an appeal before the Hon’ble CESTAT, Mumbai.

The Appellant relying upon the decisions in The Agricultural Produce Market Committee Vs. Commissioner or Central Excise, Ahmedabad-III [2014-TIOL-1242- CESTAT-AHMD] and Commissioner of Service Tax, Bangalore Vs. Motor World [2012-TIOL-418-HC-KAR-ST], submitted that since the issue was in dispute upto the level of Supreme Court and the matter has not attained finality, there is reasonable cause for invoking Section 80 of the Finance Act and waiving the penalty under Section 76 thereof. It was further submitted that in view of the decision in the case of Vinayaka securities and Detective Agency Vs. Commissioner of Central Excise [2014-TIOL-1242-HC-KARST] (“Vinayaka Securities”), the Appellant are entitled to waiver of penalty under Voluntary Compliance Encouragement Scheme (“the VCES”) introduced in 2013.

On the other hand the Department argued that in the matter of Renting of Immovable property, penalty under Section 76 of the Finance Act could be waived under Section 80(2) of the Finance Act subject to the condition that the amount of Service tax along with interest is paid in full within a period of six months on which the Finance Bill, 2012 was passed i.e. before November 26, 2012. Inasmuch as since the tax has been paid only on December 12, 2012 the benefit is not available to the Appellant.

The Hon’ble CESTAT, Mumbai after observing provisions of Section 80(2) of the Finance Act and Circular No. 174/9/2013-ST dated November 25, 2013 (“the VCES Circular”) issued in respect of the VCES, held as under:

  • It is evident from the VCES Circular, that normally the VCES is not applicable when the tax had already been paid before its introduction but at the same time, the Government has left a window open for taking a lenient view in the issue of penalties in some circumstances under Section 80 of the Finance Act;
  • Since, in the instant case, the matter was pending in Courts and has still not attained finality, the Appellant deserves a lenient view following the judgment in the case of Vinayaka Securities.

Therefore, the Hon’ble Tribunal allowed the appeal in favour of the Appellant and waived the penalty imposed under Section 76 of the Finance Act.

 

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