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PJ/Case Law/2014-15/2168

If the assessee pays service tax along with interest before issuance of Show cause notice, will it still amount to fraud, collusion and/or active concealment?

Case:- M/s PREMACHAND RACHUMAL Vs CCE, NAGPUR
 
Citation:- 2014-TIOL-645-CESTAT-MUM

Brief facts:- The appellant M/s Premachand Rachumal were a partnership firm engaged in the activity of civil construction, mainly roads construction and had also undertaken the construction of 14 number of tenements of Maharashtra Housing Development Authority (MHADA). A show-cause notice was issued to the appellant in respect of the 14 tenements constructed for MHADA during the period 01.06.2005 to 30.09.2007, for low income group, the activity liable to Service Tax under the category "construction of residential complexes /finishing activity".
 
Appellant’s contentions:- According to the appellant, as per the definition under Section 65 of the Finance Act, 1994, the activity of construction of residential unit was liable to tax only in case of construction of a building or buildings, having more than 12 residential units and further having common area and along with facilities like park, lift, parking space, community hall, common water supply or affluent system etc. But whereas work done by the appellant, tenements had been constructed which were small separate house and did not fall under the definition of building or buildings. Further there was no single residential complex having more than 12 residential units. However in view of the fact that the appellant admitted tax liability and deposited the tax along with interest before the issue of show-cause notice, as it was evident from para 7 of the show-cause notice, no show-cause notice was required to be issued in the matter under Section 73 (3) of the Finance At, which provided that where any Service Tax found to be not levied or short-levied, the assessee may pay the amount of Service Tax chargeable, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under Sub-Section (1) in respect of such Service Tax, and inform the authority of such payment in writing, who on receipt of such information shall not serve any notice in respect of the amount so paid. From the show-cause notice itself it was evident that the appellant had paid the tax and informed the Revenue authorities regarding the same. Further, the appellant relied on the decision of Hon'ble Karnataka High Court in the case of Commissioner of Central Excise & Service Tax Vs. M/s Adecco Flexione Workforce solutions Ltd. = 2011-TIOL-635-HC-KA R-ST, wherein the Hon'ble Karnataka High Court had held that where tax and interest had been deposited and proper intimation given under the provisions of Section 73(3), the Revenue authority had no jurisdiction to initiate any recovery proceedings or imposition penalty under the Act.
 
Respondent’s contentions:- The learned A.R. relied upon the orders of lower appellate authority and pointed out from para 8 of the impugned order passed by the Commissioner (Appeals), wherein the plea taken by the appellant under Section 73(3) was rejected stating that the provisions were not applicable where the tax had not been levied or paid by reasons of fraud, suppression, collusion etc.
 
Reasons of judgment:- Having considered the rival contentions, Hon’ble Judge found that there was no case made out of fraud, collusion and/or active concealment on the part of the appellant. Further, the appellant had paid the Service Tax along with interest before the issue of show-cause notice and accordingly they were entitled to benefit under Section 73 (3). Thus the penalty levied under Sections 76, 77 and 78 of the Finance Act were hereby set aside. Thus, the appeal stands allowed.
 
Decision:- Appeal was allowed.
 
Comment:-The analogy drawn from the case is that Revenue could not initiate any recovery proceedings or impose penalty under the Act, where tax and interest had been deposited along with interest before the issue of show-cause notice and proper intimation given under the provisions of Section 73(3) and no case could be made out of fraud, collusion and/or active concealment on the part of the assessee in such situation.

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