Imposition of penalty under Section 78 - Payment of service tax on being pointed out by Department

PJ/Case Laws/2011-12/1411

Case: M/s Subin Telecom v/s CCE, Rajkot and Vice Versa

Citation: 2011-TIOL-1451-CESTAT-AHM

Issue:- Non-payment of service tax even after registration but paid after being pointed by Department – whether penalty under Section 78 attracted?

Assessee not paying service tax in the year of registration but in the following year after being pointed out – whether benefit of SSI exemption under Notification No. 6/2005-ST available?

Brief fact:- Appellant is engaged in providing services as authorized distributor of M/s Vodafone Essar Gujarat Ltd for their products on commission basis since April, 2007. Appellant took registration under Business Auxiliary Service on 26.04.2007, but they neither paid service tax nor filed returns.

Department issued letter dated 11.2.08 asking appellant to file return and to submit their records for verification. Subsequent to such exercise, appellant made payment of service tax on 08.02.08.

Thereafter, show cause notice was issued and the Adjudicating Authority confirmed the demand of service tax with imposition of penalty. In appeal, the Commissioner (Appeal) reduced the service tax by extending the benefit of exemption Notification No. 6/2005-ST dated 01.03.05. Penalty was imposed under Section 78 was upheld and penalties under Section 76 & 77 have been set aside.

Against the impugned order, the appellant-assessee is in appeal before the Tribunal against imposition of penalty under Section 78 and Revenue is in appeal against extension of benefit of exemption Notification No. 6/2005-ST.

Appellant’s Contentions:- Appellant contended that they were not aware about their liability to pay service tax and to file service tax return. That they had taken regiostration as per the advice of the company. That they have paid the service tax as soon as they came to know about their liability from the Department. It was submitted that there were several decisions of the Tribunal wherein it was held that in such cases no penalty under Section 78 is imposable. Reliance was placed on the case of Santhi Casting Works v/s CCE, Coimbatore [2009-TIOL-161-CESTAT-MAD]

Respondent’s Contention:- Revenue contended that it is a fact that the appellant had not paid service tax even though they had taken registration. This also shows that they were aware about their liability to pay service tax and to file Returns and they have deliberately not fulfilled their liability. They were advised by M/s Vodaphone to take registration and it is obvious that the principal presumed that appellant will pay service tax and the appellant presumed that he was only to take registration and did not even thought of consulting anyone. It was submitted that service was provided in April 2007 but full payment of service tax was paid in February 2008.

On the issue of extension of benefit of exemption under Notification No. 6/2005-ST, Revenue relied upon the decision given in L.G. Marwadi v/s CCE, Pune-II [2010-TIOL-814-CESTAT-MUM] andsubmitted that SSI benefit cannot be extended when assessee has not opted for the same.

Reasoning of Judgment:- On the issue of imposition of penalty, the Tribunal held that Circular of the Board issued by 2007 clarifying that the conclusion of proceedings envisaged under sub-section (3) of Section 73 would apply where service tax and interest are paid on ascertainment by excise officers or otherwise with interest; was clearly applicable. This squarely covered under Section 73 (3) of Finance Act and therefore penal provision under Section 78 need not be initiated. Therefore, penalty under Section 78 is not sustainable and accordingly, the same is set aside.

With regard to extension of benefit under Notification No. 6/2005-ST, it was held that decision in L. G. Marwadi cannot be compared to this case. The facts of the said case were different from the facts of the present case. It was noted that the Notification provided exemption if option was given in the beginning of the financial year. In instant case, appellant had taken registration first time in April, 2007 and did not pay any tax and only in February 2008, they paid service tax after coming to know about it. Relying upon the following decision, it was held that SSI exemption benefit will be available to the appellant:

- CST, Ahmedabad v/s Bacha Finlease [2010 (17) STR 102 (Tri-Ahmd)]
- Sudesh Sharma v/s CCE, Ludhiana [2010 (19) 512STR (Tri-Del)]

Accordingly, it was found that no reason to interfere with the impugned order.

Judgment:- Revenue’s appeal rejected. Assessee’s appeal accepted.

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PJ/Case Laws/2011-12/1411

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