No penalty if disputed tax and interest paid before issuance of SCN

PJ/CASE LAW/2015-16/2883

Case:- SHREE PARVATI CONSTRUCTION VERSUS COMMISSIONER OF C. EX., KOLHAPUR

Citation:- 2015 (39) S.T.R. 648 (Tri. - Mumbai)

Brief facts:- The appellant, M/s. Shree Parvati Construction, is a partnership firm, engaged in commercial and industrial construction, works contract service and also received input services under Goods Transport Agency Services. This appeal is preferred against Order-in-Appeal No. PUNE-ST-002-APP-46-13-14, dated 24-6-2013 passed by the Commissioner of Customs & Central Excise (Appeals), Pune-II.
The brief facts are that the appellant was not registered under the provisions of Service Tax. On receipt of the notice dated 19-10-2009 demanding certain information, the appellant immediately responded and filed the relevant information, on understanding that they are liable to pay Service Tax have immediately sought registration which was granted on 22-12-2009. Further, as appears from the show cause notice, the appellant paid all the admitted tax along with interest. The show cause notice dated 5-4-2011 was issued for extended period from November, 2006 to March, 2010 alleging therein that the appellant have failed to pay Service Tax amount of Rs. 1,88,663/-, under the commercial construction service for the work executed for M/s. Sterling Lead Pvt. Ltd., M/s. Maharashtra Machines, M/s. Maharashtra Engineers and M/s. Maharashtra Enterprises, etc. Further, demand of Rs. 13,46,239/- was proposed under the Works Contract Service in respect of which the appellant had already deposited the Service Tax amount of Rs. 8,97,867/-. Further Rs. 1,728/- was demanded towards Goods Transport Agency - input services. The appellant contested the show cause notice by filing detail reply and leading evidence. Vide Order-in-Original, the proposed demand was confirmed and all the tax amounts were appropriated save and except the disputed amount under Works Contract Service. Penalty was also imposed under Sections 70, 77(1)(a) and 78 of the Finance Act, 1994.
Being aggrieved, the appellant preferred an appeal before the Commissioner (Appeals), who vide the impugned order was pleased to hold that the appellant is not liable for the amount of Rs. 1,88,663/- on the ground of mis-classification and on wrong classification. So far the demand under Works Contract Service was concerned, the appellate authority found that the appellant is not liable to pay Service Tax on the materials received free of cost from the principal, which did not form part of the gross contract received. Accordingly, he dropped the demand of Rs. 4,50,100/- out of total demand of Rs. 13,46,239/-. Therefore, what remained was admitted demand of Rs. 8,97,867/-. The appellate authority further reduced the late fee imposed under Section 70 from Rs. 24,000/- to Rs. 12,000/- and reduced the penalty under Section 77(1)(a) from Rs. 2,14,000/- to Rs. 1,07,000/- and further reduced penalty under Section 78 to the amount admitted and confirmed under Works Contract service being Rs. 8,97,867/-.
Being aggrieved as regards confirmation of penalty in part, the appellant have preferred this appeal before this Tribunal.

Appellant’s contention:- The learned counsel for the appellant vehemently argues that from the facts on record, it is apparent that all the transactions were found duly recorded in the books of account maintained by the appellant. Further, he argues that as the appellant realizing its liability, on being so pointed out by the Revenue, have deposited the admitted tax along with interest and is accordingly, entitled to the benefit under Section 73(3) of the Finance Act, 1994, which provides that on being so pointed out by the Revenue authority, where the assessee deposited the Service Tax + interest and does not dispute its liability, no further show cause notice is required to be issued. Accordingly prays for allowing the appeal.

Respondent’s contention:- Learned AR relies on the impugned order.

Reasoning of judgment:-Having considered the rival contentions, they find that it is a fact on record that other than admitted liability, amount proposed to be demanded and confirmed from the appellant have been dropped by the first appellate authority. Thus, the contention of the appellant stands fortified and there is no finding either in the Order-in-Original or in the Order-in-Appeal indicating any action or inaction on part of the appellant indicating towards collusion, fraud, active concealment of tax under the Finance Act, 1994. However, it appears that the appellant had turnover above Rs. 40 lakhs per annum under some of the financial year during the disputed period. In such circumstances, as provided under Section 44AB of Income-tax Act, the books of account were subject to tax audit and accordingly, it appears that the appellant was receiving the service of professionals like CA understanding tax obligations. But, there is no finding of any contumacious conduct on part of the appellant. Thus, in this view of the matter, they find that the appellant is entitled to benefit under Section 73(3) of the Finance Act, 1994 and it appears that the show cause notice was issued without proper consideration of the facts on record. In this view of the matter, penalty as reduced by the first appellate authority is dropped and set aside and the appellant will be entitled to refund or adjustment of the excess tax paid, which shall be calculated and granted by the adjudicating authority.
Thus, the appeal is allowed with consequential benefits, if any, in accordance with law.

Decision:- Appeal allowed

Comment:- The analogy of the case is thatlenient view is required to be taken for penalty if appellant sought registration immediately after being aware of tax liability and deposited admitted tax along with interest before issuance of show cause notice. There is no finding against appellant of collusion, fraud, active concealment of tax and so the benefit of section 73(3) of the Finance Act, 1994 was extended and appeal was allowed.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2883

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