No penalty if duty along with interest paid before issue of SCN.

PJ/CASE LAW/2014-15/2298

Case:-SOUTH INDIA CORPORATION LTD Vs COMMISSIONER OF SERVICE TAX, CHENNAI

Citation:-2014-TIOL-1106-CESTAT-MAD

Brief facts:-The appellant was registered under Service Tax Commissionerate , Chennai for providing Clearing and Forwarding Services, Port Services, Goods Transport Agency Service etc. There was a delayed payment of service tax of Rs.3, 72, 53,983 /- for the period from June 2008 and July 2008 which was paid on 11.08.2008. The appellant paid the said amount and interest of Rs. 2, 16,340 /- before issue of show cause notice. A show cause notice dt. 25.3.2009 was issued for demanding interest of Rs.3, 87,412 /- for the delayed payment of tax and to penalty of Rs.7, 05,806/- under Section 76 of the Finance Act, 1994. The Commissioner by the impugned Order confirmed the demand of interest and imposed penalty as proposed in SCN and appropriated the amount of interest of Rs.2, 16,340 /- already paid by the appellant. Aggrieved by this order, the appellant filed this appeal before the Tribunal.

Appellant’s contentions:-Learned Advocate appearing for the appellant pleaded that there was a genuine reason for delayed payment of service tax. In view of the earlier proceedings which resulted in OIO No.92/2007 dt. 25.5.2007 passed by the Commissioner of Service Tax, Chennai, the appellant had to carry out the exercise of re-determination of taxable value. They were able to finalize their tax liability only after collecting all the CENVAT credit invoices/bills from various parties such as sub contractors and statutory bodies viz. Paradip Port Trust & Chennai Port Trust located at different locations. Therefore, the payment of service tax due for the relevant period was delayed and the same was remitted during August'08 well before receipt of SCN. The learned advocate therefore pleaded that their case is fully covered under Section 73(3) of the Act and in this context, he relied upon Board's circular F.No.137/167/2006-CX-4 dt. 3.10.2007. He also relied upon the Hon'ble Tribunal's decision in the case of CST New Delhi Vs Independent News Services P. Ltd. - 2011 (23) S.T.R. 23 (Tri.-Del.) = 2011-TIOL-621-CESTAT-DEL . Ld. Advocate also argued that the appellant have correctly calculated and paid the interest as per the worksheet.

Respondent’s contention:-Ld. Authorized Representative on behalf of Revenue argued that the adjudicating authority has rightly held that delayed payment of service tax was not voluntarily, as they paid only on the detection by the audit and also appellant has not paid the full amount of interest and imposition of penalty under Section 76 is mandatory. He relied on Tribunal's decision in the case of Real Mathematic Classes Vs CCE Jaipur - 2008 (10) S.T.R. 570 (Tri.-Del.) = 2008-TIOL-867-CESTA T-DEL wherein it is held that in cases of default in payment of service tax, penalty is mandatory in nature. Section 76 ibid is applicable from the due date till the failure is rectified. Nature of penalty imposable under Section 76 ibid is different from that under Section 78 ibid. Ld. A.R also argued that appellant has paid interest only on the service tax paid in cash and they have not paid interest on the service tax amount paid through cenvat account.

Reasoning of judgment:-The Hon’ble tribunal have carefully considered the submissions made by both sides and perused the records. There is no dispute on the fact that there is a case of delayed payment of service tax. However, the same has been paid before issue of SCN. The assessee has explained the reason for delay, due to the fact that earlier OIO No.92/2007 dt. 25.5.2007 was appealed before the Tribunal and a batch of similar cases was pending before the Larger Bench for its decision. There is no material available that the appellant deliberately delayed payment of duty. They also find that issue on hand is squarely covered by the Tribunal's decision in the case of Independent News Services P. Ltd. = 2011-TIOL-621-CESTAT-DEL(supra) held as under:-

"9.It is also seen that the Circular relied upon by both the sides deals both with Section 73(1A) as well as 73(3). The Circular is reproduced below:-

Section 73(1A) reads as under:-

Section 73(1A) of the Finance Act, 1994 provides for conclusion of adjudication proceeding in the cases of wilful suppression/fraud/collusion if the taxpayer pays service tax liability along with interest and a penalty equal to 25% of service tax amount, within a period of one month from the date of issue of SCNs. Similarly, section 73(3) provides conclusion of adjudication proceedings in other cases on payment of service tax and interest.

2. A question has been raised as to whether the conclusion of proceedings in such cases is limited to the action taken under Section 73 of the Act or all proceedings under Finance Act, 1994, including those under Sections 76, 77 and 78 get concluded.

3. The issue has been examined. The intention of section 73(1A) has already been explained vide para 8(g) of the post budget instructions issued by TRU vide DOF No. 334/4/06-TRU, dated 28-2-2006 (2006 (4) S.T.R. C-30) wherein it has been clarified that this sub-section provides for conclusion of adjudication proceedings in respect of person who has voluntarily deposited the service tax.

3.1 The relevant portion of Section 73 is reproduced below. -
Provided further that where such person has paid service tax in full together with interest and penalty under sub-section (1A) the proceeding in respect of such person and other person to whom notices are served under sub-section (1) shall be deemed to be concluded.

Thus law prescribes conclusion of proceedings against such person to whom SCN is issued under subsection (1) of section 73. Therefore, it is not merely a conclusion under sub-section (1) but conclusion of all proceeding against such person. Similarly is the position in respect of sub-section (3 )of section 73.

4. Accordingly, conclusion of proceeding in terms of sub-section (1A) and (3) of section 73 implies conclusion of entire proceedings under the Finance Act, 1994.

10. The above circular in fact clarifies the position that once the provision under Section 73(1A) or Section 73(3) as the case may be, are complied with it results in conclusion of the proceedings. This is a case under Section 73(3). Section 73(3) does not envisage any penalty. It is not open for the Revenue to say that penalty as applicable under Section 73(1A) is to be paid when benefit under Section 73(3) is claimed. After making provision in law, the Revenue should respect the provision made rather than feel aggrieved that the provision is too lenient.

11. In the circumstance, we do not see any merit in the appeal filed by the Revenue and the same is dismissed."

The similar issue has been decided by this Bench in favour of assessees in the following decisions:-

(1) Shivas industrial Caterers India Pvt. Ltd. Vs CST Chennai vide Final order No.40007/2014 dt.3.1.2014 (in AppealNo.ST/148/2009)

(2) Shriram EPC Ltd. Vs CST Chennai vide Final Order No.40137/2014 dt. 12.2.2014 (in Appeal No.ST/605/2009) = 2014-TIOL-966-CESTAT-MAD

The case of Real Mathematic Classes = 2008-TIOL-867-CESTAT-DEL(supra) as relied by the Ld. A.R is not applicable in the present case. In that case, the Tribunal observed that in the absence of any material, it is difficult to accept that the mere fact that coaching class was provided from the house was sufficient to make the proprietor to believe that she was not able to pay the tax. Respectfully following the ratio of above decisions, they are of the considered view that since service tax and interest was paid before issue of SCN, the instant case, the case is covered under Section 73 (3) of the Finance Act, 1994, the case merits for waiver of penalty.

However, as regards the demand of interest, the adjudicating authority has rightly held that they have paid interest only on the service tax paid in cash but not on the tax amount adjusted through cenvat account. Therefore, interest liability calculated on the entire amount of service tax is payable. The Ld. Advocate also conceded to pay the differential interest amount of Rs.1,71,072 /-.
Accordingly, They allow the appeal filed by the appellant partially by setting aside penalty under Section 76 and confirm the differential amount of interest of Rs.1,71,072 /- payable by them. The appeal is disposed of in the above terms.

Decision:-Appeal disposed of.

Comment:- The analogy of the case is that if the assessee has paid service tax along with interest before issuance of show cause notice, no penalty is imposable on the assessee as per section 73(3) of the Finance Act, 1994. However, the assessee is liable to pay interest on the service tax on the entiredifferential amount payable by him.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2298

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