No penalty if service tax along with interest paid before issuance of SCN.

PJ/CASE LAW/2016-17/3188

Case:- PATO BUILDERS PVT LTD VERSUSCOMMISSIONER OF C.EX. & S.T.- JSR

Citation:- 2016 (41) S.T.R. 463 (Tri-Kolkata)

Brief Facts:- This appeal has been filed by the appellant against Order-in-Appeal No. 52/JSR/2012, dated 16-4-2012 passed by the Commissioner (Appeals) of Central Excise & Service Tax, Ranchi as the first appellate authority. The entire differential service tax liability on works contract services, along with interest, was paid by the appellant before the issue of show cause notice, but first appellate authority has rejected the case of the appellant for immunity from penalty under Section 73(3) of the Finance Act, 1994.

Appellant’s Contention:- Shri S.P. Siddhanta (Consultant) appearing on behalf of the appellant argued that appellant was paying service tax both on Construction Services as well as on Works Contract Services. That appellant was misguided by the service recipient that Service Tax liability on works contract services was 2% under Notification No. 32/2007-S.T., dated 22-5-2007 as per his letter dated 1-2-2008. Accordingly, service tax was paid for the period April, 2008 to March, 2009. That the said Notification was amended by Notification No. 7/2008-S.T., dated 1-3-2008 by which rate of composition scheme was enhanced to 4%. That as soon as the appellant came to know about this fact they wrote to the service recipient to pay the differential amount. That proper ST-3 returns were filed showing service tax paid at the rate of 2%. He made the Bench go through the correspondence exchanged between the appellant and the service recipient. It was the case of the learned consultant that without waiting for the payment from the service recipient appellant suo motu made the payment before issue of show cause notice which was served on 19-10-2009 and payment was made by them on 16-10-2009. Consultant on behalf of the appellant argued that their case is covered by Section 73(3) of the Finance Act, 1994 and also under Section 80 of the Act.

Respondent Contention:-Shri S.K. Naskar (AR) appearing on behalf of the Revenue argued that appellant somehow came to know of the show cause notice being issued, paid the amount, and accordingly first appellate authority has correctly rejected appellants’ claim of immunity under Section 73(3) of the Finance Act, 1994.

Reasoning of judgement:-Submissions made by both the sides were carefully considered. The issue involved in these proceedings is whether penalties imposed upon the appellant under Sections 76 and 77 of the Finance Act, 1994 are justified when appellant has paid the entire differential service tax along with interest before issue of show cause notice. It is observed from case records that no penalty has been imposed upon the appellant under Section 78 of the Finance Act, 1994. It is also observed from the case records that recipient of the services informed appellant that rate of duty on Works Contract Services as per Notification No. 32/2007-S.T., dated 22-5-2007 was 2%. It is not brought out by the Revenue that appellant was aware of the fact that service tax of 4% as per Notification No. 7/2008-S.T., dated 1-3-2008 was required to be paid and deliberately paid tax at 2%. Proper ST-3 returns were filed by the appellant showing rate of service tax as 2% which in effect was 4%. Appellant disclosed the correct value of services provided in the returns. Appellant also wrote to the service recipient on 16-10-2009 to pay the differential service tax, but subsequently paid the same suo motu on 19-10-2009 and intimated the department. Even if appellant came to know of a show cause notice being issued then also the fact remains that the entire differential service tax was paid along with interest. Even otherwise also from the returns filed Revenue would have given appellant a demand. As no penalty under Section 78 was imposed by the adjudicating authority appellant’s conduct of paying entire differential service tax along with interest, before the issue of show cause notice or on the date of show cause notice, will have to be appreciated. Appellant also had a reasonable cause for not making exact service tax as per the letter dated 1-2-2008 written to the appellant by the service recipient and the same was made good by making the entire service tax payment along with interest. Appellant’s case is, therefore, covered by the provisions of Section 73(3) and Section 80 of the Finance Act, 1994. Appeal filed by the appellant is allowed by setting aside Order-in-Appeal dated 16-4-2012 passed by the first appellate authority.
The appeal is accordingly allowed.

Decision:-Appeal allowed.

Comment:-The gist of case that no penalty under section 78 is imposable if the entire differential service tax along with interest has been voluntarily paid before issuance of show cause notice.

Prepared by:- Bharat Chouhan

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PJ/CASE LAW/2016-17/3188

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