Penalty under Section 76 not imposable when service tax along with interest paid before issue of SCN.

PJ/CASE LAW/2014-15/2418

Case:-M/s ESSAR CONSTRUCTION LIMITED Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, SURAT

Citation:- 2014-TIOL-1814-CESTAT-AHM

Brief facts:-The appellant had belatedly paid the service tax liability along with interest. The said service tax liability was discharged on their own. The show cause notice was issued for imposition of penalty under the provisions of Section 76 of the Finance Act, 1994 on the ground that there was a non-payment of service tax liability.

Appellant’s contention:- Learned counsel appearing on behalf of the appellant submitted that the appellant had belatedly paid the service tax liability along with interest. It is her submission that the said service tax liability was discharged on their own. She would submit that the show cause notice was issued for imposition of penalty under the provisions of Section 76 of the Finance Act, 1994 on the ground that there was a non-payment of service tax liability. She would submit that the judgment of the Hon'ble High Court of Gujarat in the similar issue has held that there was no reason to impose penalty on the assessee, following the judgment of the Hon'ble High Court of Karnataka in the case of Adecco Flexione Workforce Solution Limited - 2012 (26) STR 3 (Kar) = 2011-TIOL-635-HC-KAR-ST.

Respondent’s contention:-Learned departmental representative reiterates the findings of the lower authorities.

Reasoning of judgment:-On consideration of the submissions made by both sides and perusal of the records, the Tribunal found that the issue involved was regarding imposition of penalty on the appellant under Section 76 of the Finance Act, 1994 for belated payment of service tax liability.

It is undisputed that the appellant has discharged the service tax liability along with interest albeit belatedly and was done on his own. In their considered view, having discharged the service tax liability which had not been modified by the lower authorities, the provisions of Section 73 (3) of the Finance Act, 1994 would come into play as there was no allegation in the show cause notice that there was an intention to evade payment of service tax liability. They found strong force in the contentions raised by the learned counsel that the judgment of the Hon'ble High Court of Gujarat in the case of Tejas Agency - 2014-TIOL-1332-HC-AHM-ST would apply in the facts of this case. They reproduced the relevant paragraphs as under:-

"2. There is only one issue involved namely that of deleting the penalty on the respondent - assessee by the Tribunal, CIT (Appeals) had ruled partially in favour of the Tribunal upon which, the assessee had approached the Tribunal. The Tribunal deleted the penalty applying Section 73(3) of the Finance Act, 1994 and following the decision of the Karnataka High Court in the case of C.C.E. & S.T., LTU, Bangalore Vs. ADECCO Flexione Workforce Solutions Limited., reported in - 2012 (26) S.T.R. 3 (Kar.) 2011-TIOL-635-HC-KAR-ST.3. This was on the premise that admittedly the assessee had paid the tax even before issuance of show cause notice. In terms of Section 73 (3) of the Finance Act, 1994, he, therefore, contended that no penalty should be imposed. This contention was accepted by the Tribunal. 4. Counsel Shri Oza for the department, however, contended that the Tribunal overlooked the provision of sub-section (4) of Section 73 of the Finance Act, 1994, which provides that:

"(4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of –

(a) fraud; or
(b) collusion; or
(c) wilful misstatement; or
(d)suppression of facts; or
(e) contravention of any of the provisions of this Chapter or

of the rules made thereunder with intent to evade payment of service tax."

They also added that it was true that as per sub-section (4), penalty might still attach if there was non-payment of Service Tax by reason of fraud, collusion, willful misstatement, suppression of facts or contravention of provisions of the statute with intent to evade payment of Service Tax. In the present case, the Tribunal noted that,

"...Since the recipient company had claimed Cenvat credit on the service tax remitted by the assessee, eventually no liability was incurred by the service recipient and amount of service tax remitted by the assessee was also reimbursed by the recipient. Learned counsel would contend that in these circumstances there would be no reason for any wilful suppression of the liability nor contravention of provisions of the Act with an intent to evade tax, warranting invocation of provisions relating to penalty. Reliance is placed on decision of the Karnataka High Court in Adecco Flexione Workforce Solution Limited (supra) Karnataka and in CST, Banglore vs. Ahead Info Technologies India Pvt. Limited - 2012 (260) STR J 25 (Kar). In these pronouncements, the Karnataka High Court enunciated the principle that where an assessee has paid both the service tax and interest before issuance of a show cause notice under the Act, subsection 3 of section 73 of the Act, prohibits initiation of proceedings for recovery of penalty".

And hence when this stay petition was called out, after hearing both sides, they found that the appeal itself could be disposed of at this juncture as it lied in a narrow compass. Accordingly, after waiving the condition of pre deposit of the amounts involved, they took up the appeal itself for disposal.

In their considered view, the ratio as reproduced above was squarely on the issue and accordingly, respectfully following the same, they set-aside the impugned order and allowed the appeal.

Decision:- Appeal allowed.

Comment:- The gist of the case is that where an assessee has paid both the service tax and interest before issuance of a show cause notice under the Act, sub-section 3 of section 73 of the Act, prohibits initiation of proceedings for recovery of penalty. Therefore, no penalty is imposable and the appeal was allowed.

Prepared by: Kushal Shah

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PJ/CASE LAW/2014-15/2418

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