Requirement to pay penalty when service with interest deposited

PJ/Case Laws/2011-12/1301

Case: COMMR. OF SERVICE TAX, NEW DELHI v/s INDEPENDENT NEWS SERVICES P. LTD.

Citation: 2011 (23) S.T.R. 23 (Tri. - Del.)

Issue:- When payment of service tax with interest made, then under Section 73 (3), insisting upon payment of 25% penalty not warranted.

Brief Facts:- Respondent had collected service tax for certain period but did not remit such tax collected to the Government account. Upon being pointed out by the department, respondent paid the tax along with applicable interest before issuance of show cause notice.

In view of the provision of Section 76(3) of the Finance Act, 1994, the Commissioner dropped the show cause notice issued for imposing penalty under Sections 76 and 77 of the Finance Act, 1994.

Appellant’s Contention:- Revenue contended that they had not paid penalty equal to 25% of the service tax amount prescribed under Section 73(1A) and therefore, immunity from penalty under Sections 76 and 77 cannot be granted.

Respondent’s Contention:- Respondents submitted that as per provision of Section 73, there is no need to pay any penalty and payment of penalty equal to 25% of duty demanded arises only in situations where duty is paid after issue of show cause notice.

Respondent also relies on CBEC Circular No. 137/167/2006-CX-4., dated 3rd October, 2007 in the matter.

Reasoning of Judgment:- The Tribunal perused the provisions of Section 73 and noted that the section does not envisage payment of any penalty once service tax is paid in full with interest. It lays down that the concerned authorities shall not serve any notice under sub-section (3) in respect of amount so paid.

The intention of Section 73(1A) has already been explained via Para 8(g) of the post budget instructions issued by TRU vide DOF No. 334, dated: 28.02.2006 where in it has been clarified that this sub-section provides for conclusion of adjudication proceedings in respect of person who has voluntarily deposited service tax.

The 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.

Decision:- Appeal dismissed.

Comment:- This is very good decision wherein it is held that the tax is paid along with interest then there is no need to issue show cause but the department normally issues show cause notice saying that there was intention to evade payment of tax. Though the invoice is raised and service tax charged. The only thing is delay in payment of service tax but there was no intention to do so. However, there is change in penal provisions both in Central Excise and Service tax from this budget. Let us wait and watch the interpretation of the same by tribunal and High Courts.

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PJ/Case Laws/2011-12/1301

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