Whether assessee liable for penalty when service tax and interest promptly deposited on pointing by department ?

PJ/Case Laws/2012-13/1322

Case:- ADANI PORTS & SPECIAL ECONOMIC ZONE LTD Vs COMMISSIONER OF SERVICE TAX, AHMEDABAD

CITATION:- 2012-TIOL-1509-CESTAT-AHM

Brief Facts:-The Appellant are engaged in providing Port services. Proceedings were initiated against the appellants on the ground that they are liable to pay service tax on commercial charges paid by them for availing External Commercial Borrowings under “Banking and Other Financial Services”. Appellants paid the service tax with interest and informed the Investigating Agency (DGCEI). Thereafter proceedings were initiated against the appellants which has culminated in the impugned order whereby the amount paid by the appellants towards Service Tax and interest have been appropriated and penalties under various sections of Finance Act, 1994 have been imposed. Appellant has filed appeal before tribunal for penalties to be set aside.

Appellant Contentions:-The ld. Advocate submitted that there was no dispute about the liability of service tax. In view of the fact that whatever amount paid by them as service tax was available to them as Cenvat Credit which would be used for payment of service tax liability on them, he submits that there was no intention to evade tax, and therefore, extended period could not have invoked. Nonetheless, they are not disputing the liability. He relied upon decision of the Tribunal in the case of ESSAR STEELS LTD. 2009 (13) STR 579 Tri.-AHMD= 2008-TIOL-2048-CESTAT-AHMD to submit that in such a situation no penalty is imposable. The ld. Advocate also submits that Service Tax on ECB was not paid because there was restructuring in the finance department of the company and the officers who were responsible for handling ECB transactions and new officers sought consultant’s opinion and officers did not pay the Service Tax. He submits that confusion arose because of decision taken in the Head Office which was not known to the unit receiving the service and that there was no intention to evade Tax, since whatever Service Tax paid was available as credit.

Respondent Contentions:-The Respondent submits that the appellants received service limiting to External Commercial Borrowings and were liable to pay Service Tax as a recipient but appellant has not paid service tax and not taken registration and no intimation given to the department and for this reason penalty is imposable on appellants.

Reasoning of Judgment:-The Tribunal has perused the submissions made by both sides. Tribunal finds that there is no dispute that appellants were eligible for CENVAT credit for the amount paid as Service Tax, and therefore this is a situation which was revenue neutral and by not paying Service Tax immediately, appellants have lost more than Rs. 26,00,000/- paid by them as interest which would not have become payable if service tax was paid promptly and taken as credit. In such circumstances, no service recipient would evade payment of service tax and become liable to pay interest which cannot be taken as interest. Therefore, it cannot be said that there was mis-declaration or suppression in the actions of appellant rendering them liable to penalty under various sections of the Finance Act. Tribunal further submits that demand itself is time barred since extended period could not have been invoked. However, since appellants are not contesting demand and interest paid by them, confirmation of demand for service tax and interest thereof has been upheld but penalties have to be set-aside.

Therefore, the appeal is allowed to the extent of penalties imposed on the appellant under various sections of the Finance Act which are set aside.

Decision:-Appeal allowed.

Comment:The analogy drawn from this case is that penalties cannot be imposed when there was no malafide intention on the part of the assessee to evade payment of duty and there was no suppression of facts. The appellant would not have defaulted in payment of service tax in this case if there was no confusion regarding service tax liability and as the service tax paid by him would be available as credit, the case was revenue neutral and did not warrant imposition of penalties.

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PJ/Case Laws/2012-13/1322

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