Whether imposition of penalty justifiable when the assessee paid tax along with interest before issuance of SCN?

PJ/Case Laws/2012-13/1353

Case:- A.R. TECH ARTISANS VersusC.C.E., JAIPUR-I

Citation:- 2012 (28) S.T.R. 286 (Tri.-Del.)

Brief Facts:-The appellant as per terms of their agreement with M/s. Tata Tele Services Ltd. (TTSL) were providing certain services for them - the services of collection of bill amount in respect of the post-paid collections, customer care services on behalf of the TTSL, etc., for which they were getting commission. The appellant had applied for Service Tax Registration in May, 2007 on their own. However, they were not paying service tax and this non-payment was detected and pointed out when the officers of Anti-Evasion visited their office. The appellant's service tax liability was determined which was discharged by them along with interest. Subsequently, the department issued a show cause notice for confirmation of the above- mentioned service tax demand along with interest and also for imposition of penalty on the appellant under Sections 76, 77 and 78 of the Finance Act, 1994. The show cause notice was adjudicated by the Asstt. Commissioner by which the service tax demand was confirmed along with interest and the amount already paid towards this demand was appropriated and besides this, penalties were imposed under Sections 76, 77 and 78 of the Finance Act, 1994. On appeal to the Commissioner (Appeals), the Commissioner (Appeals) upheld the Asstt. Commissioner's order. Against this order of the Commissioner (Appeals), this appeal has been filed challenging only the imposition of penalty.

Appellant’s Contention:-The appellant pleaded that the entire service tax liability along with interest had been discharged by usas soon as the same had been pointed out and this was done before the issue of show cause notice, that there was no mala fide intention on the part of the appellant, that the appellant is small scale service provider, who were not aware of the provisions of service tax and failure to discharge the tax liability took place only during one year due to financial difficulties. The appellant, therefore, pleaded that in view of these circumstances, the Commissioner (Appeals)'s upholding the order of imposition of penalty is not correct.

Respondent’s Contention:-The Respondent defended the impugned order by reiterating the order of the Commissioner (Appeals). He also emphasized that the appellant were providing Business Auxiliary Services as defined under Section 65(19) of the Finance Act, 1994, which are taxable 'since July, 2003 and though they had obtained Service Tax Registration in May, 2007, they neither paid the service tax nor filed the returns for one full year and that when the Service Tax Registration had been taken by the appellant, they cannot plead ignorance of law.

Reasoning of Judgment:-The Tribunalhave carefully considered the submissions from both the sides and perused the records. The appellant's activities, as disclosed that providing services under Franchisee Agreement with M/s. TTSL in respect of post-paid connection and collection of amount for bills and providing customer care on behalf of M/s. TTSL. For providing these services to M/s. TTSL, the appellant were getting commission. The appellant had obtained Service Tax Registration as provider of Business Auxiliary Services in May, 2007. There is no dispute that after obtaining Registration in May, 2007, they neither paid the service tax nor filed Returns till this non-payment was detected in September, 2008, but immediately after pointing out of their tax liability, they paid the entire service tax dues as determined by the Department along with interest. The dispute in this case is only over the imposition of penalty. The appellant's plea is that being a small scale service provider, they were not aware of the provisions of law and also there were financial difficulties due to which they failed to discharge their service tax liability by the due date.

On going through the order-in-original as well as the order-in-appeal, The Tribunal finds that though the services provided by the appellant have been treated as Business Auxiliary Services as defined under Section 65(19) read with Section 65(105) of the Finance Act, 1994, there is no discussion at all as to under which clause of Section 65(19) of the Finance Act, the services are covered. While the service of customer care would be covered under Clause (ii) of Section 65(19) of the Finance Act, the bill collection services for which they were getting commission is not covered under any of the Clauses of Section 65(19). There is no discussion in the orders as to how the services being provided by the appellant to TTSL in respect of their agreement with M/s. TTCL were covered by Section 65(19) of the Finance Act. Thus, it is doubtful as to whether the entire commission received by the appellant was for the services covered under definition of Business Auxiliary Services as defined under Section 65(19) of the Finance Act 1994. Though the appellant have not disputed their service tax liability, in view of the above position, it would not be correct to impose penalty on them under Sections 76 and 78, as it is possible that the total turnover of their taxable services in respect of customer care may be within the exemption limit. Moreover from the circumstances of this case, Tribunal finds force in the appellant's plea that nonpayment was due to their ignorance. In view of this, Tribunal is of the view that this is a fit case for invoking Section 80 of the Finance Act, 1994. The penalty imposed on the appellant is set aside.

Decision:-The appeal is allowed.

Comment:-On analysing the above case, it is observed that section 80 of the Finance Act is a good recourse to the assessee wherein penalty is waived if default is on account of reasonable cause. In this case also, bonafides of the assessee was seen as the tax along with interest was deposited before issuance of SCN.

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PJ/Case Laws/2012-13/1353

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