Whether payment of service tax before issue of SCN ground for non imposition of penalty under section 78?

PJ/CASE LAW/2015-16/2783

Case:- K. MADHAV KAMATH BROTHER & CO. VERSUSCOMMR. OF C. EX., MANGALORE

Citation:-2015 (38) S.T.R. 249 (Tri. - Bang.)

Brief facts:-This appeal filed by the assessee is directed against penalties imposed on them under Sections 77 and 78 of the Finance Act, 1994. Today there is no representation for the appellant despite notice, nor any request of theirs for adjournment.
Perused the records and heard the learned Superintendent (AR).
In a show cause notice issued on 14-3-2008, the department demanded a total amount of Rs. 1,11,809/- from the assessee towards service tax and education cess for the period from January to October 2006 under Section 73 of the Finance Act, 1994, proposed to appropriate earlier payment of the said amount towards such demand, demanded interest on tax under Section 75 of the Act and proposed penalties under Sections 76 to 78 of the Act. The assessee contested the penal proposals mainly on the ground that they did not have any intent to evade payment of service tax and that the non-filing of returns and non-payment of service tax were merely on account of a bona fide mistake. They also submitted that, as the entire amount of service tax had been paid prior to issue of the show cause notice, no penalty was imposable on them. After giving them a reasonable opportunity of being heard, the original authority imposed penalties of Rs. 1,11,809/-, Rs. 1,000/- and Rs. 1,11,809/- on the assessee under Sections 76, 77 and 78 respectively, apart from confirming the demand of service tax and education cess against them and appropriating their payments towards such demand. In an appeal preferred by the assessee, the Commissioner (Appeals) set aside the Section 76 penalty and sustained the rest of the order-in-original. In the present appeal filed by the assessee against the Appellate Commissioner’s order, there is no challenge towards the demand of service tax and education cess, nor towards the demand of interest thereon. The grievance of the appellant is entirely against the penalties imposed on them under Sections 77 and 78 of the Act. Though, in para 6 of the grounds of appeal, the appellant has stated that the show cause notice is barred by limitation and that “application of extended period of limitation would not arise on the facts and circumstances of the case”, no serious challenge against the demand of service tax is forthcoming. As a matter of fact, the appellant, in column No. 8 of the ST-5 Form, states thus: “the issue involved is with regard to levy of penalty and interest under Sections 75, 77 and 78”. In the conclusive part of the memorandum of appeal, the appellant prays for setting aside the penalties imposed under Sections 77 and 78 of the Act. In other words, the appellant is not serious even about interest on tax. As regards the penalties imposed on them, the prayer of the appellant is that their bona fide mistake may be excused and these penalties be “deleted”. However, there is no explanation as to the so called bona fide mistake. However, it appears from the tenor of the assessee’s appeal that, as they discharged their duty liability without waiting for show cause notice, the imposition of penalties on them is not justifiable.

Appellant’s contention:- There is no representation for the appellant despite notice, nor any request of theirs for adjournment.

Respondent’s contention:- The learned Superintendent (AR) submits that there is no evidence of payment of interest on tax by the appellant and that, in their stay application, they had clearly stated that they had “no sufficient moneys in order to pay the interest and penalty levied”. It is further pointed out that the stay application had, in fact, prayed for waiver of pre-deposit of penalty and interest. Be that as it may, the appellant admitted their tax liability and voluntarily discharged it in the wake of investigations launched by the department. The show cause notice dated 14-3-2008 had alleged “suppression of facts with intent to evade payment of service tax” in the context of invoking the extended period of limitation prescribed under Section 73(1) of the Act as also of proposing penalty under Section 78 of the Act. By admitting the tax liability for the extended period of limitation, the appellant was virtually conceding “suppression of facts with intent to evade payment of service tax”, which is, incidentally, a ground for invoking Section 78 of the Act for imposition of penalty. The learned Superintendent (AR) further submits that this proposal for penalty under Section 78 of the Act cannot be resisted on the ground that the service tax in question was paid before issue of the show cause notice. In this connection, reliance is placed on Union of Indiav. Rajasthan Spinning & Weaving Mills- 2009 (238)E.L.T.3 (S.C.)wherein the Hon’ble Supreme Court held that any payment of the duty amount in question, whether before or after the show cause notice was issued, would not alter the penal liability under Section 11AC of the Central Excise Act. It is argued that, Section 11AC of the Central Excise Act being pari materia with Section 78 of the Finance Act, 1994, the Apex Court’s ruling is applicable to the instant case.

Reasoning of judgment:-They have found tremendous force in the submissions of the learned Superintendent (AR). Apparently, in the instant case, there is no challenge to the demand of service tax for the extended period of limitation. If that be so, it should be held that the appellant has tacitly conceded “suppression of facts with intent to evade payment of service tax”. One of the grounds for imposing penalty under Section 78 of the Finance Act, 1994 is suppression of facts with intent to evade payment of service. Having conceded this, the appellant cannot have any valid reason for challenging the penalty imposed on them under Section 78. On a perusal of the records, they have found that the appellant, undisputedly, provided ‘clearing and forwarding agent’s service’ to their clients during the period of dispute but did not file returns or pay service tax. They paid the tax only when investigations were launched by the department. In his statement given under Section 14 of the Central Excise Act, the Manager of the appellant admitted tax liability and also admitted that they had not obtained registration with the department in respect of the new premises to which they had shifted their business in July 2006. In such circumstances, there is no justification for opposing the penalties. In any case, the appellant has not sought the benefit of Section 80 of the Finance Act, 1994 in this appeal.
As rightly submitted by the learned Superintendent (AR), payment of service tax prior to issue of show cause notice is no ground to oppose the Section 78 penalty. The ruling of the Apex Court in Rajasthan Spinning & Weaving Mills (supra) appears to be applicable to this case.
In the result, the appeal gets dismissed.

Decision:-Appeal dismissed

Comment:- The analogy of the case is that Non-filing of returns, non-payment of Service Tax attracts penalty provisions. Although duty was paid by the assessee prior to issuance of show cause notice, but only after investigation launched by department. Moreover, the assessee did not rebut the fact of suppression of facts and so penalty under section 78 was imposable. The Tribunal found no valid and justifiable grounds to invoke provisions of section 80 of the Finance Act, 1994 to waive penalty under section 78 of the Finance Act, 1994.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2783

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