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PJ/CASE LAW/2014-15/2514

Whether penalty can be imposed if service tax and interest paid before issuance of SCN?

Case:-NEEV SAI DEVELOPERS Vs COMMISSIONER OF CENTRAL EXCISE, PUNE-I
 
Citation:-2014-TIOL-2197-CESTAT-MUM

Brief facts:-The appeal and stay petition are directed against Order-in-Appeal NO. PUN-EXCUS 001-APP-11- 12-14-15 dated 10/04/2014 passed by the Commissioner of Central Excise (Appeals), Pune – I Commissionerate. Vide the impugned order, the learned lower appellate authority has enhanced the penalty imposed on the appellant under Section 78 of the Finance Act, 1994 to 100% of the service tax apart from upholding the confirmation of service tax demand along with interest thereon. Aggrieved of the same, the appellant is before the Tribunal.
 
Appellant’s contention:-The learned counsel for the appellant, M/s. Neev Sai Developers, Pimpri, Pune, submits that the appellant rendered construction of residential complex service, etc. but failed to discharge service tax liability. However, when the matter was pointed out, they discharged the service tax liability of Rs. 4,57,738/- along with interest thereon of Rs. 85,876/-. Thereafter a show cause notice came to be issued to the appellant proposing to confirm service tax demand along with interest and to impose penalties. The adjudicating authority, while confirming the demand along with interest, imposed a penalty of Rs. 2,28,869/- being 50% of the service tax demand confirmed and also penalty of Rs. 10,000/- under Section 70 read with Section 77 of the Finance Act, 1994. Revenue filed an appeal before the Commissioner (Appeals) wherein penalty was raised to 100% inasmuch as Section 78 at the material time did not provide for imposition of a penalty less than 100%.
 
The learned counsel submits that the appellant is a small service provider and inasmuch as the service tax liability has been discharged prior to issue of the show cause notice, penalty should have been waived invoking Section 80 of the Finance Act, 1994. Therefore, he pleads for setting aside the impugned order imposing the penalties. He also confirms that they are not disputing the service tax liability and interest liability which they have discharged.
 
Respondent’s contention:-The learned Additional Commissioner (AR) appearing for the Revenue reiterates the findings of the lower authorities.
 
Reasoning of judgment:-As the issue for decision lies in a narrow compass, Hon’ble tribunal took up the appeal for consideration and disposal after waiving pre-deposit with the consent of both the sides.
 
Inasmuch as the service tax liability along with interest has been discharged prior to the issue of show cause notice, sub-section (3) of Section 73 provides for waiver of penalties if reasonable cause is shown for the failure to pay tax. In the present case, the appellant is small time service provider who is ignorant of the statutory provisions relating service tax. Therefore, the provisions of Section 73(3) and 80 could have been invoked and penalty should have been waived by the adjudicating/appellate authorities, which they have not done. However, they are of the view that, inasmuch as the service tax liability along with interest have been discharged prior to issue of show cause notice, the question of initiating any proceedings under Section 73 would not arise at all and consequently question of imposing any penalty also would not arise. Hence, they set aside the penalties imposed on the appellant.
 
Thus, the appeal is allowed. The stay petition is also disposed of.
 
Decision:-Appeal allowed.

Comment:- The substance of the case is that as the appellant is small time service provider who is ignorant of the statutory provisions relating service tax, benefit of section 80 of the Finance Act is extendable. The appellant had discharged service tax liability along with interest prior to issuance of show cause notice. Hence, in view of the provisions of section 73(3) read with section 80 of the Finance Act, penalty imposed under section 78 was set aside.  

Prepared by:- Monika Tak

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