Whether penalty can be imposed when tax along with interest paid before issuance of SCN?

PJ/CASE LAW/2015-16/2874

Case:- FORTUNE NETWORK PVT. LTD. VERSUS COMMR. OF C. EX., CUS. & S.T., VADODARA-II

Citation:- 2015 (39) S.T.R. 689 (Tri. - Ahmd.)

Brief facts:- This appeal has been filed by the appellant with respect to OIA No. PJ/619/EDR-11/2012-13, dated 26-3-2013. The issue involved in the present proceedings is whether the penalties under Sections 76 and 78 of the Finance Act, 1994 are imposable upon the appellants when the entire amount of Service Tax leviable have been paid by the appellant along with interest, before the issue of show cause notice. First Appellate Authority held the penalties imposed upon the appellant appropriate because tax amounts were recovered from the customers.

Appellant’s contention:- Shri Dhaval Shah, learned Advocate, appearing on behalf of the appellant argued that the period of dispute is from 1-4-2006 to 31-3-2007. That as a result of visit made by the officers on 13-3-2007 to the premises of the appellant the proceedings started. It was his case that there was delay in filing the first return for the period 1-4-2006 to 13-3-2007. Subsequently, the returns were filed by the appellant in time. It was his case that Service Tax liability was correctly calculated by the appellant and the amount available in the Cenvat credit account was promptly debited at the end of the month for which Service Tax was payable. That due to financial difficulty there was delay in payment of first return of the Service Tax and the same was paid on 14-3-2007, 23-3-2007 and 29-3-2007 which was before the issue of show cause notice dated 9-2-2011.

Respondent’s contention:- Shri J. Nair, Authorised Representative appearing on behalf of Revenue argued that the appellant only started filing returns after the case was booked by the officers of the Revenue. That once the amounts were collected and not paid within the date will amount to suppression with intention to evade payment of Service Tax. The Authorised Representative, therefore, defended the orders passed by the lower authorities.

Reasoning of judgment:-It is observed from the case records that the appellant was registered with the Revenue and was paying the Service Tax. It is the case of appellant that during the relevant period there was financial difficulties therefore, the appellant could not pay the entire Service Tax within the prescribed time. It is also observed that except for the first periodical return the appellant was showing the correct Service Tax liability in the returns and that amount available in the Cenvat credit account was debited by the appellant after the end of each month. Once the correct duty amount is shown in the returns there cannot be any intention to evade payment of Service Tax which is also paid by the appellant before the issue of show cause notice along with interest. In view of the above, there was reasonable cause for the appellant for not paying the entire Service Tax which was truly reflected in the periodical returns filed by the appellant. Under the Finance Act, 1994, there are provisions for late payment of Service Tax along with interest which was done by the appellant before the issue of show cause notice. Accordingly, the case was also covered by Section 73(3) of the Finance Act, 1994 and there was no need to issue show cause notice in this case. Appellant is also eligible for the benefit of Section 80 of the Finance Act, 1994.
In view of the above observations, appeal filed by the appellant is allowed.

Decision:-Appeal allowed

Comment:-The analogy of the case is that penalty is not imposable when the Service Tax payable has been shown in returns but service tax amount was not paid in time due to financial crunch. As the Service tax has been paid in full with interest before issue of show cause notice, there is no intention to evade Service Tax. Accordingly, the benefit of section 73(3) of the Finance Act was extended and penalty was dropped.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2874

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