Whether penalty can be waived where full service tax liability was discharged before issue of SCN?

PJ/Case Laws/2012-13/1518

Case:-M/s Endeka Ceramics India Pvt Ltd Vs Commissioner Of Central Excise, Surat-II

Citation:-2013-TIOL-497-CESTAT-AHM

Brief facts:-During the course of visit of the Jurisdictional Assistant Commissioner, it was noticed that the some foreign engineers were available in the unit and providing the Engineering/Testing Consultancy in setting up of machinery installed/being installed in their factory premises. The matter was discussed by the said Central Excise officer with the representatives of the appellant and he guided them for the liability of service tax. Therefore the appellant vide their letter dated 20.05.2008 furnished a challan dated 10.05.08 related to payment of service tax amounting to Rs.1,15,13,250/- in respect of services received during the period 16.05.07 to 28.02.08. Further, the appellant were asked vide letters dated 19.06.08 and 17.07.08 to furnish details regarding the services received, value thereof and status of service tax liability thereupon and relevant documents viz. invoices etc. The appellants in response to the letters issued to them, submitted reply vide their letters dated 24.06.08, 16.07.08, 28.07.08 and 4.9.08. From the details and documents furnished by the appellant, it appeared that they had not paid the amount of service tax amounting to Rs.21,76,361 /- leviable on the engineering consultancy services received by them during the period 2007-08 and 2008-09 ( upto 31.07.08). The appellant paid the service tax amounting to Rs.21,76,361 /- vide challan dated 10.05.08 of Rs. 14,23,038/, challan No.06 dated 26.07.08 of Rs.1,37,359/- & challan No.08 dated 25.08.08 of Rs.6,15,964/-. Thereafter proceedings were initiated by issuing a show cause notice proposing to appropriate the service tax and interest paid towards the liability of the appellant and also proposing to impose penalty under Section 77 & 78 of Finance Act, 1994. After adjudication proceedings and appeal proceedings wherein the service tax paid with interest has been confirmed and appropriated and penalties under Section 77 & 78 have also been imposed. As regards liability to service tax, there is no dispute and the only issue involved is whether this is a fit case for application of provisions of Section 73(3) of Finance Act, 1994 which provides for waiver of penalty where the amounts are paid before issue of show cause notice or invocation of provisions of Section 80 of Finance Act, 1994 which provides for waiver of penalties where an assessee is able to show reasonable cause for failure to discharge the liability. After hearing both sides, Tribunal came to the conclusion that the matter itself can be finally decided since the dispute is only regarding penalty. Accordingly, the requirement of pre deposit was waived and appeal itself was taken up for final decision.

Appellants contention:-The ld. counsel submitted that the Assistant commissioner had visited the appellants when they were yet to start their operations. The services received were for construction of plant and machinery as consulting engineers and therefore the service had been received even before commencement of commercial operations. He submits that during the time when commercial operations had not started, they did not have qualified staff to look after these aspects and when the Assistant Commissioner pointed out, appellants found that they were liable to pay and the first payment was made in February 2008 for all the amounts paid by them to the foreign service provider up to that date.

Respondents Contention:-The contention of the Revenue is that appellant had not taken service tax registration and but for the visit of the Assistant Commissioner, appellants may not have paid the service tax at all. It has also been observed by the lower authorities that even after it was pointed out appellants took some time to pay the amount.

Reasoning of judgement:-Tribunal held that the Assistant Commissioner had visited the unit before the commercial operations had started and advised them to pay which was readily accepted. This coupled with the fact that appellants did not have qualified staff and they paid the service tax after the amounts were paid by them for the services received from time to time discharged the liability in full which is not in dispute and would show that extended period could not have been invoked in this case. Moreover entire duty liability was discharged by July 2008 which is less than nine months from the visit of the officer which would again show that the payment was made promptly without any delay. Having regard to these facts and having regard to the fact that appellant was eligible for cenvat credit, it observed that this was a case where provisions of Section 73(3) was applicable and no show cause notice should have been issued. Further it is also found that this is a case where appellants have been able to show reasonable cause for non payment of the tax even if it is assumed that there was delay in payment in view of the revenue-neutral situation and lack of availability of qualified staff. In view of the same, the penalty imposed is set aside.

Decision:-Appeal was allowed.

Comment:-The substance of this case is that penalty is not imposable when the service tax demand along with interest was paid promptly, and that too before issuance of show cause notice in view of the provisions of section 73(3) of the Finance Act, 1994.

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PJ/Case Laws/2012-13/1518

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