Whether penalty imposable if service tax along with interest paid before issuance of SCN?

PJ/CASE LAW/2015-16/2641

Case:-COBRA INSTALACIONES Y. SERVICIOS S.A. VERSUS COMMISSIONER OF C. EX., NASHIK

Citation:- 2014 (35) S.T.R. 415 (Tri. - Mumbai)

Brief Facts:-The brief facts of the case are that the appellant are providing erection, commissioning and installation services to Maharashtra State Electricity & Distribution Company Ltd. (MSEDCL) from 2009 and are registered with the Service Tax department. The appellant paid and filed Service Tax returns for the year 2009-10 but due to technical difficulty in their software, they did not file Service Tax returns during the period April to September 2011 but on pointing out by the department, they paid the Service Tax along with interest before issuance of the show cause notice. The department issued a show cause notice for appropriation of the demands and imposition of penalties on the appellants. The matters were adjudicated. The Service Tax paid along with interest was appropriated but penalty under Sections 77 & 78 of the Finance Act, 1994 was confirmed against both appellants. The appellants are challenging the penalty imposed on them under Section 78 of the Finance Act, 1994. Therefore, these appeals are before Tribunal.

Appellants Contention:-The ld. counsel appearing on behalf of the appellant submits that during the impugned period, the Service Tax was payable on receipt basis and not accrual basis and they could not pay Service Tax and file returns during the impugned period due to technical fault in their software but as pointed out by the Revenue, they immediately paid the Service Tax along with interest and there was no malafide intention to evade payment of duty. In these circumstances, penalty under Section 78 of the Finance Act, 1994 was not imposable, as they have not received the full remuneration of the services provided by them till date.

Respondents Contention:-On the other hand, ld. AR opposed the contention of the ld. counsel and submits that as the appellant were registered with the Service Tax department in 2009 they are duty bound to file the Service Tax returns periodically along with Service Tax. As they have failed to do their statutory liability of paying Service Tax and filing Service Tax returns therefore, they have suppressed the material fact from the department by not filing the Service Tax returns. Therefore, they are liable to be penalised under Section 78 of the Finance Act, 1994. He further submits that the appellants have utilised the Service Tax therefore no immunity can be granted to the appellant.

Reasoning of Judgement:-Heard both sides and considered the submissions made. The tribunal find that during the impugned period, Service Tax was payable on receipt basis. Therefore the allegation of the ld. AR that the appellant has utilised the Service Tax is not sustainable in view of the fact that still the appellant has not received 100% remuneration of the services provided by them. The tribunal further find that the appellant have calculated the liability on accrual basis and paid Service Tax payable along with interest as pointed out by the department. In these circumstances, it cannot be said that they had mala fide intention to evade payment of service tax. Therefore, the appellants need immunity from imposing penalty under Section 78 of the Finance Act, 1994. Accordingly, we set aside the penalty under Section 78 of the Finance Act, 1994.In these terms, appeals are disposed of.

Decision:- Appeal partly allowed.

Comment:-The crux of the case is that when the assessee failed to pay service tax or file the return due to technical fault but on pointing out by the department, if the service tax along with interest was paid before the issue of show cause notice, then no penalties should be imposed. The fact that the assessee had not received 100% remuneration for the service provided till date and even then, paid the service tax calculated on accrual basis along with interest before issuance of SCN indicates bonafides of the assessee and therefore penalty under sec 78 is not imposable.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2641

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