Whether penalty will be imposed when duty has been paid alongwith interest before issuance of show cause notice?

PJ/Case Laws/2012-13/1368

Case:- C.C.E., INDORE (M.P.) VS. MUKESH JAIN

Citation:- 2012 (28) S.T.R. 277 (Tri.-Del.)

Brief Facts:-The respondent are a sub-broker. They had obtained Service Tax Registration and for sometime, filed S.T.-3 Returns. It appears that subsequently, they stopped paying service tax and filing service tax returns, till inquiry in respect of them was initiated in 2008 and their financial records were examined by the department, in course of which, it was found that they have not discharged the service tax liability for the period 2006-2007 to 2007-2008. The appellant, immediately after being pointed out, discharged their service tax liability for the period 2006-07 and 2007-2008 along with interest. However, subsequently, a show cause notice was issued to the Respondent for confirmation of the service tax demand and also for imposition of penalty on them under Section 76 and 78, which was adjudicated by the Asstt. Commissioner. While the Asstt. Commissioner confirmed the service tax demand along with interest and appropriated the amount already paid by the respondent, he refrained from imposing any penalty on the respondent under Sections 76 and 78 on the ground that no grounds exist for the same, as it is not a case of willful and deliberate evasion of service tax. The Asstt. Commissioner held that this case is covered by the provisions of Section 73(3) of the Finance Act and, hence, penalty under Section 76 and 78 is not called for. The department filed a review appeal to the Commissioner (Appeals) but the same was dismissed. Against this order of the Commissioner (Appeals), while the department filed an appeal before Tribunal, the respondent have filed a cross objection.

Appellant’s Contention:-The Revenuepleaded that inthis case though the respondent had obtained service tax registration in January, 2005, they were neither paying service tax nor were filing any return, that non-payment of service tax was detected only in 2008, that after detection, the appellant paid the entire amount of service tax along with interest before issuance of show cause notice but this will not save them from the penal provisions of Section 76 and 78 inasmuch as the service tax had not been paid by them by the due date and by not filing the returns, the respondent suppressed the relevant information from the department, that the Commissioner (Appeals)'s order is not correct, as while the department in the appeal before the Commissioner (Appeals) has asked for imposition of penalty on the respondent under Sections 76 and 78, he had proceeded to set aside the penalty, which, in fact, had not been imposed by the Asstt. Commissioner and that in view of this, the impugned order is not correct.

Respondent’s Contention:-The Respondent pleaded that delay of 5 days in filing of the cross objection may be condoned as the same is on account of genuine reasons, that as held by the Asstt. Commissioner as well as by the Commissioner (Appeals), there is no willful misstatement or suppression of facts on the part of the respondent, that nonpayment of service tax was due to financial losses suffered by the respondent, that as soon as the department pointed out the non-payment by the respondent, they paid the service tax in 2008 immediately along with interest, the Asstt. Commissioner has rightly treated this case as covered under the provisions of Section 73(3) of the Finance Act, 1994, that in view of the circumstances of the case, penalty under Sections 76 and 78 of the Finance Act is not called for and that as such, there is no infirmity in the impugned order.

Reasoning of Judgment:-The Tribunal carefully considered the submissions made fpm both the sides and perused the records. So far as the delay of 5 days in filing of the memorandum of cross objection by the respondent is concerned, the same is condoned.

In this case, the sub-broker had taken service tax registration in Jan 2005. Initially, service tax was paid and returns were filed. It appears that from April, 2006 onward when in spite of reminders, returns were not being filed and inquiry in this case was conducted by the department in 2008, it was learnt that the respondent in spite of service tax registration were not paying service tax since April, 2006 due to financial difficulties though the tax till March, 2006 had been paid. It is not disputed that immediately after non-payment of service tax was pointed out, the same was paid along with interest. The lower authorities have treated this as a case covered under Section 73(3) of the Finance Act, 1994 under which where any service tax has not been levied or has been short-levied or short paid or erroneously refunded, the persons chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under subsection (1) in respect of the amount so paid. Since in this case, the department does not dispute that the non-payment of tax during the period was on account of financial difficulties having been suffered by the respondent and since immediately after on being pointed out, the respondent paid the entire amount along with interest, Tribunal is of the view that this case is covered by the provisions of Section 73(3) and hence, penalty under Sections 76 and 78 was not called for. In view of this, no infirmity is found in the impugned order.

Decision:- The Revenue's appeal is dismissed.

Comment:- In this case penalty is not imposed as the assessee failed to discharge its service tax liability due to financial problems and paid the service tax along with interest voluntary before issuance of show cause notice and thereby got covered by the provisions of section 73 (3).

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PJ/Case Laws/2012-13/1368

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