2006 (2) TMI 628 - AT - Service Tax

Penalty - Service tax escaped assessment - coal handling services come under the purview of service tax? - HELD THAT - It is not in dispute that the appellants have discharged their service tax liability and the interest leviable thereon before the issuance of show cause notice. Appellants have ascertained the service tax liability on their own and paid it off which is admitted by the department in Order-in-Original. Further, the provisions also state that even the service tax is ascertained by the Central Excise officers and if it is paid of by the assessee in that case also the appellants should not be served upon any notice under sub-section (1). Considering both the situations, the appellants case is covered under the provisions of sub-section (2A) of Section 73 for non-issuance of show cause notice to the appellants. When the provisions themselves do not contemplate issuance of show cause notice when tax liability is discharged to my mind, the issuance of show cause notice in this case by the department is beyond the provisions of the Act. In view of the above Order-in-Appeal deserves to be set aside. I set aside the Order-in-Appeal and allow the appeal of the appellants with consequential relief, if any. Appeal allowed.

Summary

Issues:
- Imposition of penalty on the appellants under different sections of the Finance Act, 1994 for providing coal handling services without paying service tax.
- Dispute regarding the initiation of communication leading to the clarification sought by the appellants.
- Interpretation of Section 73(2A) of the Finance Act, 1994 regarding the discharge of service tax liability by the appellants before the issuance of a show cause notice.

Analysis:
1. The appeal challenged the imposition of penalties on the appellants for providing coal handling services without paying service tax. The appellants sought clarification from the department regarding the tax liability, calculated and paid the service tax before any show cause notice was issued. The adjudicating authority and Commissioner (Appeals) upheld the penalties, leading to this appeal.

2. The appellants argued that they acted in good faith by seeking clarification from the department upon receiving communication from their client. They relied on legal precedents to support their case, emphasizing that they voluntarily paid the service tax without waiting for any formal communication from the department.

3. The department contended that the appellants only sought clarification after being queried about the service tax payment by the audit department. They argued that the penalties were justified, highlighting that the appellants' actions were reactive rather than proactive.

4. The Member (J) analyzed Section 73(2A) of the Finance Act, 1994, which allows the person liable for service tax to pay the amount based on their own ascertainment before the issuance of a show cause notice. The provision exempts the issuance of a notice if the tax liability is discharged by the assessee, whether on their own or ascertained by Central Excise officers.

5. The Member (J) concluded that the appellants had correctly discharged their service tax liability before any formal notice was served. Citing the provisions of Section 73(2A), it was determined that the appellants' case fell within the scope of non-issuance of a show cause notice. Therefore, the show cause notice issued by the department was deemed beyond the provisions of the Act.

6. Consequently, the Order-in-Appeal upholding the penalties was set aside, and the appeal of the appellants was allowed with consequential relief. The judgment highlighted the importance of compliance with tax liabilities and the legal provisions governing the discharge of such obligations before the initiation of formal proceedings.