2016 (9) TMI 1360 - AT - Service Tax

Penalty u/s 78 - payment of duty with interest before issuance of SCN - Held that - full payment of tax and interest was made before issue of show cause notice is apparent. There is also no reason to attribute mala fide intent to evade tax as the shortfall was less than 3% of total dues. Surely, no prudent business entity would jeopardize their chances of amnesty by deliberate non-payment of such paltry amount - imposition of penalty is unwarranted - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Section 111(1) of Finance Act, 2013
2. Imposition of penalty under Section 78 of Finance Act, 1994
3. Allegation of suppression of fact with intent to evade tax

Interpretation of Section 111(1) of Finance Act, 2013:
The case involved an appeal against an order invoking Section 111(1) of the Finance Act, 2013, which empowered the Commissioner to place a declarant under the Voluntary Compliance Encouragement Scheme, 2013, on notice for filing a false declaration. The appellant had declared an amount less than the actual figure, leading to the imposition of a penalty. The appellant contended that they had miscalculated the tax liability due to unawareness of rate changes. However, it was noted that the full payment of tax and interest had been made before the issuance of the notice. The tribunal observed that there was no evidence of mala fide intent to evade tax, as the discrepancy was less than 3% of the total dues, indicating a lack of deliberate non-payment. The tribunal concluded that there was no suppression of fact with intent to evade tax, and the penalty imposed under Section 78 of the Finance Act, 1994, was deemed unduly harsh and unwarranted. Consequently, the penalty was set aside, and the appeal was allowed on this ground.

Imposition of penalty under Section 78 of Finance Act, 1994:
The impugned order had imposed a penalty under Section 78 of the Finance Act, 1994, on the appellant. The appellant had intimated the payment of the difference in the declared amount and the actual amount, along with interest and penalty, before the notice was issued. The tribunal acknowledged that the full payment of tax and interest had been made prior to the show cause notice. It was emphasized that there was no indication of deliberate evasion of tax, as the shortfall was minimal and not reflective of any mala fide intent. The tribunal highlighted that a prudent business entity would not risk losing amnesty by intentionally avoiding payment of a small amount. Therefore, the tribunal found the imposition of the penalty to be unwarranted and set it aside, allowing the appeal on this basis.

Allegation of suppression of fact with intent to evade tax:
The appellant had been accused of suppression of fact with the intent to evade tax due to the discrepancy in the declared amount. However, the tribunal found this allegation to be erroneous, considering the circumstances of the case. It was noted that the appellant had rectified the error by paying the differential amount, interest, and penalty before the notice was issued. The tribunal emphasized that the objective of the voluntary compliance scheme and the substantial compliance demonstrated by the appellant indicated a lack of deliberate evasion. Consequently, the tribunal concluded that the penalty imposed based on the allegation of suppression of fact was unjustified and set it aside, thereby allowing the appeal on this ground.

This detailed analysis of the judgment provides insights into the interpretation of relevant legal provisions, the imposition of penalties, and the assessment of allegations in the context of tax compliance and voluntary disclosure schemes.