2010 (12) TMI 181 - AT - Service Tax

Penalty - Original authority had found that the assessee had evaded the payment of service tax due - While demanding and appropriating the tax due as well as interest, he imposed penalty of 25% of the tax confirmed under Section 78 of the Act - Commissioner enhanced the penalty equal to the service tax demand - assessee was entitled to the relief provided in proviso to Section 78 of the Act whereby if it paid 25% that will be in complete discharge of its penal liability - asessee had paid an amount of 25% of the tax before the revisionary proceedings were started - assessee satisfied the requirement of Section 78 - No further amount payable Appeal allowed

Summary

Issues:
1. Penalty imposition under Section 78 of the Finance Act, 1994.
2. Application of proviso to Section 78 for penalty relief.
3. Interpretation of penalty provisions in relation to tax evasion.

Analysis:

1. The appellant, M/s Vikas Enterprises, challenged the penalty of Rs. 2,25,811/- imposed under Section 78 of the Finance Act, 1994, for failure to pay service tax on Cleaning Services rendered from January 2006 to December 2006. The Original authority confirmed the tax demand, interest, and penalties, with the Commissioner enhancing the penalty to the full tax amount due to suppression of facts. The appellant argued that they had paid 25% of the penalty promptly after the Original authority's order, citing lack of awareness of the Section 78 provisions entitling them to a 75% reduction if 25% was paid within a month.

2. The appellant relied on precedents like the Tribunal decision in Shiv Network case, where it was held that payment of 25% of the tax within 30 days discharged the entire penal liability. Similarly, in another case, it was established that the appellant was liable to pay 25% of the tax if paid within 30 days from the revision order. The appellant contended that as they had paid 25% before the revision proceedings, no further penalty was justified, aligning with the cited judgments.

3. The Jt. CDR argued for upholding the penalty, citing the Apex Court judgment in Union of India Vs. Rajasthan Spinning & Weaving Mills, emphasizing the mandatory imposition of penalties under Section 78 akin to Section 11AC of the Central Excise Act. The Tribunal, after reviewing the case records, found that while the Original authority correctly imposed a 25% penalty, the Commissioner's decision to enhance it to the full tax amount was not warranted. The Tribunal agreed with the appellant's interpretation of the proviso to Section 78, stating that the payment of 25% of the penalty before the revision proceedings satisfied the penal liability, leading to the allowance of the appeal.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the appellant, M/s Vikas Enterprises, by recognizing their compliance with the proviso to Section 78 through the prompt payment of 25% of the penalty. The judgment highlighted the importance of timely payments and the applicability of legal precedents in determining penalty liabilities in cases of tax evasion.