2010 (7) TMI 774 - HC - Service Tax

Demand of service tax and penalty - Air Travel Agent service - SCN, alleging that the petitioner-assessee had short-paid service tax - petitioner-assessee had paid service tax voluntarily before the issuance of show cause notice - Benefit of proviso to Section 78 - person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded - Provided that where such service tax as determined under sub-section (2) of section 73, and the interest, payable thereon under section 75, is paid within thirty days from the date of communication of order of the Central Excise Office determining such service tax, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent of the service tax so determined, assessee claims to have paid service tax much prior to the determination of its tax liability under sub-section (2) of Section 73 - Matter remanded to Adjudicating Authority and directed to consider the question whether or not the petitioner-assessee has discharged its tax liability in terms of the first proviso to Section 78 of the Act. On proper and correct quantification of tax liability under the Act with relevant dates of payments, if the Adjudicating Authority comes to the conclusion that the petitioner-assessee is entitled to the benefit of the first proviso to Section 78, the Adjudicating Authority shall grant the benefit to the petitioner-assessee while quantifying its tax liability, appeal is dismissed

Issues Involved:
1. Short-payment of service tax.
2. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.
3. Applicability of Section 80 for waiver of penalties.
4. Entitlement to the benefit of the first proviso to Section 78.

Detailed Analysis:

1. Short-payment of Service Tax:
The petitioner-assessee, an air travel agent, was issued show cause notices for short-payment of service tax amounting to Rs. 23,84,597/- for the period from April 2000 to March 2004 and Rs. 8,06,24,422/- for the period from April 2001 to August 2006. The petitioner-assessee had voluntarily paid Rs. 8,44,73,819/- before the issuance of the show cause notice. The respondent confirmed the demand of Rs. 7,67,05,441/- for the period from April 2001 to March 2006.

2. Imposition of Penalties under Sections 76 and 78:
The respondent imposed a penalty of Rs. 100/- per day under Section 76 and Rs. 10 crore under Section 78. The Tribunal upheld the demand and interest but differed on the penalty under Section 78. The Member (Judicial) reduced the penalty to Rs. 50,00,000/-, while the Member (Technical) upheld the Rs. 10 crore penalty. The third Member (Judicial) agreed with the Member (Technical), resulting in a final order imposing a Rs. 10 crore penalty.

3. Applicability of Section 80 for Waiver of Penalties:
The petitioner-assessee argued that under Section 80, no penalty should be imposed as they had paid the entire service tax and interest voluntarily before the issuance of the show cause notice. The Tribunal and Adjudicating Authority rejected this argument, citing the appellant's fraudulent conduct and failure to declare correct service tax liability. The court found no merit in the appellant's claim for waiver under Section 80, emphasizing that the appellant's actions were not bona fide.

4. Entitlement to the Benefit of the First Proviso to Section 78:
The petitioner-assessee contended that they should only be liable for 25% of the service tax as per the first proviso to Section 78, having paid the tax and interest within 30 days of the order. The Tribunal dismissed this claim, but the court found that the matter required further factual verification. The court remanded the issue to the Adjudicating Authority to determine if the petitioner-assessee met the conditions for the reduced penalty under the first proviso to Section 78.

Conclusion:
The court dismissed the appeal regarding the imposition of penalties under Sections 76 and 78, finding no substantial question of law. However, it partly allowed the writ petition, remanding the matter to the Adjudicating Authority to verify the petitioner-assessee's entitlement to the benefit of the first proviso to Section 78. The Adjudicating Authority was directed to consider whether the petitioner-assessee had discharged its tax liability in accordance with the first proviso to Section 78 and to grant the benefit if applicable.

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