2011 (9) TMI 808 - AT - Service Tax

Payment of service tax before issuance of SCN - Whether the lower appellate authority is right in having set aside the penalties imposed on the assessee by the original authority under Sections 76 and 78 of the Finance Act 1994 - held that - As per Section 73(3) there shall be no show-cause notice under sub-section (1) of Section 73 in respect of the Service Tax already paid by the party. There is no bar to issuance of a show-cause notice for imposing a penalty. The Board s clarification on the point therefore does not disclose the correct legal position. Default of payment of Service Tax from 27-9-2004 to 8-3-2004 is an admitted fact. The Service Tax for that period was paid only in August 2005. Such default in payment of Service Tax would per se invite Section 76 as rightly found by the original authority. Indeed nobody has argued before me that Section 76 is not applicable to cases involving default of payment of Service Tax. Therefore the decision of the lower appellate authority in relation to Section 76 of the Finance Act 1994 cannot be accepted. - Penalty u/s 76 restored.

Summary

Issues:
- Whether the lower appellate authority was correct in setting aside penalties imposed on the assessee under Sections 76 and 78 of the Finance Act, 1994.
- Applicability of Board's Circular No. 137/167/2006-CX-4, dated 3-10-2007.
- Allegation of suppression of taxable value and contravention of rules by the assessee.
- Interpretation of Sections 73(1A) and 73(3) of the Finance Act, 1994.
- Liability of the respondent to be penalized under Section 76 of the Act.

Analysis:

1. The dispute in this case revolved around the liability of the assessee to pay Service Tax under 'Commercial Training and Coaching Service' for a specific period. The department issued a show-cause notice proposing penalties under Sections 76 and 78 of the Finance Act, 1994, which was contested by the assessee.

2. The Assistant Commissioner confirmed the demand of Service Tax and interest against the assessee and imposed penalties under Sections 76 and 78. The Commissioner (Appeals) later set aside both penalties based on a Board's Circular. The department appealed this decision.

3. The department argued that the Board's circular was not applicable due to the suppression of facts and contravention of rules by the assessee, citing relevant case laws to support their claim.

4. The respondent's counsel contended that the show-cause notice did not allege suppression of taxable value and that a major part of the demand fell within the normal limitation period. They relied on a specific case law to support their argument against penalties.

5. The Tribunal found that the show-cause notice did not specifically allege suppression of taxable value or invoke the proviso to Section 73(1) of the Act. Therefore, the imposition of penalty under Section 78 was deemed unacceptable.

6. The Board's circular was examined, and it was clarified that the situations described did not apply to the facts of this case. The Tribunal found the Board's clarification on Section 73(3) to be incorrect regarding the imposition of penalties.

7. Regarding the penal issue, the Tribunal concluded that the respondent was liable to be penalized under Section 76 due to the admitted default in paying Service Tax. The imposition of penalty at the rate of Rs. 100 per day was upheld.

8. Consequently, the Revenue's appeal was partly allowed by restoring the penalty imposed under Section 76. The respondent was directed to pay the penalty without delay, and the 'Cross Objection' was disposed of accordingly.