2012 (9) TMI 336 - AT - Service Tax

Penalties under Sections 76 and 77 - appellant had paid service tax promptly as soon as the omission was pointed out - appellants were under the impression that they were not required to pay interest and after paying service tax they had intimated the department on 19-12-2008. However no reply to this letter was received and the department initiated proceedings by issuing show cause notice on 12-7-2009 and even though the appellant paid the interest as soon as the show cause notice was issued - CBEC has also issued a letter dated 3-10-2007 wherein the field offices have been directed not to commence proceedings where the assessee discharges full amount of service tax and interest Penalty under Section 78 Held that - Where there was no need for the appellants to resort to suppression or mis-declaration since whatever service tax was to be paid, they were eligible for the credit - By evading the payment of service tax, the appellant stands to lose rather than getting any undue benefit. By delaying payment of service tax, the assessee had to pay interest on the amount which is not available as cenvat credit - in this case, suppression of fact or mis-declaration could not have been invoked for imposition of penalty under Section 78 of the Finance Act, 1994 - there is no other evidence to justify imposition of penalty - appeal is allowed

Summary

Issues:
Failure to pay service tax along with interest, Applicability of Section 73(3) of the Finance Act, 1994, Imposition of penalties under Sections 76, 77, and 78.

Analysis:

1. Failure to pay service tax along with interest:
- The appellant availed services from a foreign service provider and did not pay service tax initially as the service provider did not have an office in India. Upon realization, the appellant paid the service tax but omitted to pay the interest amount. The department initiated proceedings resulting in the confirmation of demand for service tax with interest and penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

2. Applicability of Section 73(3) of the Finance Act, 1994:
- The appellant argued that Section 73(3) should apply, contending that they promptly paid the service tax upon notification of the omission. They claimed that they were under the impression that interest was not required to be paid and had informed the department accordingly. The appellant believed that no show cause notice should have been issued as per Section 73(3) when the service tax with interest is fully discharged voluntarily.

3. Imposition of penalties under Sections 76, 77, and 78:
- The department disagreed with the appellant's interpretation, stating that Section 73(3) applies only when the service tax with interest is fully discharged voluntarily. Since the appellant paid only the service tax after being informed and delayed payment of interest, the department initiated proceedings and imposed penalties correctly. The department argued that the appellant's failure to pay the interest amount along with the service tax led to the imposition of penalties under Sections 76, 77, and 78.

4. Judgment and Analysis:
- The Tribunal analyzed the provisions of Section 73(3) and noted that upon receiving the appellant's intimation of paying service tax and disputing the liability of interest, the Central Excise Officers should have determined the interest payable and communicated it to the appellant. Failure to do so before issuing the show cause notice was deemed incorrect. The Tribunal found that penalties under Sections 76 and 77 were unjustified as the appellant had paid the service tax with interest eventually. Additionally, the imposition of penalty under Section 78 was deemed unwarranted as there was no evidence of suppression or mis-declaration, and the appellant was eligible for credit. The appeal was allowed, and the penalties were set aside, providing relief to the appellant.

This detailed analysis of the judgment highlights the issues of failure to pay service tax along with interest, the interpretation of Section 73(3) of the Finance Act, 1994, and the imposition of penalties under Sections 76, 77, and 78, culminating in the Tribunal's decision to allow the appeal and provide relief to the appellant.