2012 (9) TMI 813 - HC - Service Tax

Whether CESTAT was right in invoking the provisions of Section 73(1A) and setting aside the penalty levied in excess of 25% - Revenue contended that once show cause notice has been issued then the assessee is required to make payment of penalty, even if before the issuance of show cause notice, service tax and interest has been deposited - Held that - Board s Circular No.137/167/2006-CX dated dated 03.10.2007 has considered the proviso to section 73 that where a person has paid service tax in full together with interest and penalty under sub-section (1A), the proceedings in respect of such person to whom notices are served under sub-section (1) shall be deemed to be concluded. In the instant case was not contesting the Service Tax liability and had deposited the entire service tax and interest much before the issuance of show cause notice and discharged 25% of the amount of service tax liability, and at that time, neither any penalty was levied by the appellant nor any quantum of penalty was fixed. Therefore, the assessee has not committed any illegality in not depositing any penalty amount. Penalty levied against the assessee in excess of 25% u/s 76 and 78 of the Finance Act, 1994, has rightly been set aside by the Tribunal

Summary

Issues:
Interpretation of Section 73(1A) of the Finance Act, 1994 regarding the imposition of penalty and conditions provided under the said provision.

Analysis:
The case involved a dispute regarding the application of Section 73(1A) of the Finance Act, 1994, in relation to the imposition of penalties and the conditions specified under this provision. The appellant, engaged in providing services as an Authorized Service Station, was liable to pay service tax on commissions received from financial institutions. The appellant had paid the service tax and interest on time for the relevant period.

The Joint Commissioner issued a show cause notice proposing to recover service tax along with interest and penalties under various sections of the Act. The Commissioner confirmed the demand and imposed penalties under different sections. The appellant challenged this order before the Commissioner (Appeals), who rejected the appeal.

Subsequently, the appellant appealed to the CESTAT, which allowed the appeal based on Circular No.137/167/2006-CX. The Tribunal held that since the entire service tax amount had been paid along with interest before the show cause notice was issued, the penalties imposed were excessive. The Tribunal relied on Section 73(1A) and set aside the penalties exceeding 25%.

The High Court agreed with the Tribunal's decision, emphasizing that the appellant had paid the service tax and interest in full before the show cause notice was issued. The Court noted that the appellant had not committed any illegality by not depositing the penalty amount since no penalty had been levied or fixed at the relevant time. The Court upheld the Tribunal's decision to set aside the penalties exceeding 25% under Sections 76 and 78 of the Finance Act, 1994.

In conclusion, the High Court dismissed the Tax Appeal, stating that the issue raised did not present a substantial question of law. The Court found no merit in the appellant's arguments and upheld the Tribunal's decision to set aside the excessive penalties imposed on the appellant. The judgment clarified the application of Section 73(1A) and highlighted the importance of timely payment of service tax and interest in such cases.