2014 (8) TMI 785 - HC - Service Tax

Issuance of SCN and levy of penalty where service tax with interest paid before issuance of show cause notice - Business of software development and training to corporate - training in relation to SAP - exemption for vocational training services - Penalties under sections 76, 77 and 78 - Held that - service tax along with interest is paid before the issue of show-cause notice and it is clearly noted down in the show-cause notice. Further, there is no allegation regarding evasion. Therefore, the subject show-cause notice is not at all valid, hence, on this ground alone the impugned order needs to be set aside. Circular No. 137/167/2006/CX-4 dated October 3, 2007, which provides conclusion of adjudication proceedings including penalty proceedings, when the requirement under section 73(3) is complied with. Therefore, the penalty proceedings under sections 77 and 78 should also be closed on payment of service tax along with interest before the issue of show-cause notice, when there is no wilful suppression/ fraud/collusion. On this ground also, the impugned order needs to be set aside. Sub-section (3) of section 73 of the Finance Act, 1994, provides that, where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by the Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officers of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid. Therefore, it is clear before the issue of show-cause notice the assessee acknowledges the leviability to pay the entire service tax due with interest and pays the same; then the authorities are precluded from issue of show-cause notice - Decided against Revenue.

Summary

Issues:
Appeal against impugned order-in-Appeal No. 141/2008-ST dated March 28, 2008 - Conflicting findings by adjudicating officer and appellate authority - Ignorance of law and intention to evade payment of service tax - Validity of show-cause notice - Compliance with Circular No. 137/167/2006/CX-4 - Bona fide belief of the assessee - Applicability of section 73(3) of the Finance Act, 1994 - Imposition of penalties under sections 76, 77, and 78 - Payment of service tax and interest before show-cause notice - Preclusion of show-cause notice under section 73(3) - Legal infirmity in the Tribunal's order.

Detailed Analysis:

The case involved an appeal against the impugned order-in-Appeal No. 141/2008-ST dated March 28, 2008, where conflicting findings were presented by the adjudicating officer and the appellate authority. The party, engaged in software development and training, believed that training in relation to SAP was not taxable under 'vocational training services'. Despite confusion regarding their liability, the party paid the service tax and interest to avoid litigation. The Commissioner (A) confirmed the service tax, interest, and penalties under sections 77 and 78, setting aside the penalty under section 76. The party argued that the penalties were unjustified due to ignorance of law and a bona fide belief that they were not liable for service tax, citing relevant case laws and provisions of the Finance Act, 1994.

The party contended that the show-cause notice was invalid as the service tax and interest were paid before its issuance, as per Circular No. 137/167/2006/CX-4. They emphasized that penalties under sections 76, 77, and 78 should be waived due to the absence of wilful suppression, fraud, or collusion, and the payment made before the notice. The Tribunal upheld the party's appeal, citing section 73(3) of the Finance Act, 1994, which precludes the issuance of a show-cause notice if the service tax is paid before such notice. The Tribunal's decision was deemed legally sound, leading to the dismissal of the Revenue's appeal challenging the penalty imposition.

The judgment highlighted the importance of compliance with statutory provisions, specifically section 73(3) of the Finance Act, 1994, which prevents the issuance of a show-cause notice if the service tax and interest are paid before its issuance. The Tribunal's decision was upheld as it aligned with the legal framework, and the appeal against it was dismissed. Additionally, the application for condonation of delay in filing the appeal was also rejected, emphasizing the strict adherence to legal procedures and timelines in such matters.