2014 (12) TMI 746 - AT - Service Tax

Levy of penalty u/s 78 where service tax with interest was paid before issuance of SCN - construction of residential complex service - Held that - As the service tax liability along with interest has been discharged prior to the issue of show cause notice, sub-section (3) of Section 73 provides for waiver of penalties if reasonable cause is shown for the failure to pay tax. In the present case, the appellant is small time service provider who is ignorant of the statutory provisions relating service tax. Therefore, the provisions of Section 73(3) and 80 could have been invoked and penalty should have been waived by the adjudicating/appellate authorities, which they have not done. - penalty waived - Decided in favour of assessee.

Summary

Issues:
1. Appeal against enhancement of penalty under Section 78 of the Finance Act, 1994.
2. Request for waiver of penalties invoking Section 80 of the Finance Act, 1994.
3. Consideration of penalties imposed on a small service provider for failure to pay service tax.

Analysis:
1. The judgment pertains to an appeal against the enhancement of penalty under Section 78 of the Finance Act, 1994. The appellant, a construction service provider, failed to discharge the service tax liability initially but later paid the tax along with interest upon realization of the error. The lower appellate authority had raised the penalty to 100% of the service tax demand, which the appellant contested. The appellant argued that being a small service provider, penalties should be waived under Section 80 of the Finance Act, 1994, as the tax liability was cleared before the show cause notice. The Tribunal considered the submissions and found that penalties should be waived as the tax liability was discharged before the notice was issued, thus setting aside the penalties imposed on the appellant.

2. The appellant's plea for waiver of penalties invoked Section 80 of the Finance Act, 1994, which allows for penalties to be waived if reasonable cause is shown for the failure to pay tax. The appellant, a small service provider, demonstrated ignorance of the statutory provisions related to service tax. The Tribunal noted that since the service tax liability along with interest had been paid before the show cause notice, penalties should have been waived by the adjudicating/appellate authorities. The Tribunal agreed that in such circumstances, where the tax liability was cleared before the notice, there was no basis for imposing penalties. Therefore, the penalties imposed on the appellant were set aside based on the provisions of Section 73(3) and Section 80 of the Finance Act, 1994.

3. The Tribunal's decision focused on the consideration of penalties imposed on a small service provider for failing to pay service tax initially but subsequently clearing the tax liability before the issuance of a show cause notice. The appellant's argument for penalty waiver under Section 80 was accepted by the Tribunal, emphasizing that penalties should not be imposed when the tax liability has been discharged before the notice. The Tribunal highlighted the importance of invoking relevant statutory provisions to ensure fairness in penalty imposition, especially for small-time service providers unaware of tax regulations. As a result, the penalties imposed on the appellant were waived, and the appeal was allowed, bringing relief to the appellant in this case.