2015 (2) TMI 611 - AT - Service Tax

Penalty u/s 76, 77 & 78 - Discrepancy was noticed between the turnover reflected in the balance sheet and the turnover in the ST-3 returns - Held that - From the appeal papers as well as the Commissioner (Appeal)'s order, I find that the appellant claimed before the Commissioner (Appeals) that the discrepancy which resulted in the alleged non-payment of duty is only because of the accounting system. While the balance sheet was prepared on mercantile basis, the payment of Service Tax is reflected in the ST-3 returns is on receipt basis. I note that the correct legal position during the relevant time was that Service Tax was required to be paid only on receipt basis as per Section 77 of the Finance Act, 1994. The learned Counsel pleaded that so called short payment is only about 4% of the total Service Tax paid during the four years in question. In these circumstances, neither was there short payment nor was there any intention to avoid payment of duty. I also find that Hon'ble High Court of Karnataka held in the case of Master Kleen (2011 (9) TMI 788 - KARNATAKA HIGH COURT) that the show-cause notice should not have been issued especially when the appellant paid the Service Tax within a week of being pointed out. The learned Counsel is not contesting the duty demand because he fairly concedes that even though amounts were received later they would have had to pay Service Tax in later years. In view of the facts and circumstances of the case and the Hon'ble High Court judgment in the case of Master Kleen (2011 (9) TMI 788 - KARNATAKA HIGH COURT), I find that no case for imposition of penalty is made out. - Decided in favour of assessee.

Summary

Issues:
- Appeal against the order of Commissioner (Appeals) confirming Service Tax demand for the period 2006-07 to 2008-09.
- Imposition of interest, penalties under Sections 75, 76, 77, and 78.
- Discrepancy in turnover between balance sheet and ST-3 returns.
- Applicability of penalty when payment made before show-cause notice.
- Interpretation of Section 77 of the Finance Act, 1994.

The appellant, an advertising agency, appealed against the Commissioner (Appeals) order upholding the demand for Service Tax of Rs. 96,617 for the period 2006-07 to 2008-09, along with interest and penalties under Sections 75, 76, 77, and 78. The discrepancy in turnover between the balance sheet and ST-3 returns was noted during an office audit. The appellant promptly paid the identified amount along with interest upon notification. Subsequently, a show-cause notice was issued, leading to the current appeal before the Tribunal.

During the hearing, the appellant's counsel cited a judgment by the Karnataka High Court, emphasizing that when payment with interest is made before a show-cause notice, penalties should not be imposed as per Section 73(3) of the Finance Act, 1994. The appellant argued that the discrepancy in payment arose due to accounting system differences, with the balance sheet on a mercantile basis and ST-3 returns on a receipt basis. The legal requirement at the time mandated payment on a receipt basis per Section 77 of the Finance Act, 1994. The appellant contended that the alleged short payment constituted only 4% of the total Service Tax paid over the four years, indicating no intentional evasion. The Tribunal acknowledged the legal position and the Karnataka High Court's ruling, which stated that penalty imposition was unwarranted when the Service Tax was promptly settled post-identification. The appellant did not contest the duty demand, recognizing the obligation to pay Service Tax on receipts in subsequent years. Considering the circumstances and legal precedents, the Tribunal found no grounds for penalty imposition.

Consequently, the Tribunal allowed the appeal, setting aside the impugned order, and ruled in favor of the appellant based on the facts, legal interpretation, and relevant judicial decisions, particularly the judgment of the Karnataka High Court in the case cited during the proceedings.