2015 (11) TMI 102 - AT - Service Tax

Waiver of penalty u/s 80 - service tax was paid at the instance of Audit team - Reverse charge mechanism - Business Auxiliary Services and Management Consultant Services - Held that - there is no case of contumacious conduct and/or suppression of facts, or any case of mis-statement with intention to evade the payment of duty/tax is made out against the appellant. The explanation given by the appellant, at the very first instance, at the time of recording of the statement, that the discrepancy occurred due to lack of co-ordination between the two Departments as separate officers were dealing with the banking matter and other dealing with the Central Excise and Service Tax compliances have not been found to be untrue, by both the Courts below. Further I find from the conduct of the appellant that they have co-operated with the audit and immediately on finding the discrepancy, that is short payment of service tax, without waiting for any instruction from the Revenue, they have deposited the service tax, short paid along with interest. - appellant have been paying about ₹ 15 crores of Central Excise & Service Tax P.A. during the period in question. Further the appellant being entitled to CENVAT credit on the service tax paid on the input services, there is no incentive to evade the service tax liability. Thus I hold that the appellant is entitled to the benefit under the provisions of Section 80 of the Finance Act. I further find under the facts and circumstances that the ingredients of penalty under Section 70 are not there as there is no finding as to the delayed filing of the returns. - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Short payment of service tax under reverse charge mechanism.
2. Allegation of suppression of facts and intent to evade tax.
3. Imposition of penalties under various sections of the Finance Act, 1994.
4. Applicability of Section 73(3) of the Finance Act.
5. Revenue neutrality and its implications on tax liability.

Detailed Analysis:

1. Short Payment of Service Tax under Reverse Charge Mechanism:
The appellant, M/s Solar Industries India Ltd., a manufacturer of excisable goods, was found to have short paid service tax under the reverse charge mechanism for services received from abroad categorized as Business Auxiliary Services and Management Consultant Services. During an audit in July 2010, it was discovered that the appellant had not fully paid the service tax due for the period from January 2008 to June 2010. The appellant admitted the short payment and attributed it to a lack of communication between the accounts department and the person handling Central Excise matters. Subsequently, the appellant paid the shortfall amounting to Rs. 10,86,739/- along with interest of Rs. 92,256/-.

2. Allegation of Suppression of Facts and Intent to Evade Tax:
A show-cause notice was issued to the appellant, alleging that the short payment was due to suppression of facts and intent to evade tax. The appellant contested this, arguing that the transactions were duly recorded in their books of accounts and that the shortfall was due to clerical errors and lack of coordination between different departments. They also pointed out that the service tax was paid along with interest before any formal communication from the Revenue Department.

3. Imposition of Penalties under Various Sections of the Finance Act, 1994:
The adjudicating authority confirmed the demand and appropriated the amount already paid. Penalties were imposed under Sections 70, 76, 77, and 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld these penalties, stating that the appellant had only paid the tax after it was pointed out by the audit, indicating a deliberate contravention of the Act's provisions.

4. Applicability of Section 73(3) of the Finance Act:
The appellant argued that they were entitled to the benefit under Section 73(3) of the Finance Act, which states that no show-cause notice should be issued if the tax and interest are paid before the notice is served. They contended that since the short payment was due to a clerical error and was rectified before any formal notice, the penalties were unwarranted.

5. Revenue Neutrality and Its Implications on Tax Liability:
The appellant also argued that the situation was revenue neutral as they were entitled to CENVAT credit for the service tax paid on input services. They cited various judicial precedents to support their claim that there was no intent to evade tax, and therefore, the extended period of limitation and penalties should not apply. The Tribunal agreed with the appellant, noting that there was no evidence of fraud, suppression of facts, or intent to evade payment of duty. The Tribunal held that the appellant's conduct did not demonstrate any contumacious behavior and that the short payment was a result of clerical errors and lack of coordination.

Conclusion:
The Tribunal concluded that the appellant was entitled to the benefit under Section 80 of the Finance Act, which provides relief from penalties if there is reasonable cause for the failure. The penalties imposed under Sections 70, 76, 77, and 78 were set aside, and the appeal was allowed. The Tribunal emphasized that the appellant had cooperated with the audit and rectified the short payment promptly, and there was no incentive for them to evade tax due to the revenue-neutral situation.