2016 (3) TMI 71 - AT - Service Tax

Invokation of Section 80 of the Finance Act, 1994 and immunity from penalty under Section 78 of the Act - Appellant says the default was occurred due to no realization of taxes from service recipient duly for which entire service tax liability along with interest for belated payment of tax has been paid in two instalments before adjudication. Also the part of penalty has been discharged - Held that There is no element of mens rea coming from the Adjudication order. Therefore, penalising the appellant under section 78 would be harsh in view of the reasonable cause of discharge of liability belatedly due to delay of realisation of service tax from the service recipient deserves consideration. Levy of service tax being an indirect tax mechanism hardship is faced by the tax payer if incidence of tax is not realised from the service recipient. Considering such aspect and taking into consideration that a part of the penalty amount has been discharged, the balance of the penalty is waived. - Decided in favour of appellant

Summary

Issues involved:
1. Appellant's prayer to invoke section 80 of the Finance Act, 1994 for immunity from penalty under section 78.
2. Dispute regarding the levy of penalty under section 78 of the Finance Act, 1994 despite payment of taxes before Adjudication order.
3. Consideration of hardship faced by the appellant due to delay in realization of service tax from the service recipient.

Analysis:
1. The appellant sought leniency under section 80 of the Finance Act, 1994 to avoid penalty under section 78. The appellant contended that the entire service tax liability had been discharged, including interest in two instalments. The default in payment was attributed to non-realization of taxes from the service recipient. The Adjudicating authority mentioned that a concessional penalty would be applicable if the tax was paid within 30 days of the order.

2. The Revenue argued that mere payment of taxes before the Adjudication order does not automatically exempt the appellant from penalty under section 78. After hearing both sides and examining the records, it was found that the appellant had indeed settled the entire tax liability before adjudication, and the deposit of interest was not disputed. There was no evidence of mens rea in the Adjudication order. Considering the reasonable cause for the delayed payment due to non-realization of service tax, penalizing the appellant under section 78 was deemed harsh. Given that part of the penalty had already been paid, the remaining penalty was waived.

3. The judgment acknowledged the hardship faced by taxpayers in indirect tax mechanisms when the tax incidence is not recovered from the service recipient. Taking into account the circumstances and the partial payment of penalty, the appellant was granted relief without the right to claim a refund of any penalty paid prior to the order. The decision was pronounced in open court, concluding the matter.