2017 (1) TMI 1582 - AT - Service Tax

Demand of Interest and Penalty, without demand of service tax - short payment of service tax - scope of SCN - Held that - In the case of Total Security System 2007 (12) TMI 157 - CESTAT MUMBAI , the same issue came up before this Tribunal wherein it was held that this is not legally sustainable to impose interest penalty if demand is not confirmed. Admittedly, in this case the SCN has not been issued to the appellant to demand of interest only and to impose penalty. As no demand of service tax has sought to be confirmed by way of show cause notice against the appellant, interest and penalty cannot be demanded - the demand of interest and imposed penalty are not imposable on the appellant - appeal allowed.

Summary

Issues:
Appeal against demand for interest and penalty under Section 76 of the Finance Act, 1994.

Analysis:
The appellant appealed against an order demanding interest and imposing a penalty under Section 76 of the Finance Act, 1994. The issue arose when it was discovered during an audit that the appellant had made a short payment of service tax due to utilizing more cenvat credit than allowed for payment of service tax. The authorities confirmed the demand for interest and penalty, leading the appellant to challenge the decision.

The appellant argued that since there was no confirmed demand for service tax against them, interest and penalty should not be imposed, citing a precedent from the case of Total Security Systems. On the contrary, the respondent contended that interest could be demanded under Section 75 of the Act and penalty under Section 76.

The Tribunal considered the submissions and referred to the Total Security System case where a similar issue had been addressed. In that case, it was observed that without a confirmed service tax demand, imposing interest and penalty alone was not legally sustainable. Applying this reasoning, the Tribunal set aside the impugned order and allowed the appeal, providing consequential relief if due.

It was noted that in the current case, no show cause notice had been issued specifically for demanding interest and imposing a penalty without confirming the service tax demand. Following the Total Security System precedent, the Tribunal held that interest and penalty could not be imposed on the appellant. Consequently, the appeal was allowed, and the impugned order was set aside.

The judgment emphasizes the importance of a confirmed service tax demand before imposing interest and penalty under the relevant sections of the Finance Act, 1994. The decision in the Total Security System case serves as a guiding precedent in similar situations where demands for interest and penalty are made without a confirmed tax liability.