2019 (1) TMI 1667 - AT - Service Tax

EOU - Imposition of penalty u/s 77 and 78 of FA - entire amount of service tax along with interest was deposited by the appellant before initiation of the show cause proceedings - Benefit of sub-section (3) of Section 73 of FA - HELD THAT - It is an admitted fact on record that the appellant had incorrectly computed the service tax liability and had also paid the differential amount of such liability along with interest before issuance of the show cause notice - the payment particulars were duly reflected by the appellant in the periodic ST-3 returns filed before the department, which is evident from the observations made at paragraph 6 in the impugned order. Further, the department has not substantiated the allegation of fraud, collusion, misstatement etc., in arriving at the conclusion that the appellant should be exposed to the penal consequences provided under the statute - Thus, in absence of any proper substantiation with regard to involvement of the appellant in the activities concerning fraud etc., the benefit of subsection (3) of Section 73 ibid should be extended to the appellant for non-issuance of show cause notice, especially for imposition of penalties. Penalties set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Disputed computation and payment of service tax by an Export Oriented Unit (EOU) under Works Contract Service.
2. Imposition of penalties under Section 77 and 78 of the Finance Act, 1994.

Analysis:
1. The appellant, an EOU engaged in manufacturing excisable goods, received services for repair and maintenance contracts under Works Contract Service. The appellant discharged the service tax liability on 40% of the contract value and availed abatement on the remaining 60% based on the works contract relating to the completion of the original work. The department disputed this computation, leading to show cause proceedings for differential service tax, interest, and penalties. The Assistant Commissioner confirmed the demands, which were upheld by the Commissioner (Appeals). The appellant appealed to the Tribunal, not contesting the service tax demand but challenging the penalties imposed.

2. The appellant's advocate argued against upholding penalties under Section 77 and 78 of the Finance Act, 1994. It was highlighted that the service tax amount with interest had been deposited before the show cause proceedings, and the conditions for penalty imposition under sub-section (4) of Section 73 were not met. The appellant sought the benefit of sub-section (3) of Section 73 to avoid penalties. On the other hand, the Revenue's representative supported the impugned order's findings.

3. After hearing both parties and examining the records, the Tribunal noted that the appellant had paid the differential service tax amount with interest before the show cause notice was issued. The appellant had accurately reported the payment details in the filed returns, and there was no evidence of fraud or misconduct to justify penal consequences. Consequently, the Tribunal found in favor of the appellant, extending the benefit of sub-section (3) of Section 73 to prevent penalty imposition due to the lack of substantiated allegations of fraudulent activities.

4. The Tribunal set aside the impugned order's penalties under Section 77 and 78 of the Finance Act, 1994, ruling in favor of the appellant. The appeal succeeded on this issue, providing relief to the appellant regarding the penalty imposition.