2016 (5) TMI 1206 - AT - Service Tax

Imposition of penalty - Section 77 and 78 of the Act - Transport of goods by road and scientific and technical consultancy services - Technical testing done by a foreign service provider - Voluntarily paid service tax along with interest prior to issuance of SCN - Held that - with regard to imposition of penalty under section 77, I find that department is correct in demanding the tax but the appellant had contended that penalty under section 77 ought not to be ₹ 10,000/- but only ₹ 5000/- as the period of dispute is prior to enactment of Finance Act, 2011. Penalty under section 77 is liable to be upheld accordingly. - Decided partly in favour of appellant

Summary

Issues:
1. Imposition of penalty under sections 77 and 78 of the Finance Act.
2. Applicability of section 73(3) in the case.
3. Allegations of suppression of facts and intent to evade payment of tax.
4. Validity of penalty under section 77.

Analysis:
1. The case involved the imposition of penalties under sections 77 and 78 of the Finance Act on M/s. Doowon Automotive Systems India Pvt. Ltd. for failure to pay service tax on technical testing services provided by a foreign service provider under reverse charge mechanism. The appellant admitted the lapse and paid the tax amount along with interest before the issuance of the Show Cause Notice (SCN). The adjudicating authority confirmed the duty demand, imposed penalties of ?10,000 under section 77 and ?9,87,814 under section 78. The Commissioner (Appeals) upheld the penalty under section 78 citing the absence of penalty under section 76.

2. The appellant argued that the penalty under section 78 was unsustainable as suppression of facts was not proven, and the situation was revenue-neutral falling under section 73(3) rather than section 73(4). They contended that the imposition of penalty under section 77 was improper. The appellant's position was supported by the absence of willful suppression of facts and the lack of evidence to prove fraudulent intent to evade tax payment.

3. The appellant highlighted that the demand was based on book entries without any allegation of willful suppression or fraudulent intent. The absence of specific allegations regarding the offense committed with a guilty mind to invoke the proviso to Section 78 was emphasized. The appellant's eligibility for credit supported the argument that there was no intention to evade tax payment, making the penalty under section 78 unsustainable. The adjudicating authority's finding of suppression beyond the SCN's scope was challenged.

4. Regarding the penalty under section 77, the department's demand for tax was acknowledged, but the appellant contested the penalty amount, suggesting it should be ?5,000 instead of ?10,000 due to the dispute period predating the Finance Act, 2011. The imposition of penalty under section 77 was deemed valid, and the appeal was partly allowed with the appellant not disputing the service tax and interest liability. The court upheld the appropriation of the tax and interest by the adjudicating authority.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT CHENNAI provides a comprehensive overview of the issues, arguments presented, and the final decision rendered in the case.