2016 (6) TMI 578 - AT - Service Tax

Imposition of equal amount of penalty - Section 78 of the Finance Act, 1994 - Site Formation and Clearance Service - Allegation of suppression - Held that - the appellant discharged the service tax liability and interest prior to issuance of the show cause notice. The interest on delayed payment of tax was paid on 10-11-2010. The show cause notice is dated 12-11-2010. The appellant has further paid 25% of the penalty and presently does not challenge this amount of penalty paid by appellant. Under Sub-section(3) of Section 73 no show cause notice can be issued if service tax along with interest is paid by the assessee. Therefore, there are no circumstances to impose equal amount of penalty under Section 78 of the Finance Act, 1994. Hence I hold that equal amount of penalty imposed under Section 78 of the Act is to be set aside without disturbing the confirmation of demand of service tax, the interest thereon and as per the concession by appellant the 25% of reduced penalty already paid by appellant. The impugned order is modified to the above extent. - Decided partly in favour of appellant

Summary

Issues:
1. Imposition of penalty under Section 78 of the Finance Act, 1994 for alleged suppression of facts regarding service tax liability.
2. Challenge to the penalty imposed by the original authority and upheld by the Commissioner (Appeals).

Analysis:
1. The appellant, engaged in providing services at open cast mines, was registered with the service tax department and provided "Site Formation and Clearance Service" to a specific entity. The services became taxable from a certain date, and the appellant, initially unaware of the tax liability, paid the service tax along with interest after being notified by the department. A show cause notice alleging suppression and proposing penalty under Section 78 was issued later.

2. The original authority imposed an equal amount of penalty, which the appellant paid along with the reduced penalty of 25% under protest. The Commissioner (Appeals) upheld the penalty. The appellant contended that as per Section 73(3), no show cause notice can be issued after payment of service tax and interest. The appellant argued that there was no intent to evade payment as the tax was paid promptly after notification.

3. During the hearing, the appellant's consultant highlighted that the service tax liability was discharged before the show cause notice was issued. The appellant had also paid 25% of the reduced penalty. The AR supported the penalty imposed, deeming it just and proper. The Tribunal noted that the appellant had paid the tax and interest before the notice was served, as required by law.

4. The Tribunal held that since the appellant had paid the tax and interest before the show cause notice, no penalty should be imposed under Section 78. The Tribunal set aside the equal amount of penalty but upheld the demand for service tax and interest. The appellant's appeal was partly allowed, and the balance penalty was set aside.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that the penalty under Section 78 was not justified due to the timely payment of service tax and interest. The decision highlighted the importance of compliance with tax obligations and the consequences of non-compliance despite the appellant's prompt action upon notification.