2016 (9) TMI 192 - AT - Service Tax

Imposition of penalty - Section 77(2) of the Finance Act, 1994 business auxiliary services failure to submit list of records maintained - Rule 5(2) of the Finance Act, 1994 SCN Held that - the show cause notice itself is vague in as much there is no evidence on record that they have not submitted the list of relevant documents at the time of filing of return for the first time, in terms of Rule 5(2) of S.T. Rules, 1994. Based on a mere premise that appellant appeared not to have filed the returns and imposing penalty after a period of 10 years is not legally sustainable appeal allowed decided in favor of appellant.

Summary

Issues involved: Imposition of penalty under Section 77(2) of the Finance Act for failure to submit records as per Rule 5(2) of the Finance Act, 1994.

Analysis:

The judgment dealt with three appeals that shared a common issue arising from a common Order-in-Appeal, thus being consolidated for disposal. The core matter revolved around the imposition of penalties under Section 77(2) of the Finance Act due to the failure of three appellants to submit the list of maintained records as required by Rule 5(2) of the Finance Act, 1994. The appellants, registered with the service tax department under Business Auxiliary Service, were penalized ?10,000 each by the adjudicating authority, a decision upheld by the Commissioner (Appeals), leading to the appeals in question.

During the proceedings, the appellants argued through their consultant that they were unable to respond to the show cause notice as the relevant records were untraceable after ten years had passed. They contended that the issuance of the notice after such a prolonged period was unjustifiable, especially considering Rule 5(3) of the Service Tax Rules, 1994, which did not mandate record preservation beyond five years. The consultant highlighted the lack of findings on the applicability of Rule 5(3) by the authorities and requested the cancellation of the penalty.

On the other side, the Revenue representative reiterated the stance taken in the impugned order, supporting the penalty imposition. However, upon careful consideration of the arguments and records, the judicial member found the show cause notice to be vague, lacking evidence that the appellants had failed to submit the required documents at the time of their initial return filing under Rule 5(2) of the Service Tax Rules, 1994. The judgment emphasized that penalizing the appellants after a ten-year delay without concrete proof was legally unsustainable. Furthermore, a crucial point was made regarding Rule 5(3) stipulating a five-year record preservation period, which, when analyzed alongside the timeline of the Act's relevant provisions, did not establish any contravention by the appellants. Consequently, the impugned order was set aside, and the appeals were allowed, providing relief to the appellants based on a meticulous legal interpretation and application of the rules.