2016 (10) TMI 82 - AT - Service Tax

Levy of penalty - delayed payment of service tax under reverse charge - on account of oversight, the appellant omitted to consider an expenditure during the relevant year - service tax was paid as per the observation of the Audit Party - Held that - the contention of the appellant that he bonafide believed that he is not liable to pay service tax but during the audit, the audit party informed him that he is liable to pay service tax, then he immediately paid the entire service tax along with interest. Except mere allegation of suppression, the Department did not bring any material on record to prove that there was suppression and concealment of facts to evade payment of tax. Consequently, in my opinion, the imposition of penalty under Section 78 of the Act is not justified and bad in law. - No penalty - Decided in favor of assessee.

Summary

Issues:
Imposition of penalty under Section 78 of the Finance Act, 1994 for non-payment of service tax on services received from a foreign company under reverse charge mechanism.

Analysis:
The appellant, engaged in manufacturing motor vehicle parts, received services from a foreign company for installing machinery. Due to a communication gap, they failed to include certain expenditures while paying service tax under reverse charge mechanism. Upon audit discovery, the appellant paid the due tax with interest but was still penalized under Section 78 of the Finance Act. The appellant argued that as per Section 73(3), if tax is paid before a show-cause notice, no penalty should be imposed. They cited various case laws to support their argument. The respondent contended that the appellant suppressed information to evade tax, justifying the penalty.

The tribunal analyzed Sections 73 & 78 of the Finance Act and the case laws cited. Section 73(3) clearly states that if tax is paid with interest before a show-cause notice, no penalty should be imposed. The appellant, upon audit revelation, promptly paid the due tax and interest. The tribunal found no evidence of suppression by the appellant to evade tax. As the department failed to prove any concealment of facts, the penalty under Section 78 was deemed unjustified and legally unsound. Therefore, the tribunal set aside the impugned order, allowing the appeal of the appellant.