2016 (11) TMI 787 - AT - Service Tax

Mis-declaration of value of service - the Adjudicating Authority confirmed and appropriated ₹ 23,07,385/- alongwith interest of ₹ 8,68,576/- and imposed penalty of ₹ 9,67,373/- under Section 78 of the Finance Act, 1994 and gave option to the appellant to pay 25% within 30 days of the receipt of the Order-in-Original - Held that - there was no intention of misdeclaring the value of taxable services in the return. That it being a proprietary concern and due to lack of professional guidance the error had unfortunately occurred. That whatever discrepancy was pointed out by the department, the assessee did not dispute the tax liability and started paying the taxes and maximum amount was paid much before the issuance of the show cause notice and an amount of ₹ 8,68,576/- was also paid as interest under Section 75 of the Finance Act, for the delay in paying service tax amount. Further, he submits that the option given by the Adjudicating Authority was exercised and 25% of the penalty amount of ₹ 9,67,373/- imposed under Section 78 was also paid to put the entire dispute at rest and to purchase peace of mind. In this appeal, there is no material shown by the department as to how the option given to the respondent is erroneous. In my considered view, the Commissioner (Appeal) is correct in rejecting the appeal filed by the department and there is no reason to deviate from the said order - appeal rejected - decided in favor of Department.

Summary

Issues:
Alleged misdeclaration/suppression of taxable service value in ST-3 returns, imposition of penalty under Section 78 of the Finance Act, 1994, appeal against penalty imposition, applicability of precedents on penalty determination, exercise of 25% penalty payment option, technical error in filling ST-3 return, intention of misdeclaration, lack of professional guidance, payment of tax liability before show cause notice, payment of interest under Section 75 of the Finance Act, purchase of peace of mind through penalty payment.

Analysis:
The case involved allegations of misdeclaration/suppression of taxable service value by M/s. Engineers Enterprises in their ST-3 returns for the period October 2005 to September 2010. The Adjudicating Authority confirmed the misdeclaration and imposed a penalty of ?9,67,373 under Section 78 of the Finance Act, 1994, along with interest. The department appealed against the option allowing the appellant to pay 25% of the penalty within 30 days, contending that the penalty should be at least equal to the evaded service tax amount, citing legal precedents such as the case of M/s. Dharamendra Textiles Processors.

The Commissioner (Appeals) upheld the Order-in-Original, stating that the Adjudicating Authority correctly applied Section 78 and the 25% penalty option. The department's argument on the applicability of legal precedents was dismissed as mischievous and illegal. The respondent's representative argued that the misdeclaration was a technical error due to lack of professional guidance, with no intention to deceive. The respondent had major clients like Tata Steel, Jamshedpur, and promptly paid the tax liability upon detection of the error, even before the show cause notice was issued.

The respondent exercised the 25% penalty payment option to resolve the dispute and ensure peace of mind. The Advocate for the respondent emphasized that the error was unintentional and promptly rectified. The Adjudicating Authority's order was deemed appropriate by the Commissioner (Appeals), who rejected the department's appeal. The Tribunal concurred with the Commissioner's decision, finding no error in the 25% penalty payment option granted to the respondent. The appeal filed by the department was consequently rejected, affirming the lower authorities' orders.

In conclusion, the Tribunal upheld the decision of the lower authorities, emphasizing the correctness of applying Section 78 and the validity of the 25% penalty payment option. The case highlighted the importance of rectifying technical errors promptly and cooperating with tax authorities to resolve discrepancies, ultimately leading to the rejection of the department's appeal and the confirmation of the penalty imposition.