2017 (1) TMI 33 - AT - Service Tax

Imposition of penalties - architect services - availed input services namely Landscape Consultancy Services from outside India - Reverse charge mechanism - Held that - It is not disputed that the appellant paid the alleged short paid service tax along with interest and also reversed the irregularly availed credit immediately on pointing out by the audit party. Thus the outstanding liabilities were discharged by the appellant in 2009 itself, much prior to the issuance of Show Cause Notice. The Show Cause Notice is seen issued on 09.02.2011 only - In the case of Adecco Flexione Workforce Solutions Ltd., 2011 (9) TMI 114 - KARNATAKA HIGH COURT the Honorable Karnataka High Court had occasion to consider similar issue where service tax was paid before issuance of Show Cause Notice. The Honorable Court held that when the assessee paid the service tax along with interest prior to the issuance of Show Cause Notice, no penalty can be imposed - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Failure to pay service tax under reverse charge mechanism, irregular availment of credit, imposition of penalties.

Analysis:
The case involved the appellant, a service provider under the category of Architect Services, who availed input services from a foreign company without paying service tax under the reverse charge mechanism. The appellant rectified the non-payment by paying service tax along with interest in 2009, after an audit objection highlighted the issue. A show cause notice was issued, alleging non-payment of service tax and irregular availment of credit due to insufficient invoice details. The demand, interest, and penalties were confirmed after adjudication, which the appellant appealed.

During the appeal, the appellant argued that the service tax was paid promptly upon identification of the issue, and as per Section 73(3), no show cause notice should have been issued once the payment was made. On the other hand, the respondent contended that the appellant failed to reflect the payment to the foreign company in their service tax returns, justifying the issuance of the show cause notice and imposition of penalties.

The tribunal noted that the appellant had indeed paid the alleged short service tax and rectified the irregular credit before the show cause notice was issued. Citing a precedent from the Honorable Karnataka High Court, which ruled that penalties cannot be imposed if the service tax is paid before the notice, the tribunal held that the penalties imposed were unwarranted. Consequently, the tribunal set aside the penalties and allowed the appeal with any necessary consequential reliefs.