2017 (6) TMI 477 - HC - Service Tax

Penalty - even before a SCN could be issued, the respondent-assessee paid the duty involved together with interest on the duty short-paid by them - Held that - It is true that sub-section (4) of Section 73 keeps the operation of sub-section (3) out of the purview, in cases where the service tax has not been levied, paid, short-levied or short-paid by reason of fraud, collusion, willful mis-statement, etc. But nevertheless, the law does not treat all cases of fraud, collusion, willful mis-statement, suppression of facts, etc., alike. It is only in Paragraph-15 (iii) and 15 (iv) that the adjudicating authority has recorded a finding that the respondent-assessee willfully suppressed the true and correct value of the freight incurred. But, the findings recorded in Paragraph-15 (iii) and 15 (iv), in our considered view, are not sufficient to enable the Department to fall back upon sub-section (4) of Section 73, so as to keep the application of Section 73(3) out of the reach of the respondent-assessee. Penalty rightly deleted - appeal dismissed - decided against Revenue.

Summary

Issues:
- Deletion of penalty by the Commissioner (Appeals) and confirmation by CESTAT
- Liability to pay penalty under Section 78(1) of the Finance Act, 1994
- Interpretation of Section 73(3) and Section 73(4) regarding payment of service tax and penalty imposition

Deletion of Penalty by Commissioner (Appeals) and Confirmation by CESTAT:
The case involved an appeal by the Revenue against the deletion of penalty by the Commissioner (Appeals) and its confirmation by the CESTAT. The respondent-assessee, engaged in transport of goods by road, had paid the duty and interest before a show-cause-notice was issued. Despite the Department's contention that penalty should be levied due to suppression of facts, the original authority confirmed the penalty. However, the Commissioner (Appeals) allowed the appeal, citing the early payment of tax by the respondent. The CESTAT, following a precedent, dismissed the appeal, leading the Revenue to approach the High Court.

Liability to Pay Penalty under Section 78(1) of the Finance Act, 1994:
The High Court analyzed Section 78(1) of the Finance Act, 1994, which imposes a penalty if service tax is not paid due to fraud, collusion, willful misstatement, or suppression of facts. The court highlighted the distinction in penalty amounts based on the timing of tax payment. Before and after an amendment in 2015, penalties varied depending on when the tax and interest were remitted. The court emphasized that the Act did not treat all cases of non-payment equally, and the quantum of penalty was linked to the timing of tax payment.

Interpretation of Section 73(3) and Section 73(4) Regarding Payment of Service Tax and Penalty Imposition:
The judgment delved into the interpretation of Section 73(3) and Section 73(4) concerning the payment of service tax and penalty imposition. Section 73(3) prohibits the Department from issuing a show-cause-notice if service tax and interest are paid upon ascertainment of the tax. This provision aims to provide extended benefits beyond penalty considerations. While Section 73(4) excludes the operation of Section 73(3) in cases of fraud or willful misstatement, the court emphasized that not all instances of non-payment are treated uniformly.

In conclusion, the High Court dismissed the Revenue's appeal, holding that the penalty deletion by the Commissioner (Appeals) and CESTAT was justified. The court found that the respondent had paid the tax and interest before the show-cause-notice, and the Department's allegations of suppression of facts were insufficient to invoke Section 73(4). Consequently, any pending miscellaneous petitions were dismissed, and no costs were awarded.