2017 (6) TMI 768 - AT - Service Tax

Penalty - assessee discharged service tax liability prior to issue of SCN and interest liability after issuing SCN - Held that - Section 73(3) of FA, 1994 very clearly mandates for discharge of service tax liability on his own ascertain or on the basis of tax ascertainment by Central Excise Officers before issuance of SCN, under sub section 1 of Section 73 of FA 1994, no SCN be issued - Further, on careful reading of Section 73(3) of the FA, 1994, it is seen that it only talks about discharge of service tax liability by assessee before issuance of SCN - penalties unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
Penalty imposition on the appellant for service tax liability and interest payment before and after the show cause notice issuance.

Analysis:
The appeal addressed whether the penalty imposed on the appellant by the adjudicating authority should be set aside. The appellant was engaged in supplying electronic equipment and providing repair services falling under business auxiliary and management services. The lower authorities issued a show cause notice for service tax, interest, and penalties for the period 2006-07 to 2010-11. The appellant contended that they had already paid the service tax liability and interest before and after the show cause notice issuance, invoking Section 73(3) of the Finance Act, 1994. However, the adjudicating authority upheld the penalties under Sections 77 & 78. The first appellate authority also denied the appellant's claim, stating that the service tax liability was not fully paid before the show cause notice was issued.

The appellant argued that they had indeed paid the entire service tax liability in March 2011, prior to the show cause notice issued in July 2011. The appellant's claim was supported by the absence of evidence contradicting the payment made in March 2011. The appellant relied on Section 73(3) of the Finance Act, 1994, which mandates the discharge of service tax liability before the show cause notice issuance to avoid penalties. The appellant also cited a relevant case law to support their argument that the show cause notice should have been issued considering the payment made.

After considering the submissions, the tribunal found in favor of the appellant. It was established that the appellant had indeed paid the entire service tax liability before the show cause notice was issued, as required by Section 73(3) of the Finance Act, 1994. The tribunal emphasized that the section only requires the discharge of service tax liability before the notice issuance, not the interest liability. Citing relevant legal provisions and case law, the tribunal concluded that the appellant had met the requirements for non-imposition of penalties under Sections 77 & 78. Consequently, the appeal was allowed, and the penalties were set aside based on the appellant's compliance with the statutory provisions regarding service tax liability payment before the show cause notice was issued.