2017 (7) TMI 295 - AT - Service Tax

Penalty - invocation of section 73 of Finance Act, 1994 - appellant claims that the entire tax liability having been discharged before issuance of SCN, hence section 73 not invocable - Held that - It is very clear from the provisions of section 73 (3) of Finance Act, 1994 that further proceedings are not to be initiated whenever the tax liability alongwith interest thereon has been discharged before crystallisation of the demand. Admittedly, the appellant has not discharged the interest liability. Consequently, recourse to section 73 of Finance Act, 1994 cannot be faulted - The failure to report the receipt of the services from overseas entities is apparent in the ST-3 returns - appeal dismissed - decided against appellant.

Summary

Issues:
Failure to discharge service tax liability under section 66A of Finance Act, 1994; Imposition of penalty under section 78 of Finance Act, 1994; Applicability of revenue neutrality concept; Discharge of tax liability before issue of show-cause notice; Levying of interest on delayed tax payment.

Analysis:

1. The appellant, a company, received services from an associated enterprise outside the country but did not pay the service tax liability of &8377; 17,16,130 for specific months in 2008 and 2009. The tax amount was paid immediately upon discovery during investigations.

2. Following a show-cause notice, the tax liability was confirmed along with interest and a penalty under section 78 of the Finance Act, 1994. The first appellate authority upheld the tax demand and increased the penalty to an amount equal to the confirmed tax. The appellant contested this decision.

3. The appellant argued that as they paid the tax before the notice, proceedings under section 73 of the Finance Act, 1994 were not justified. They claimed the exercise was revenue neutral as they were entitled to a credit for the amount paid. They also disputed the penalty under section 78, stating there was no intention to evade tax or suppress information.

4. The appellant cited precedents supporting the concept of revenue neutrality. The authorized representative referred to a different tribunal decision to counter this argument.

5. The tribunal noted that the tax liability under section 66A was undisputed. The appellant contended that since they paid the tax before the notice, section 73 should not apply, and interest should not be levied. However, the tribunal disagreed, citing the express provision of section 75 for interest on delayed tax payment.

6. The tribunal found no evidence that the appellant did not meet the conditions for invoking section 78. The appellant's awareness of the taxable nature of the services was evident from partial tax payment and discrepancies in their returns, indicating a failure to report services received from overseas entities.

7. Ultimately, the tribunal upheld the original order, stating there were no grounds to interfere with it. The judgment was pronounced on 12/06/2017.