2017 (11) TMI 419 - AT - Service Tax

Penalty u/s 78 - non-payment of service tax - malafide intent - Held that - Hon ble Madras High Court judgment in the case of Vikash J. Shah Vs. Commissioner (Appeals), Coimbatore 2016 (2) TMI 442 - MADRAS HIGH COURT , wherein the Hon ble High Court has held that there cannot be any liability to pay service tax when the tax is already available in the form of Cenvat. This Tribunal has taken view that when the cenvat credit is available, the non-payment of service tax/duty only creates revenue neutral situation. In this case admittedly there was cenvat of ₹ 19 lakhs available with the appellant therefore to that extent appellant was not required to pay service tax in cash and it was only adjustable against the said cenvat credit. Therefore the penalty of ₹ 19 lakhs i.e. equal to the Cenvat Credit under Section 78 of the Finance Act, is not sustainable - demand of service tax, interest and payment thereof made by the appellant is maintained - appeal allowed in part.

Summary

Issues:
1. Challenge against penalty imposed under Section 78 of the Finance Act, 1994 for non-payment of service tax.
2. Applicability of penalty under Section 78 in the presence of available Cenvat credit.
3. Interpretation of the law regarding the imposition of penalty under Section 78 in cases of revenue neutral situations.

Analysis:
1. The appellant, operating a radio channel, did not pay service tax for the period October 2007 to March 2009, leading to a show cause notice and an adjudication order. While the appellant paid the service tax, interest, and 25% penalty, they contested the penalty under Section 78 and Section 76 of the Finance Act. The Ld. Commissioner (Appeals) upheld the original order but dropped the penalty under Section 76. The present appeal focused on seeking relief from the penalty under Section 78.

2. The appellant argued that they had Cenvat credit of approximately ?19 lakhs against the total demand of ?27,13,790, indicating no intention to evade tax. Citing relevant case laws, the appellant contended that penalty under Section 78 should not have been imposed due to the available Cenvat credit. The Revenue, represented by the Assistant Commissioner, maintained that the appellant collected service tax from recipients, showing awareness of the tax liability, thus justifying the penalty under Section 78.

3. The Tribunal considered the arguments and precedent set by the Madras High Court, emphasizing that when Cenvat credit is available, non-payment of service tax results in a revenue-neutral situation. Given the ?19 lakhs Cenvat credit with the appellant, the Tribunal found the penalty corresponding to this amount unsustainable under Section 78. Consequently, the penalty of ?19 lakhs was set aside from the total penalty. The Tribunal also noted that if the appellant paid 25% of the remaining penalty, along with service tax and interest within 30 days, the penalty would be further reduced to ?18,13,790. The demand for service tax and interest was upheld, and the appeal was partly allowed in favor of the appellant.

This detailed analysis highlights the key legal arguments, interpretations, and the Tribunal's decision regarding the penalty under Section 78 of the Finance Act in the context of available Cenvat credit and the concept of revenue neutrality.