2009 (7) TMI 134 - AT - Service Tax

Delay is payment of service tax appellants submits that penalty is not imposable on the appellants in view of the fact that the service tax with interest had been paid by them and therefore in terms of Section 73(3) read with the proviso, the show cause notice itself was without authority of law and is unsustainable.- held that - once the appellants had paid the service tax and the interest thereon in full and also paid the differential amount of ₹ 215/- as soon as it was pointed out, there was no need to issue show cause notice. If show cause notice cannot be issued for recovery of service tax or interest, the question of issue of show cause notice for penalty for failure to pay service tax does not arise. Therefore, in this case penalty under Section 76 is not imposable.

Summary

Issues:
1. Imposition of penalty under Section 76 of the Finance Act, 1994 for delayed payment of service tax.
2. Applicability of Section 73(3) and Section 73(4) of the Finance Act, 1994 in the context of the case.

Analysis:
1. The judgment addresses the imposition of a penalty under Section 76 of the Finance Act, 1994 due to delayed payment of service tax by the appellants. The scrutiny revealed a delay in payment for each month from April to September 2006, leading to a penalty of Rs. 1,40,600/- imposed after adjudication and appellate proceedings. The appellant argued that the penalty should not apply as they had paid the service tax with interest, albeit late. The JDR contended that the penalty was mandatory due to the delayed payment. The tribunal acknowledged the late payment but noted that the lower authorities did not consider the applicability of Section 73(3) of the Finance Act, 1994, which allows self-assessment and payment before a notice is served. The tribunal found that since the appellants paid the full tax and interest, and rectified any discrepancies promptly, the penalty under Section 76 was not warranted.

2. The judgment delves into the interpretation of Section 73(3) and Section 73(4) of the Finance Act, 1994. Section 73(3) permits the taxpayer to self-assess and pay the tax before a notice is issued, provided the Central Excise Officer does not serve a notice post-payment. Section 73(4) specifies exceptions where this provision does not apply, such as cases involving fraud, collusion, wilful misstatement, suppression of facts, or contravention of laws to evade tax payment. The tribunal emphasized that unless there is an intentional offense to evade tax, the Central Excise Officer should not issue a notice. In this case, as the appellants paid the tax, interest, and rectified discrepancies promptly, the tribunal concluded that the penalty under Section 76 was not justified. Consequently, the impugned order imposing the penalty was set aside, and the appeal was allowed in favor of the appellant.

This judgment highlights the importance of understanding the provisions of the Finance Act, 1994 concerning the payment of service tax, self-assessment, and penalties, emphasizing that penalties should be imposed judiciously, especially when taxpayers rectify errors promptly and in good faith.