2017 (12) TMI 1488 - AT - Central Excise

Penalty u/s 78 - payment of service tax before issuance of SCN - Held that - Apart from the fact that the appellant did not discharge their service tax burden during the relevant period, there is otherwise no evidence to indicate that such non-payment of duty was on account of any malafide - As such in the absence of any suppression, mis-statement with an intent to evade payment of duty, the benefit of Section 80 of the Finance Act should be extended to the assessee - penalty set aside - appeal allowed.

Summary

Issues Involved:
1. Imposition of penalty under Section 78 of the Finance Act, 1994 for non-payment of service tax on free services provided.
2. Imposition of penalty under Rule 6(3)(a) of Cenvat Credit Rules for availing Cenvat Credit on common inputs/services used for taxable and exempted services.
3. Application of Section 80 of the Finance Act for non-payment of service tax without any malafide intent.

Analysis:

Issue 1: Imposition of Penalty under Section 78 of the Finance Act
The appellant was subjected to a demand of service tax due to providing free services on vehicles, deemed as a taxable service. The appellant, however, had paid the service tax before the show cause notice was issued. The main contention revolved around the penalty imposed under Section 78 of the Finance Act. The tribunal noted that there was a genuine belief by the appellant that no service tax was due, as the matter had been litigated in various courts. In the absence of evidence pointing to malafide intent, the tribunal concluded that no penalty should be imposed under Section 78.

Issue 2: Imposition of Penalty under Rule 6(3)(a) of Cenvat Credit Rules
The Adjudicating Authority confirmed a demand for service tax and imposed a penalty under Rule 6(3)(a) of Cenvat Credit Rules. This was due to the appellant availing Cenvat Credit on common inputs/services used for both taxable and exempted services without maintaining separate records. The appellant argued that they were unaware of the requirement to maintain separate records and promptly paid the required percentage once notified by the Revenue. The tribunal, considering the practical challenges faced by the appellant, set aside the penalty imposed under Rule 6(3)(a).

Issue 3: Application of Section 80 of the Finance Act
Despite the appellant's failure to discharge the service tax burden during the relevant period, the tribunal found no evidence of malafide intent or evasion of duty. As there was no suppression or misstatement to evade payment, the tribunal extended the benefit of Section 80 of the Finance Act to the appellant. Consequently, the penalty related to non-payment of duty was also set aside.

In conclusion, while the demands for service tax and interest were upheld as uncontested, the penalties under Section 78 and Rule 6(3)(a) were set aside. The tribunal allowed the appeal to that extent, providing relief to the appellant in terms of penalties imposed.