2018 (2) TMI 145 - AT - Service Tax

Penalty u/s 76 - payment of service tax with interest before issuance of SCN - service tax on taxable amount realized from customers - Held that - appellants have discharged their liability of service tax along with interest before issuance of the SCN. The entire tax along with interest was paid on 14.2.2011 whereas the SCN has been issued on 4.10.2011. Sub-section (3) to Section 73 provides that when the assessee pays the entire service tax liability on its own volition or on being pointed out by the department, no SCN is to be served on the assessee - penalty unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Non-payment of service tax and imposition of penalty under Section 76 of the Finance Act, 1994.

Analysis:
1. The appellants were engaged in providing taxable services but failed to pay service tax amounting to ?44,24,401 as discovered during an audit. After the department pointed out the non-payment, the appellants paid the service tax along with interest. A show cause notice was issued, leading to the confirmation of the demand, interest, and penalty by the original authority and the Commissioner (Appeals). The appellants appealed to the Tribunal challenging the penalty under Section 76.

2. The appellant's advocate argued that the delay in payment was due to financial hardships, and the entire tax liability was discharged before the issuance of the show cause notice. He relied on sub-section (3) of Section 73 of the Finance Act, which states that no show cause notice is required if the taxpayer pays the tax liability on their own or after being pointed out by the department. The advocate contended that the penalty under Section 76 was unjustified as there was no allegation of suppression or willful misrepresentation in the show cause notice.

3. On the other hand, the department's representative contended that the appellants collected service tax from customers but did not remit it to the government. He argued that the show cause notice issued under sub-section (1) of Section 73 was sufficient to invoke penalties for suppression of facts and willful misstatement. The representative maintained that even though the tax liability was settled before the notice, the penalty was still applicable.

4. After considering the arguments, the Tribunal observed that the appellants had paid the entire tax liability along with interest before the issuance of the show cause notice. Referring to sub-section (3) of Section 73, the Tribunal noted that the intention of the provision was to avoid unnecessary litigations and ensure prompt tax payment. Consequently, the Tribunal found the penalty imposed under Section 76 unjustified and set it aside while upholding the demand for service tax and interest. The appeal was allowed with consequential benefits as per the law.