2018 (2) TMI 845 - HC - Service Tax

Penalty - Advertising Services - non-payment of tax within due dates - payment of tax dues within interest before issuance of SCN - Whether the CESTAT is correct in holding that penalty u/s 76 & 77 of the Service Tax Act is not leviable when part of the service tax due and the interest is paid before the issuance of show cause notice? Held that - Perusal of the material on record discloses that interest payable on the belated payment of service tax was ₹ 12,63,324/- and that even prior to issuance of the show cause notice, assessee/respondent paid interest amount of ₹ 5,23,151/-. The remaining amount of ₹ 7,40,163/- had been paid on 03.11.2009 immediately on receipt of show cause notice dated 20.10.2009, i.e., within 13 days. As per Section 80 of the Finance Act, 1994, notwithstanding anything contained in the provisions of Section 77 or 1st proviso to Section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure. On belated payment, the assessee has substantiated reasonable cause for the failure in payment of service tax, within the stipulated time and hence, he is entitled to the benefit under Section 80 of the Finance Act. There is no manifest error is committed by the CESTAT, Madras - appeal dismissed - decided against Revenue.

Issues Involved:
1. Imposition of penalty under Sections 76 and 77 of the Finance Act, 1994.
2. Payment of interest under Section 75 of the Finance Act, 1994.
3. Applicability of Section 80 of the Finance Act, 1994 regarding reasonable cause for failure.

Detailed Analysis:

1. Imposition of Penalty under Sections 76 and 77 of the Finance Act, 1994:
The core issue in this case revolves around whether penalties under Sections 76 and 77 of the Finance Act, 1994, should be imposed on the respondent for delayed payment of service tax. The Commissioner initially dropped the penal proceedings, reasoning that the respondent had paid the outstanding service tax and a substantial portion of the interest before the issuance of the show cause notice. The Commissioner concluded that none of the circumstances warranted the imposition of penalties under the relevant penal provisions. This decision was upheld by the CESTAT, which dismissed the Revenue's appeal, noting that the respondent had cooperated with the department and that imposing a penalty would not serve the useful purpose of law.

2. Payment of Interest under Section 75 of the Finance Act, 1994:
The Commissioner confirmed the demand for interest amounting to ?12,63,324 under Section 75 of the Finance Act, 1994, for the delayed payment of service tax. The respondent had already paid ?5,23,151 towards the interest liability before the issuance of the show cause notice and the remaining ?7,40,163 after the notice. The CESTAT found that the respondent had discharged the interest liability promptly and cooperated with the department, which influenced their decision to dismiss the appeal for penalties.

3. Applicability of Section 80 of the Finance Act, 1994:
Section 80 of the Finance Act, 1994, provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure. The respondent argued financial constraints and business competition as reasons for the delay in payment of service tax. The CESTAT and the Commissioner found these reasons to be substantiated and thus concluded that the respondent was entitled to the benefit under Section 80, which led to the dropping of the penalty proceedings.

Conclusion:
The High Court upheld the decisions of the Commissioner and the CESTAT, concluding that the respondent had shown reasonable cause for the delayed payment and had cooperated with the department by paying the service tax and interest promptly. The court found no manifest error in the CESTAT's decision and dismissed the Revenue's appeal, answering the substantial question of law against the Revenue. The judgment emphasizes the importance of cooperation with tax authorities and the provision of reasonable cause under Section 80 of the Finance Act, 1994, in mitigating penalties for delayed tax payments.

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