2018 (2) TMI 1497 - AT - Service Tax

Liability of interest and penalty - payment of tax prior to issuance of SCN - respondent had not reflected the correct value of the services rendered according to the exchange rate prescribed by RBI reference rate - Held that - the Adjudicating Authority has erred in not demanding the interest on the amount of service tax liability confirmed of ₹ 12,53,138/- - the interest liability arises even if the service tax liability is discharged by the respondent prior to issuance of SCN - the respondent is liable to pay interest on this amount as provided in that Section. Penalty - Held that - Adjudicating Authority, though specifically not mentioned in the order, has it seems invoked the provisions of Section 80 to drop penal proceedings. In my view, this is a fit case wherein provisions of Section 80 needs to invoked - penalty set aside. Appeal allowed in part.

Summary

Issues:
1. Appeal against Order-in-Original No.HYD-EXCUS-002-COM-014-16-17 dated 31.08.2016.
2. Non-confirmation of interest and imposition of penalty on confirmed service tax demand of ?2,34,50,000.
3. Discharge of service tax liability prior to issuance of show cause notice.
4. Interpretation of Section 78 of the Finance Act, 1994 regarding interest liability.
5. Invocation of Section 80 for dropping penal proceedings.

Analysis:
1. The appeal was filed by the Revenue against an Order-in-Original dated 31.08.2016. Despite notices, the respondent did not appear, leading to multiple adjournments by the Bench. The issue was considered narrow, prompting the disposal of the matter.

2. The Departmental Representative contested the non-confirmation of interest and penalty imposition on a confirmed service tax demand of ?2,34,50,000. It was argued that interest liability exists even if the service tax is paid before the show cause notice. The Commissioner confirmed a demand of ?12,53,138 due to exchange rate fluctuations, which the respondent paid before the notice. The Tribunal held that interest under Section 78 of the Finance Act, 1994 was applicable on the confirmed amount, and the appeal by the Revenue was accepted.

3. The Adjudicating Authority did not impose a penalty on the respondent for the confirmed demand of ?12,53,138, citing the respondent's compliance based on the contract terms. The Tribunal noted that Section 80 was likely invoked to drop penal proceedings, which was deemed appropriate in this case. Consequently, the impugned order not imposing a penalty was upheld, and the Revenue's appeal was dismissed.

4. In conclusion, the Tribunal disposed of the appeal, upholding the imposition of interest on the confirmed service tax demand while affirming the decision not to impose a penalty on the respondent based on the invocation of Section 80. The judgment clarified the application of Sections 78 and 80 in the context of the case, providing a comprehensive resolution to the issues raised in the appeal.