2018 (3) TMI 186 - AT - Service Tax

Penalty - tax alongwith interest paid before issuance of SCN - Held that - Section 73(3) is very clear as it says that if the tax is paid along with interest before the issuance of the SCN then in that case SCN need not be issued - In the present case it is on account of bona fide mistake that the service tax was not paid and as soon as it was pointed out by the audit party the assessee paid the service tax along with interest - in the case of Geneva Fine Punch Enclosures Ltd. 2011 (1) TMI 746 - KARNATAKA HIGH COURT the Hon ble high Court of Karnataka has held that if the duty is paid along with interest before the issuance of the SCN then the penalty cannot be imposed - appeal allowed - decided in favor of appellant.

Issues:
- Imposition of penalty under Section 78 of the Finance Act in contravention of Section 73(3)
- Payment of service tax along with interest before issuance of show-cause notice
- Allegation of suppression of facts by the appellant
- Applicability of various judicial decisions to the case

Analysis:

Issue 1: Imposition of penalty under Section 78
The appellant contended that the imposition of penalty under Section 78 of the Finance Act was not sustainable as it contravened the provisions of Section 73(3). The counsel argued that Section 73(3) clearly states that if the service tax is paid along with interest before the issuance of a show-cause notice, then such notice should not be issued. The Tribunal observed that in the present case, the service tax was paid promptly upon detection of the mistake, indicating a bona fide error. Citing the precedent set in the case of Bhoruka Aluminium Ltd., the Tribunal ruled that when the tax is paid before the show-cause notice is issued, penalties under Sections 77 and 78 cannot be imposed.

Issue 2: Payment of service tax before show-cause notice
The appellant asserted that the service tax, along with interest, had been paid before the show-cause notice was issued, as per Section 73(3) of the Finance Act. The Tribunal acknowledged that the tax payment was made promptly after being highlighted by the audit team. It noted that there was no evidence of suppression by the appellant. Relying on legal precedents, the Tribunal concluded that the appellant's actions were in compliance with the law, and the penalty imposition was unwarranted.

Issue 3: Allegation of suppression of facts
The Revenue argued that the appellant had suppressed facts that were only discovered during an audit, implying that without the audit, the suppression would have remained undetected. However, the Tribunal found no substantial evidence of suppression by the appellant. It emphasized that the tax payment was made promptly upon identification of the oversight, indicating a lack of intentional evasion on the part of the appellant.

Issue 4: Applicability of judicial decisions
Both sides cited various judicial decisions to support their arguments. The appellant relied on cases like Bhoruka Aluminium Ltd. and Geneva Fine Punch Enclosures Ltd., which emphasized the importance of timely tax payment to avoid penalties. On the other hand, the Revenue cited cases such as Sunil Hi-Tech Engineers Ltd. and Raffles Software Pvt. Ltd. to justify penalty imposition. The Tribunal analyzed these precedents and concluded that the decisions cited by the Revenue were not relevant to the circumstances of the present case. It upheld the appellant's position based on the legal principles established in the cases referenced.

In conclusion, the Tribunal found in favor of the appellant, setting aside the impugned order and allowing the appeal with any consequential relief. The judgment highlighted the significance of timely tax payment, the absence of suppression of facts, and the inapplicability of certain judicial decisions to the case at hand.

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