2018 (3) TMI 1387 - AT - Service Tax

Demand of interest and penalty - delay in payment of service tax - adjustment of demand raised by audit team with the advance tax deposited - Held that - for the period April to August 2013, the appellant had deposited the Service Tax in advance on 29.03.2013. Thus, it is evident that there was no delay in payment of Service Tax by the appellant, as assorted by the Revenue - Since interest is compensatory in character and the same is liable to be paid, only when there is delay in payment of tax, and in this case, admittedly, there is no delay, no interest can be demanded from the appellant. Penalty u/s 78 - Held that - since the appellant had deposited the service tax before the due date, the charges of suppression, fraud, collusion etc., cannot be levelled against it for imposition of the penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability for service tax payment and adjustment against advance tax.
2. Imposition of interest and penalties under the Finance Act, 1994.
3. Appropriation of service tax demand against the amount deposited by the appellant.

Analysis:
1. The appellant, engaged in providing taxable services, voluntarily deposited an amount as service tax, considering it as advance tax. Subsequently, a service tax liability was identified for a disputed period, which the appellant accepted and submitted that it could be adjusted against the advance tax deposited. However, the Department insisted on treating the advance tax as Cenvat credit and required the appellant to reverse the service tax liability from that account. The appellant complied with this requirement. The Department then proceeded against the appellant for confirming the service tax demand, interest, and penalties. The adjudicating authority confirmed the service tax demand along with interest and penalties under the Finance Act, 1994. The proposal regarding the appropriation of the amount was dropped. On appeal, the Commissioner (Appeals) upheld the interest and penalty under Section 78 of the Act and appropriated the service tax demand from the amount already deposited by the appellant.

2. The consultant for the appellant argued that since the disputed period's service tax was required to be deposited later than when the appellant had paid it, there was no delay in payment. Therefore, the consultant contended that interest should not be confirmed due to the absence of any payment delay. Additionally, it was argued that since there was no tax due for the period in question, the penalty under Section 78 should not apply to the appellant.

3. The Tribunal found that the appellant had indeed deposited the service tax in advance for the disputed period, indicating no delay in payment. As interest is compensatory and payable only in case of payment delay, the Tribunal ruled that no interest could be demanded from the appellant. Furthermore, the imposition of penalty under Section 78 requires specific conditions to be met, such as suppression, fraud, or collusion. Since the appellant had paid the service tax before the due date, the Tribunal concluded that no penalty could be imposed on the appellant. Consequently, the Tribunal set aside the order of the Commissioner (Appeals) and allowed the appeal in favor of the appellant.