2018 (4) TMI 604 - AT - Service Tax

Penalty - service tax collected but was not paid - demand with interest paid before issuance of SCN - Section 73 (3) of FA - Held that - once the service tax amount has been paid alongwith the interest, no penalty should have been imposed upon the Appellant in terms of Section 73 (3) of the Finance Act - penalties set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Liability for non-payment of service tax
- Applicability of penalties under Sections 76, 77, and 78 of the Finance Act
- Interpretation of Notification No. 8/2005
- Application of Section 73(3) of the Finance Act

Analysis:

1. Liability for non-payment of service tax:
The Appellant was engaged in jobwork activities and had collected service tax from customers for a specific period but failed to deposit it with the government. A show cause notice was issued to recover the unpaid amount under Section 73(1) of the Finance Act. The adjudicating authority confirmed the demand and imposed penalties under Sections 76, 77, and 78 of the Act. The Commissioner (Appeals) upheld this decision, leading to the Appellant's appeal.

2. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act:
The Appellant's advocate argued that the demand amount along with interest had been deposited before the issuance of the show cause notice, invoking Section 73(3) of the Finance Act. It was contended that no show cause notice should have been issued in such a scenario, especially considering the regular payment of service tax by the Appellant. The advocate emphasized that there was no intention to evade tax, suggesting that the penalties should be set aside.

3. Interpretation of Notification No. 8/2005:
The Tribunal analyzed the Appellant's compliance history and the impact of Notification No. 8/2005, which exempted certain jobwork activities from service tax. The Appellant had stopped paying service tax post-March 2005 based on their understanding of this notification. However, they later paid the outstanding tax amount along with interest, indicating a good faith effort to rectify the situation.

4. Application of Section 73(3) of the Finance Act:
In its ruling, the Tribunal considered the payment of service tax by the Appellant in November 2005, well before the show cause notice was issued in March 2009. The Tribunal referenced a prior judgment to support its decision that once the tax amount is paid along with interest, penalties should not be imposed under Section 73(3) of the Finance Act. The Tribunal found no grounds for penalty imposition due to the revenue's prior knowledge of the situation.

In conclusion, the Tribunal set aside the penalties imposed on the Appellant, modifying the impugned order accordingly and allowing the appeal. The decision was based on the Tribunal's interpretation of relevant legal provisions and precedents, emphasizing the importance of timely tax payment and the absence of fraudulent intent in the Appellant's actions.