2018 (5) TMI 1466 - AT - Service Tax

Penalty u/s 78 - the appellant had delayed the payment of service tax under reverse charge mechanism but the interest amounting to ₹ 24,87,141/- due thereon had not been discharged by the assesse, at the behest of the department, the appellant later on paid full interest liability on 18.06.2016 - Held that - when the appellant was asked to pay the interest for delayed payment, the appellant paid interest on the delayed payment. Both the amount of service tax due and interest amount were admittedly made before issuance of show cause notice which was issued 7 months after all dues have been cleared. From the spirit of the Board Instructions dated 08.07.2016, the intention was to encourage voluntary compliance and introduce the consultation process for evading issuance of show cause notice. The situation in the present case is Revenue neutral as the duty was paid under reverse charge mechanism and the Cenvat credit would only be availed by the appellant himself - reliance placed in the case of Modern Woolens vs CCE, Jaipur-II 2016 (11) TMI 1353 - CESTAT NEW DELHI , where it was held that whatever Service tax was required to be paid by the appellant, was available to them as cenvat credit. As such, the entire situation is revenue neutral, in which case, no malafide can be attributable to the appellant. The imposition of penalty under Section 78 is not justified - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Delay in payment of service tax under reverse charge mechanism.
2. Imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:
1. The appellant had delayed the payment of service tax under the reverse charge mechanism, leading to a demand for service tax, interest, and penalty. The appellant paid the service tax and interest before the issuance of the show cause notice. The appellant contested the penalty imposed under Section 78, arguing that they had paid the service tax voluntarily and the situation was revenue-neutral due to availing CENVAT Credit. The appellant cited relevant case laws to support their argument.

2. The Revenue argued that there was a significant delay in payment of duty, and the delayed payments were made repeatedly. The Adjudicating authority provided relief in penalty as per the law under Section 78. The Revenue relied on a judgment of the Hon’ble Supreme Court to support their stance.

3. The Tribunal considered the facts and arguments presented by both sides. It noted that the appellant had paid the service tax and interest before the issuance of the show cause notice. The Tribunal found that the appellant's actions did not show any intention to evade duty, as they paid the dues voluntarily. The Tribunal referenced a Board's Instruction to encourage voluntary compliance and pre-show-cause consultation. It was observed that the appellant's case did not meet the criteria for penalty under Section 78.

4. Referring to previous Tribunal decisions, the Tribunal found that when service tax and interest were paid before the issuance of the show cause notice, the penalty was not justified. The Tribunal highlighted that in a revenue-neutral scenario, where duty was paid under the reverse charge mechanism, penalty imposition was not warranted. Therefore, the Tribunal set aside the penalty under Section 78 while upholding the service tax and interest payments made by the appellant.

5. The Tribunal concluded that based on the precedents and the specific circumstances of the case, the penalty under Section 78 was not justified. The appeal was disposed of accordingly, with the penalty being set aside while upholding the service tax and interest payments.

Judgment Summary:
The Appellate Tribunal CESTAT Ahmedabad addressed the issues of delay in service tax payment under the reverse charge mechanism and the imposition of penalty under Section 78 of the Finance Act, 1994. The appellant had paid the service tax and interest before the show cause notice was issued, leading the Tribunal to find that penalty imposition was not justified. Citing relevant case laws and precedents, the Tribunal set aside the penalty while upholding the service tax and interest payments made by the appellant.