2018 (6) TMI 1084 - AT - Service Tax

Penalty u/s 77(2) and 78 of FA - service tax collected but not paid to Government - also service tax registration not obtained - Held that - In the case of Sri Velmurugan Sago Factory Vs. Commissioner of C. Ex., Salem 2016 (12) TMI 646 - CESTAT CHENNAI , this very Bench of the Tribunal was considering an identical issue and held that When in the first place there was no requirement of issue of SCN itself, penalties will not survive particularly as there was some confusion on the duty rates and the continued eligibility of SSI concessions for these appellants. There is no dispute with regard to the fact that the appellant has paid the duty along with interest at least three years before the issuance of Show Cause Notice, the demand of penalty equal to 15% imposed under 2nd proviso to Section 78 of the Act is bad and unsustainable. So also the fact that the appellant had obtained registration prior to the Show Cause Notice, the same is sufficient reason to hold there was no violation or contravention of Section 77(2). Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against order of Commissioner of Central Excise (Appeals), Coimbatore seeking deletion of penalties under Section 78 and Section 77(2) of the Act.

Analysis:
1. Facts and Background:
- The appellant, a service tax registrant for short term accommodation service, received a Show Cause Notice (SCN) for failure to obtain service tax registration and deposit collected service tax. Various propositions were made in the SCN regarding demand of service tax, interest, and penalties.

2. Initial Orders:
- The adjudicating authority confirmed the demand of service tax, imposed penalties under Section 77(2) and Section 78 proviso (i). The appellant appealed against the penalties, arguing that they had paid tax and interest before the SCN was issued, and there was no suppression.

3. Appellate Tribunal's Consideration:
- The main issue was the applicability of the 2nd proviso to Section 78, which requires payment within 30 days of the notice under Section 73(1). The appellant contended that this provision was not satisfied in their case.
- The appellant cited relevant case laws to support their argument, emphasizing that penalties should not be imposed when the duty and interest were paid before the SCN.
- The Department Representative supported the lower authorities' findings.

4. Tribunal's Decision:
- The Tribunal referred to previous judgments where penalties were set aside when the duty and interest were paid promptly after detection of short payments.
- Relying on these precedents, the Tribunal concluded that the penalty of 15% under the 2nd proviso to Section 78 was unjustified as the duty and interest were paid well before the SCN.
- Additionally, since the appellant had obtained registration before the SCN, there was no violation of Section 77(2). Hence, the appeal was allowed, and penalties were deleted.

5. Final Verdict:
- The Tribunal's decision, pronounced on 20.06.2018, favored the appellant by allowing the appeal and setting aside the penalties imposed under Section 78 and Section 77(2) of the Act.