2018 (7) TMI 783 - AT - Service Tax

Penalty u/s 78 - service tax and interest was paid by the appellant even before issuance of show-cause notice on being pointed out by the audit party - invocation of Section 73(3) of FA - Held that - The entire proceedings were initiated after payment of entire sums due to the Government in form of service tax and interest, show-cause notice has been issued nine months after - In the present case when the appellant has paid the entire amount, issuance of show-cause notice for imposition of penalty would not have been called for. In this case when audit was conducted there was enough time for issue of demand notice without invocation of extended period. The charges of suppression etc cannot be invoked in this case - If all the documentary evidences were available and made available to the audit party at the relevant time there cannot be any justification for holding malafide and issuing notice under Section 73(4) of the Act. Penalty not imposable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against Order-in-Appeal upholding service tax demand, interest, and penalty under Section 78 of the Finance Act,1994.

Analysis:
The appellant did not dispute the service tax and interest payment but contested the penalty imposition under Section 78. The appellant argued that he paid the entire amount before the show-cause notice, citing Section 73(3) which states no penalty should be levied if the tax is paid before notice. The appellant claimed no malafide intention and immediate payment after audit, with no suppression of evidence. The Authorized Representative supported the Commissioner's order.

The Tribunal noted that the dispute was solely about the penalty. The appellant had paid the tax and interest before the show-cause notice, issued nine months later. Referring to Section 73(3) of the Finance Act, 1994, the Tribunal highlighted that no penalty should be imposed if the tax and interest are paid before the notice. Citing a High Court decision, the Tribunal emphasized that authorities should not harass taxpayers who pay tax promptly with interest. The Tribunal found no justification for penalty imposition when all documentary evidence was available to the audit party.

The Tribunal concluded that since the appellant paid the entire amount before the notice, no penalty should have been imposed. Quoting the explanation to Section 73(3), the Tribunal set aside the penalties imposed, allowing the appeal in favor of the appellant.

In summary, the Tribunal ruled in favor of the appellant, setting aside the penalties imposed under Section 78 of the Finance Act,1994, as the appellant had paid the tax and interest before the show-cause notice, in accordance with Section 73(3) provisions. The Tribunal emphasized that no penalty should be levied on taxpayers who promptly pay their taxes with interest, and authorities should not harass such compliant taxpayers.