2018 (10) TMI 543 - AT - Service Tax

Penalty u/s 78 of FA - non discharge of service tax by the appellant for the period 2004- 05 to 2008-09 on the TDS value - Held that - In the case in hand the issue is regarding non payment of service tax on the TDS deducted as per agreement, which was contested before various forums and appellant could have had a bonafide belief that tax liability need not be discharged on such TDS amounts - since the entire tax liability in these proceedings stands paid before issuance of show cause notices and the interest thereof stands paid before adjudication. Penalty not called for - appeal allowed.

Summary

Issues: Contesting penalty imposed under Section 78 of Finance Act, 1994.

Analysis:
The appeal before the Appellate Tribunal CESTAT Hyderabad was focused on contesting the penalty imposed under Section 78 of the Finance Act, 1994. The appellant argued that the penalty was unjustified as they had paid the entire tax liability along with interest before the issuance of show cause notices. The appellant's representative highlighted that the issue pertained to the non-discharge of service tax on TDS value for the period 2004-05 to 2008-09. The appellant had paid the tax liability and interest as pointed out by the audit party, which was supported by various challans and statements showing the payments made. The appellant relied on legal precedents, including judgments from the Hon'ble High Courts of Karnataka and Bombay, to support their argument that penalty should not be imposed when tax liability and interest are paid before the issuance of show cause notices.

The Departmental Representative reiterated the findings of the lower authorities, upholding the penalty. However, upon careful consideration, the Tribunal noted that the appellant was specifically contesting the penalty under Section 78 of the Finance Act, 1994. The Tribunal observed that the first appellate authority had not accepted the appellant's pleadings regarding the payments made before the issuance of show cause notices and adjudication. The Tribunal found that the appellant's contestation of the penalty was valid, contrary to the first appellate authority's conclusion that the appellant had not contested the penalty.

In its analysis, the Tribunal highlighted that the first appellate authority's findings were incorrect, as the penalty under Section 78 of the Finance Act had crystallized during the remand proceedings. Citing legal provisions and precedents from various High Courts, including the Hon'ble High Courts of Bombay and Karnataka, the Tribunal concluded that since the tax liability and interest were paid before the issuance of show cause notices, the penalty under Section 78 was unwarranted. The Tribunal emphasized that the entire tax liability had been settled before the initiation of proceedings, leading to the decision to set aside the penalty under Section 78 of the Finance Act, 1994. The Tribunal invoked Section 80 of the Finance Act, 1994, to support its decision to allow the appeal and set aside the penalty.

In conclusion, the Appellate Tribunal CESTAT Hyderabad, through the judgment delivered by Mr. M.V. Ravindran, Member (Judicial), allowed the appeal, specifically setting aside the penalty imposed under Section 78 of the Finance Act, 1994. The Tribunal's decision was based on the appellant's timely payment of tax liability and interest before the issuance of show cause notices, in line with legal provisions and precedents supporting such actions.