2019 (3) TMI 420 - AT - Service Tax

Imposition of penalty u/s 78 of FA - service tax along with interest paid on being pointed out - suppression of facts or not - Held that - The Revenue has failed to bring any evidence to show that the appellant had in fact indulged into the activities of fraud, collusion, willful mis-statement, suppression etc. with intent to evade payment of service tax. On the contrary it is admitted fact that the service tax liability is not disputed by the Appellant and the same has been discharged with applicable interest, for delayed payment, much more before the initiation of proceedings. Mens rea has to be proved for invoking the extended period of limitation and also for imposing penalty under Section 78 of the Finance Act, 1994. Mere inaction to declare what was supposed to be declare d under the law does not lead to suppression of facts. Similarly, mere non-payment of short- payment of duties or taxes cannot be construed as with an intent to evade duties/taxes. There must be something more than mere failure to pay taxes for invoking the provisions of Section 78 ibid. The appellant has shown their bona fide by paying the service tax alongwith interest thereon immediately admitting their unintentional lapse - the authorities below have failed to brought on record any evidence to prove suppression or mala fide intention on the part of the appellant and, therefore, no case has been made out for invoking the provisions of Section 78 ibid - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appeal challenged an order regarding the imposition of a penalty under Section 78 of the Finance Act, 1994, related to the availment of ineligible Cenvat Credit by the appellant during a specific period. The appellant, engaged in consignment and trading business, admitted the discrepancy and paid the entire service tax amount with interest upon discovery by the department. However, a show cause notice was still issued, leading to the confirmation of the demand of service tax liability along with interest and penalty by the adjudicating authority.

The appellant argued for closure under Section 73(3) of the Finance Act, 1994, as they had paid the entire service tax liability with interest before the demand notice. They claimed the short payment was due to inadvertence and absence of the person handling service tax matters at the time. The revenue contended that the error was deliberate and intentional, praying for dismissal of the appeal.

The audit was conducted in September 2015, and the service tax with interest was promptly paid, but the show cause notice was issued later in May 2016. Section 73(3) states that if service tax is paid before notice issuance, no notice under Section 73(1) shall be served unless malafide intention or suppression is involved. The revenue invoked the extended period due to the audit revealing the evasion, claiming deliberate intent to evade tax. However, legal precedent supported that if service tax is paid before notice issuance, penalties may be set aside.

The tribunal found no evidence of fraud or intentional evasion by the appellant, who promptly paid the service tax upon discovery. The authorities failed to prove suppression or malafide intention, leading to the conclusion that no case existed for invoking Section 78 of the Finance Act, 1994. The tribunal upheld the tax liability with interest already paid by the appellant but waived the penalty, deeming the appeal allowed on those terms.