2022 (9) TMI 903 - HC - Service Tax

Levy of penalty - suppression of facts or not - Non/Delayed payment of service tax - Cenvat credit wrongly taken on account of clerical mistakes or not - suppression can be alleged merely on audit objections or not - Service Tax with interest paid before the issue of Show Cause Notice - applicability of benefit of Section 73(3) of the Finance Act, 1994 - whether payment of service tax, which was not made by the assessee falls within the conditions prescribed in the Act? - HELD THAT - The assessee has given two reasons for non-payment. Firstly, that it had occurred due to clerical mistake committed by the employee, who was handling the service tax and he had passed away. Secondly, that the Finance Manager had also resigned. These reasons have been accepted by the CESTAT. It is relevant to note that upon being pointed out during the audit, the assessee has promptly made the payment of tax with interest and requested not to issue any show-cause notice. In order to reverse the decision of the CESTAT, nothing is pointed out from the record to demonstrate that there was either fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of the Act and Rules. In the absence of the conditions contained in Section 78 of the Finance Act, the imposition of penalty is not sustainable. Hence, no interference is called for with the impugned decision of the CESTAT - appeal dismissed.

Summary

Issues:
1. Allegation of suppression based on audit objections
2. Eligibility for benefit under Section 73(3) of the Finance Act, 1994
3. Setting aside of Order-in-Original by CESTAT

Analysis:
1. The case involved a respondent-assessee registered under Service tax, availing benefits under Notification No.1/2006. The audit revealed discrepancies in availing CENVAT credit, resulting in short payment of service tax. The assessee voluntarily paid the short paid tax with interest upon detection by the Revenue.

2. The audit also uncovered non-payment of service tax on room services, leading to additional tax payments by the assessee. The CESTAT set aside the penalty imposed by the Revenue, emphasizing the prompt payment made by the assessee upon detection of errors, citing precedents where penalties were set aside due to lack of willful tax evasion.

3. The Revenue issued a show cause notice and imposed penalties equivalent to the unpaid service tax. The CESTAT, following judicial precedents, held that the prompt payment by the assessee upon detection of errors did not constitute fraud, collusion, willful misstatement, or suppression of facts, as required under Section 78 of the Finance Act, 1994, for penalty imposition.

4. The CESTAT's decision was supported by the Delhi High Court's ruling in a similar case, emphasizing the absence of intent to evade tax. The judgment highlighted that the conditions for penalty imposition under Section 78 were not met, as the errors were attributed to clerical mistakes and resignations within the assessee's organization, with no evidence of deliberate deception.

5. The judgment concluded that the imposition of penalty was not justified under the circumstances. The CESTAT's decision to set aside the penalty was upheld, dismissing the Revenue's appeal and ruling in favor of the assessee. The court found no grounds to interfere with the CESTAT's decision, emphasizing the absence of fraudulent intent or contravention of statutory provisions.