2023 (8) TMI 49 - AT - Service Tax

Levy of penalty u/s 77 and 78 of the Finance Act, 1994 - appellant before issue of Show Cause Notice, had voluntarily paid the service tax - HELD THAT - Service tax on Support Services of Business or Commerce came into force from May 2006. In the initial period there was some confusion on the nature of services covered by the said declared service. Of the service tax amount paid, Rs 6,41,376/- was paid for the period 2006-07 and only Rs 35,300/- pertained to 2007-08. With the appellant accepting and paying tax with interest before issue of SCN, the matter should have been closed and allowed to rest in terms of section 73 (3) of the Finance Act, 1994. The action would have been seen in the spirit of the department being facilitators of trade. While there is no discretion in the imposition of mandatory penalties, the adjudicating authority has to examine whether the situation calls for such a penal provision to be invoked once duties along with interest were also seen to be safeguarded as per the voluntary action of the appellant. Penalties need not be imposed merely because a legal provision provides for it. It is the discretion of the authority to examine whether the law requires the provision to be enforced. The penalty imposed and upheld under sections 77 and 78 of the Finance Act 1994, by the impugned order, merits to be quashed and is so ordered. The impugned order is modified accordingly.

Summary

Issues:
The issues involved in the judgment are the imposition of penalty under sections 77 and 78 of the Finance Act, 1994 on the appellant for non-payment of service tax on services provided to sister concerns, despite voluntarily paying the tax amount before the issuance of Show Cause Notice.

Summary:
The appellant, engaged in providing 'Authorized Service Station' and 'Business Auxiliary Service', was found to be not discharging service tax on amounts collected as 'Administrative and Handling Charges' from sister concerns. The appellant voluntarily paid the service tax amount before the Show Cause Notice was issued, citing financial difficulties. The appellant contested the imposition of penalties under sections 77 and 78, arguing they were not aware of the tax liability and had not collected service tax from sister concerns. The department invoked the extended period for raising the demand, claiming suppression of facts by the appellant. The Tribunal noted the confusion regarding the nature of services covered by the declared service during the initial period of implementation. The appellant's voluntary payment of tax with interest before the Show Cause Notice was seen as a positive step, and the penalties were deemed unnecessary in this context. The Tribunal quashed the penalty imposed under sections 77 and 78, granting relief to the appellant based on the circumstances and the spirit of facilitating trade.

Separate Judgment:
No separate judgment was delivered by the judges in this case.