2023 (10) TMI 994 - AT - Service Tax

Denial of benefit of closure of proceedings u/s 73(3) of the Finance Act - levy of penalty u/s 77 78 of FA - HELD THAT - Admittedly, transaction has been duly recorded in books of accounts maintained in the normal course of business. Further, as the Cenvat credit of the tax paid under reverse charge mechanism is available to the Appellant, as they are manufacturing dutiable goods as well as rendering dutiable services, there is no incentive to evade. Further, admittedly, Appellant had paid the tax with interest as pointed out by the audit without disputing the same and have even paid the tax for the period even prior to 18.04.2006, which on the face of it is not payable. The Appellant was entitled for closure of dispute relating to the demand, under Sec 73(3) of the Act - penalties set aside - appeal allowed.

Summary

Issues involved:
The issues involved in this case are whether the Appellant has been rightly denied the benefit of closure under Sec 73(3) of the Finance Act and whether penalties under Sec 77 & 78 have been rightly imposed.

Issue 1 - Benefit of closure under Sec 73(3) of the Finance Act:
The Appellant, a manufacturer of drugs registered with the Service Tax department, was denied the benefit of closure under Sec 73(3) of the Finance Act. The Appellant had admitted the liability to payment of service tax under reverse charge basis and paid the same along with interest. A small balance remained, which they were ready to deposit. The Appellant requested closure of the matter under Sec 73(3) as they had paid the amount with interest. However, a Show Cause Notice (SCN) was issued proposing to appropriate almost the matching amount of tax already paid. The Appellant contested the SCN, and the matter was adjudicated. The Tribunal found that the transaction was duly recorded in the books of accounts, and the Appellant had paid the tax without disputing it. The Tribunal allowed the Appeal, holding that the Appellant was entitled to closure under Sec 73(3) of the Act, and set aside the penalties imposed.

Issue 2 - Penalties under Sec 77 & 78:
Penalties under Sec 77 & 78 were imposed on the Appellant. The Appellant argued that there was no case of suppression as the transaction was duly recorded in the books of accounts, and there was no incentive to evade tax under reverse charge basis. The Appellant had paid the tax with interest and even paid the tax for the period prior to 18.04.2006, which was not payable. The Revenue contended that the Appellant should have been vigilant in tax compliance and alleged wilful suppression. The Tribunal found that there was no incentive to evade tax as Cenvat credit was available to the Appellant for the tax paid under reverse charge. The Tribunal set aside the penalties imposed under Sec 77 & 78.

Conclusion:
The Appellant was granted the benefit of closure under Sec 73(3) of the Finance Act, and the penalties imposed under Sec 77 & 78 were set aside. The Tribunal found that the transaction was duly recorded, and there was no incentive to evade tax. The Appeal was allowed, and the Impugned Order was set aside.