2024 (6) TMI 1180 - AT - Service Tax

Entitlement to reduced penalty @ 25% under the second proviso to Section 78(1) of the Finance Act 1994 - appellant had not obtained service tax registration nor paid the applicable service tax - Alternative request for grant of benefit of the first proviso i.e. 50%. Whether the penalty of 25% can be extended in respect of total demand finally confirmed in terms of Commissioner (Appeals) or otherwise? - HELD THAT - The provisions are quite clear. As per the second proviso to Section 78(1) there is a provision that where the service tax and interest is paid within a period of 30 days of the date of receipt of the Order of the Central Excise Officer determining the amount of service tax under sub-section (2) of Section 73, the penalty would be @ 25%. In this case, obviously, the appellants have not paid the determined amount and the interest thereon within the 30 days of the receipt of the Order-in-Original dated 31.05.2022 - there are no infirmity in the Order of the Commissioner (Appeals) in holding that 25% penalty is not applicable in the facts of the case. Alternative request for grant of benefit of the first proviso i.e. 50% - HELD THAT - The first proviso is an exception to Section 78(1) where there is provision for imposing mandatory penalty of 100%. Therefore, if the appellants are fulfilling the conditions indicated in the said proviso then instead of 100% they will be liable to pay penalty equal to 50% of the determined service tax - para 9 of impugned order, the Commissioner (Appeals) has made a detailed observation of various records, which were maintained by the appellant during the material time and the veracity of the documents has not been doubted by the Commissioner (Appeals) nor the Revenue has come in appeal against the observations of the Commissioner (Appeals). Therefore, it is but obvious that they were maintaining certain records and details of such transactions in respect of which the demand has been made in the show cause notice. Therefore, to that extent they are eligible for the benefit of first proviso for the period starting from 08.04.2011 upto 14.05.2015 and therefore the amount of service tax finally determined/confirmed in terms of Commissioner (Appeals) order will be liable to penalty @ 50% during this period and for the period beyond that they will be liable to penalty at the rate of 100%. The appellants can work out the total liability of penalty as observed above and submit the same to the jurisdictional authority along with the proof that they have discharged the determined service tax along with the penalty applicable thereon - appeal disposed off.

Issues:
1. Entitlement to pay reduced penalty under Section 78(1) of the Finance Act 1994.
2. Applicability of the first proviso to Section 78(1) inserted vide Finance Act 2015.

Issue 1: Entitlement to pay reduced penalty under Section 78(1) of the Finance Act 1994:

The case involved the question of whether the appellant was entitled to pay the reduced penalty at 25% under the second proviso to Section 78(1) of the Finance Act 1994. The appellant had provided services, including renting of immovable property services, to M/s Narayana Educational Society without obtaining service tax registration or paying the applicable service tax. A show cause notice was issued based on information from M/s Narayana Educational Society, proposing a demand of Rs. 5,87,909/-, which was confirmed along with an equal penalty. The Commissioner (Appeals) recalculated the total service tax liability for the period from October 2014 to April 2016 as Rs. 2,38,972/- and the appellant admitted and paid this re-determined service tax along with interest. However, the appellant disputed the denial of penalty at 25% and argued for its application.

The Tribunal analyzed the provisions of the second proviso to Section 78(1) which stipulates that the penalty at 25% is applicable only if the service tax and interest are paid within 30 days of the date of receipt of the order determining the service tax. Since the appellant did not pay the determined amount and interest within the specified period, the Tribunal found no grounds to extend the 25% penalty. Citing relevant case laws, the Tribunal emphasized that the option for reduced penalty ends after 30 days from the communication of the order, and the appellate authority cannot permit payment beyond this period. Consequently, the Tribunal upheld the Commissioner (Appeals) decision that the 25% penalty was not applicable in this case.

Issue 2: Applicability of the first proviso to Section 78(1) inserted vide Finance Act 2015:

The appellant also requested consideration for the applicability of the first proviso to Section 78(1) inserted by the Finance Act 2015, which allows for a penalty of 50% of the service tax under certain circumstances. The Tribunal noted that the first proviso is an exception to the mandatory 100% penalty under Section 78(1). Observing that the appellant had maintained detailed records during the material time, as acknowledged by the Commissioner (Appeals), the Tribunal found that the appellant fulfilled the conditions for the first proviso for the period from 08.04.2011 to 14.05.2015. Therefore, the appellant was liable to pay a penalty of 50% of the determined service tax for this period, while for the period beyond that, the penalty rate would be 100%. The Tribunal directed the appellant to calculate the total penalty liability accordingly and submit the same to the jurisdictional authority along with proof of payment.

In conclusion, the Tribunal disposed of the appeal, affirming the decision on the reduced penalty and granting the benefit of the first proviso for the specified period.

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