2024 (7) TMI 313 - AT - Service Tax

Issuance of SCN u/s 73 of the Finance Act 1994 - reverse charge on commission paid to foreign agents - service tax was paid with interest prior to issuance of SCN and for 2011-12 to 2014-15 - service was duly disclosed in the ST-3 returns and pursuant thereto service tax was paid with interest prior to SCN - intent to evade service tax on reverse charge since the same is available to the Appellant as Cenvat Credit - HELD THAT - The issue is no more res-Integra and once the duty and interest is paid by the party during the course of audit, it cannot be further faulted with for its conduct to penalise them. Payments of duty with interest remove the stains of delay from the conduct of the party and bring back sparkles of bonafide conduct. This Court taking note of the same having been done before issuance of show cause notice and as part of audit and before any enforcement/penal action, allows the appeal of the party. Appeal is allowed.

Summary

Issues Involved:
1. Issuance of Show Cause Notice for the year 2010-11 under Section 73 of the Finance Act 1994.
2. Issuance of Show Cause Notice for the years 2011-12 to 2014-15 under Section 73 of the Finance Act 1994.
3. Imposition of penalty under Section 78 of the Finance Act 1994.

Detailed Analysis:

1. Issuance of Show Cause Notice for the year 2010-11:
The Appellant did not pay service tax on Business Auxiliary Service received from foreign commission agents for the year 2010-11, under the belief that it was exempted under Notification 18/2009-ST dated 7-7-2009. However, upon being pointed out by Audit, the Appellant paid the service tax amounting to Rs. 7,81,872/- along with interest of Rs. 6,51,275/- on 8-4-2015, prior to the issuance of the Show Cause Notice dated 30-12-2015. According to Section 73 (3) of the Finance Act 1994, if the service tax along with interest is paid before the issuance of the Show Cause Notice, no such notice should be issued. Therefore, the issuance of the Show Cause Notice was deemed bad in law, and the imposition of penalty under Section 78 was liable to be set aside.

2. Issuance of Show Cause Notice for the years 2011-12 to 2014-15:
For the years 2011-12 to 2014-15, the Appellant had duly declared the value of the Business Auxiliary Service received in the ST-3 Returns and paid the service tax along with interest before the issuance of the Show Cause Notice dated 30-12-2015. The details of these payments were summarized in the Appeal. Since the value of the taxable service was duly reflected in the ST-3 Returns and the service tax was paid in the regular course, the issuance of the Show Cause Notice under Section 73 for this period and the imposition of penalty under Section 78 was unjustified.

3. Imposition of penalty under Section 78 of the Finance Act 1994:
The Appellant argued that since the service tax with interest was paid before the issuance of the Show Cause Notice, no penalty should be imposed under Section 78. The lower authorities, however, relied on Section 73 (4) of the Finance Act 1994, which states that if there is suppression of facts or intent to evade tax, Section 73 (3) does not apply. The authorities held that there was suppression of facts as the Appellant did not declare the expenditure on commission paid to foreign agents in the ST-3 Returns. However, the Appellant maintained that there was no concealment of facts or intention to evade tax, as the records were complete and the tax paid on reverse charge was available as Cenvat Credit. The Appellant cited several decisions where it was held that if tax is paid before the issuance of the Show Cause Notice on audit objection, the notice is not maintainable under Section 73 (3).

Conclusion:
The Tribunal found that the issue was no longer res-integra and that payment of duty with interest during the course of the audit should not be penalized. The decisions cited by the Appellant were applicable as legal precedents. The payment of duty with interest was seen as removing any delay and demonstrating bona fide conduct. Consequently, the Tribunal allowed the appeal, setting aside the penalty imposed under Section 78 and ruling that the issuance of the Show Cause Notice was not justified. The appeal was pronounced in the open court on 04.07.2024.