2010 (5) TMI 90 - AT - Service Tax

Penalties delayed payment of service tax with interest assessee contended that delay in payment of service tax no show cause notice shall be issued and once the payment is made correctly the proceedings have to be treated as concluded. Learned DR submitted that in this case the delay occurred in every month over a period of two years and the appellants paid the differential interest only after it was pointed out by the department and therefore penalty has been rightly imposed. Held that - Section 73 of Finance Act 1994 provides that when an assessee pays service tax and interest due before issue of show cause notice show cause notice shall not be issued. Therefore in this case show cause notice itself should not have been issued in the first place

Summary

Issues:
Delay in payment of service tax and filing returns, Incorrect interest calculation, Imposition of penalty under Section 76 and 77 of Finance Act, 1994, Applicability of show cause notice for penalty, Interpretation of Section 73 of Finance Act, 1994.

Analysis:
The case involved the appellant who registered in September 2003 but faced delays in paying service tax and filing returns until October 2005. The appellant calculated interest on delayed payments themselves, but the department later found the calculation to be incorrect, leading to an additional payment of Rs.1,011. Despite promptly paying the additional amount, a show cause notice was issued, and penalties under Section 76 and 77 of the Finance Act, 1994 were imposed. The appellant's representative referred to a Board's circular and a Tribunal's decision to argue that when an assessee pays service tax and interest before a show cause notice, the notice for penalty should not be issued. The Departmental Representative contended that since the appellant paid the differential interest only after being pointed out by the department, the penalty was rightly imposed.

The Tribunal analyzed Section 73 of the Finance Act, 1994, which states that if an assessee pays service tax and interest before a show cause notice is issued, then such notice shall not be given. Considering the Board's circular and the Tribunal's precedent cited by the appellant's representative, the Tribunal concluded that the penalties imposed on the appellant were not sustainable. The Tribunal held that the show cause notice should not have been issued in the first place due to the timely payment by the appellant, as per the provisions of the Act and relevant circulars. Consequently, the appeal was allowed, overturning the penalties imposed on the appellant.

In the judgment delivered by Member (Technical) B.S.V. Murthy, it was emphasized that the provisions of the Finance Act, 1994, particularly Section 73, must be interpreted in a manner that aligns with the principles of timely payment by the assessee to avoid unnecessary show cause notices and penalties. The decision highlighted the significance of following statutory provisions and circulars to ensure fair treatment of taxpayers and prevent undue hardship due to procedural lapses. The case underscored the importance of adherence to legal requirements and established precedents in matters concerning taxation and penalties under the Finance Act, 1994.