2009 (10) TMI 237 - AT - Service Tax

Telephone services- The assessee was engaged in providing telephone services. The Commissioner having noticed that the assessee had paid service tax on lower amount than the income shown in the P&L A/c, issue a show cause notice for the demand of service tax of Rs. 7,92,29,929/-. Commissioner dropped the substantial amount of demand and confirmed a demand of Rs. 97,387 along with interest and also imposed penalty u/s 76 and 78. Held that- there was no provisions in law for adjustment of excess payment against the short payment. The fact that assessee paid excess tax in one year was of no help to it. Therefore, tax demand with interest was to be confirmed. But in the light of the section 80 penalties imposed u/s 76 and 78 liable to be set aside.

Summary

Issues:
1. Calculation of service tax based on profit & loss account.
2. Validity of show-cause notice issued after several years.
3. Argument of no intention to evade tax due to accounting errors.
4. Discrepancy between ST-3 return and actual payments.
5. Imposition of penalties under sections 76 and 78 of the Finance Act, 1994.

Analysis:
1. The appellants, engaged in telephone services, faced a show-cause notice for paying lower service tax than the income shown in their profit & loss account for 2002-2003 and 2003-2004. The Commissioner acknowledged that not all income sources were taxable, leading to a reduced demand. Ultimately, a liability of Rs. 97,387 was confirmed, along with penalties under sections 76 and 78 of the Finance Act, 1994.

2. The appellant argued against the notice's validity, citing lack of investigation and the delay in issuance. They contended that the demand should be set aside due to the limitation period. However, the Tribunal upheld the demand, considering the discrepancy between income and service tax payments.

3. The appellant claimed that accounting errors led to excess payments in one year and short payments in another, indicating no fraudulent intent. The Tribunal agreed, noting the substantial turnover and the small amount of underpayment compared to total taxes paid, concluding that there was no deliberate evasion.

4. The Revenue argued that discrepancies in the ST-3 return justified invoking suppression/misdeclaration. However, the Tribunal found the discrepancies to be inadvertent mistakes rather than intentional evasion, as the appellant had paid substantial service tax amounts.

5. Despite confirming the tax liability, the Tribunal set aside the penalties under section 80 of the Finance Act, 1994, considering factors such as the company's size, lack of investigation by Revenue, and the minimal impact of the underpayment in the context of total tax payments. Therefore, the appeal was allowed regarding penalties but rejected concerning service tax and interest.