2010 (2) TMI 380 - AT - Service Tax

Penalty- Authorized Service Station service rendered and service tax not paid. Service tax with interest paid when failure detected but before issue of show Cause Notice. Held that- findings in the adjudicating order that failure to pay tax due to ignorance of law on liability and not due to intention to evade. Thus penalty not imposable once service tax paid with interest.

Summary

Issues: Appeal against vacating penalty under Section 76 of the Finance Act, 1994.

Analysis:
1. The appeal was filed by the Revenue against the impugned order that vacated the penalty imposed on the respondents under Section 76 of the Finance Act, 1994. The respondents were providing services as an 'authorized service station' without complying with statutory formalities, including payment of service tax, from September 2005 to June 2006. However, they rectified the non-payment of service tax along with interest before the issuance of a show cause notice. The Commissioner(Appeals) vacated the penalty but allowed the Department to re-open the matter for penalty imposition based on the outcome of a related case.

2. The Member (T) considered the arguments presented by the ld. SDR for the Revenue as the respondents were not represented. The original authority had found that the failure to pay service tax was due to the respondents' ignorance of the law regarding their liability, not an intention to evade payment. This finding was not challenged successfully. Given that the respondents had paid the service tax and interest before the show cause notice, the Member (T) concluded that there was no basis for imposing a penalty under Section 76 of the Act on the respondents. Consequently, the appeal by the Revenue was dismissed for lacking merit.

This judgment highlights the importance of intent in tax-related matters and the significance of rectifying non-compliance promptly. The decision emphasizes that ignorance of the law may be a valid defense against penalties if the taxpayer takes corrective action promptly. It also underscores the authority's discretion in penalty imposition based on the specific circumstances of each case, as demonstrated by the Commissioner(Appeals) vacating the penalty in this instance.