2011 (10) TMI 163 - HC - Service Tax

Levy of penalty - where duty and interest paid prior to the issue of show cause notice under Sections 76 and 78 of the Finance Act, 1994.- Held that - Penalty cannot be imposed under both Section 76 and 78 - Once Section 78 is attracted, proviso to Section 78 makes it clear, a person who is liable to pay penalty in addition to payment of tax and interest,if he pays the said tax and interest within 30 days from the date of determination of the liability - penalty payable is only 25%. In the case payment is made even anterior to the date of the order. Therefore liability payable is restricted to 25% only.

Summary

Issues:
Assessee's liability to pay penalty under Sections 76 and 78 of the Finance Act, 1994 despite paying duty and interest before the show cause notice.

Analysis:
The appeal before the High Court challenged the Tribunal's order holding the assessee liable for penalty under Sections 76 and 78 of the Finance Act, 1994, even though the duty and interest were paid prior to the issuance of the show cause notice. The assessee, a cable operator, had registered as a service provider and was remitting service tax based on amounts received from customers. Following an inquiry, the department notified the assessee of the tax amount due, which was promptly paid. Subsequently, penalty proceedings were initiated for suppression of facts and willful misstatement. The Appellate Commissioner set aside the penalty, which was refunded, but the Tribunal overturned this decision, citing suppression of facts as grounds for penalty imposition.

The assessee contended that paying duty and interest before the show cause notice, as allowed under Section 73(3) of the Act, should exempt them from penalty. However, the revenue argued that this provision does not apply to cases of suppression of facts or willful misstatement, justifying the penalty imposition. The High Court noted that the assessee had registered as a service provider in 2002, regularly filed returns, and was aware of tax liabilities. Despite claiming non-receipt of payments from subscribers as the reason for non-payment, the assessee failed to provide evidence due to lack of maintained records. Not maintaining records did not constitute sufficient cause to avoid penalty under Section 18. The Court emphasized that the assessee's actions constituted willful misstatement, making them liable for penalty under Section 78.

The Court clarified that penalty could only be imposed under Section 78, as per the Act, and not under both Sections 76 and 78. The assessee's liability was restricted to Section 78, which also outlined penalty reduction provisions if tax and interest were paid within 30 days of liability determination. Since the duty and interest were paid before proceedings began, the penalty was limited to 25% of the original amount levied. Consequently, the High Court partially allowed the appeal, modifying the penalty to 25% of the initial assessment.