2011 (10) TMI 179 - HC - Service Tax

Penalty - payment of service before issuance of show cause notice - application of sub-section (3) of section 73 of the Finance Act - Held That - once he has registered himself, filed returns, aware of the liability under the Act, the returns which he filed did not truly represent the facts which constituted a wilful mistake. Sub-section (4) of section 73 expressly provide the benefit of sub-section (3) of section 73 is not attracted to a case falling under sub-section (4). Therefore, the contention of the assessee that he is not liable to pay penalty as he has paid the differential duty with interest before issue of show-cause notice is unsustainable. Quantum of penalty - assessee paid differential duty and the interest payable thereon even before the institution of the proceedings ie. before issue of show cause notice. - Penalty 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 judgment revolves around the appeal filed by the assessee challenging the Tribunal's order holding them liable to pay 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 registered under the Act, had been remitting service tax regularly based on amounts received from customers. Following an enquiry, the department communicated a tax liability of Rs. 91,751, which the assessee promptly paid. Subsequently, penalty proceedings were initiated for suppression of facts and wilful misstatement, despite the assessee's explanation and payment prior to the notice. The Appellate Commissioner set aside the penalty, but the Tribunal reversed this decision, citing suppression of facts as sufficient cause for penalty imposition.

The assessee contended that under section 73(3) of the Act, paying duty and interest before a show cause notice precludes penalty imposition. The revenue argued that this provision does not apply to cases of suppression of facts or wilful misstatement, justifying the penalty. The court noted the assessee's registration, regular filings, and prompt payment upon communication of tax liability, indicating awareness of tax obligations. However, the lack of evidence due to non-maintenance of records did not constitute sufficient cause to avoid penalty under section 18. Section 73(4) excludes the benefit of section 73(3) in such cases. The judgment clarified that penalty could only be imposed under section 78, not both sections 76 and 78. The court highlighted that section 78's proviso limits penalty to 25% if tax and interest are paid within 30 days of liability determination, a provision overlooked by the authorities.

Considering that the duty and interest were paid before the proceedings commenced, the court held the penalty liable to be restricted to 25% of the original amount levied by the Assessing Authority. As a result, the appeal was partly allowed, modifying the Tribunal and Assessing Authority's orders to reflect the reduced penalty of 25%.