2013 (6) TMI 136 - AT - Service Tax

Penalty - Short payment of service tax - payment prior to issue of show cause notice (SCN) - section 73(3) - held that - in Adecco Flexione Workforce Solutions Ltd. (2011 (9) TMI 114 - KARNATAKA HIGH COURT) it was held that, Unfortunately the assessing authority as well as the appellate authority seem to think. If an assessee does not pay the tax within the stipulated time and regularly pays tax after the due date with interest. It is something which is not pardonable in law. Though the law does not say so, authorities working under the law seem to think otherwise and thus they are wasting that valuable time in proceeding against persons who are paying service tax with interest promptly. They are paid salary to act in accordance with law and to initiate proceedings against defaulters who have not paid service tax and interest in spite of service of notice calling upon them to make payment and certainly not to harass and initiate proceedings against persons who are paying tax with interest for delayed payment. The Parliament has expressly stated that against persons who have paid tax with interest, no notice shall be served. If notices are issued contrary to the said Section, the person to be punished is the person who has issued notice and not the person to whom it is issued. In ignorance of law, the authorities are indulging in the extravaganza and wasting their precious time and also the time of the Tribunal and this Court. It is high time that the authorities shall issue appropriate directions to see that such tax payers are not harassed. If such instances are noticed by this Court hereafter, certainly it will be a case for taking proper action against those law breakers. HC Penalty set aside. - decided in favor of assessee.

Summary

Issues:
1. Appellant's liability for service tax and interest payment.
2. Applicability of Section 73(3) of the Finance Act, 1994.
3. Interpretation of penalty under Section 76 of the Finance Act, 1994.

Analysis:
1. The appeal was filed against an order confirming a service tax demand of Rs.1,53,581 for the financial year 2007-08 due to a short payment observed during reconciliation. The appellant had paid the said amount along with interest before the show cause notice was issued. The adjudicating authority imposed penalties under various sections of the Finance Act, 1994.

2. The appellant contended that the penalty imposed under Section 76 was unwarranted as the entire service tax liability and interest were paid before the notice was served, citing the provisions of Section 73(3) of the Finance Act, 1994. This section allows the taxpayer to pay the service tax and inform the authorities before the issuance of a notice, thereby avoiding penalties.

3. The Assistant Commissioner argued that since interest was not paid by the appellant as per the adjudicating authority's record, Section 73(3) would not apply. However, the Tribunal found that the appellant had indeed paid both the service tax and interest upon being alerted by the audit party, meeting the conditions of Section 73(3) and thereby exempting them from penalty under Section 76.

4. The Tribunal referred to a similar case decided by the High Court of Karnataka, which emphasized that authorities should not initiate penalty proceedings against taxpayers who have paid service tax and interest promptly, as mandated by Section 73(3). The High Court stressed that such actions waste time and go against the express provisions of the law.

5. Ultimately, the Tribunal allowed the appeal, setting aside the penalty imposed under Section 76, as the appellant had complied with the requirements of Section 73(3) by paying the service tax and interest before the issuance of the show cause notice. The judgment highlighted the importance of adhering to statutory provisions and avoiding unnecessary harassment of compliant taxpayers.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision based on the interpretation of relevant legal provisions and precedents.