2013 (11) TMI 643 - AT - Service Tax

Penalty for non remittance of service tax in time - Construction related services provided to M/s. Reliance Industries Limited - Failure pointed out in audit report - Held that - when service tax and interest is remitted even before issue of a show cause notice, provisions of Section 73 (3) disable initiation of proceedings for recovery of penalty; except where circumstances justify invocation of the provisions of Section 73(4) of the Act - Therefore, adjudication order as confirmed by the appellate order, insofar as imposition of penalty on the appellant for belated payment of service tax, which was remitted to the credit of Revenue along with corollary interest even prior to issuance of show cause notice, is unsustainable - Following decision of Commissioner of Service Tax Bangalore vs. Master Kleen 2011 (9) TMI 788 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalties for non-remittance of service tax.
2. Applicability of Section 73(3) of the Act regarding immunity from penalty.
3. Interpretation of relevant case laws and tribunal judgments.

Analysis:
1. The case involved the imposition of penalties on the appellant for non-remittance of service tax despite having remitted the entire amount, including interest, before the audit report was communicated or the show cause notice was issued. The adjudicating authority imposed penalties under Sections 76 and 78 of the Act, leading to the appellant's appeal against the decision.

2. The appellant contended that no penalty should have been imposed as the service tax and interest were remitted before the issuance of the show cause notice. The appellant claimed immunity from penalty under Section 73(3) of the Act, which prohibits the initiation of penalty proceedings if the tax and interest are paid before the notice is issued. The appellate authority, however, confirmed the penalties without considering the appellant's claim for immunity under Section 73(3).

3. The Tribunal analyzed various judgments, including those from the High Court of Karnataka, to interpret the provisions of Section 73(3) of the Act. These judgments established that if the service tax and interest are paid before the show cause notice is issued, penalties should not be imposed unless exceptional circumstances warrant invoking Section 73(4) of the Act. The Tribunal, referring to the Karnataka High Court judgment in Commissioner of Service Tax Bangalore vs. Master Kleen, concluded that the imposition of penalties on the appellant for belated payment of service tax, which was remitted before the show cause notice, was unsustainable.

4. Consequently, the Tribunal set aside the adjudication order confirming the penalties imposed on the appellant for the delayed payment of service tax. The appeal was allowed in favor of the appellant, with no costs incurred in the circumstances of the case. The judgment emphasized the importance of complying with tax obligations but also recognized the legal protection provided under Section 73(3) of the Act when taxes are paid before the initiation of penalty proceedings.