2014 (2) TMI 713 - AT - Service Tax

Levy of penalty where the appellant paid entire tax liability and interest. - relief u/s 73(3) - Held that - When provisions similar to section 73 (3) was introduced in Central Excise Act, 1944 as section 11A (2B) in the year 2001, it was clarified that these provisions are meant for encouraging immediate realization of short payments detected by audit teams so that whoever discharges the short paid tax immediately need not get entangled in protracted litigations. Therefore, unless there is a case of active suppression, provisions of Section 73 (3) should be extended. - This is view of the Karnataka High Court also in the case of CCE & ST, LTU, Bangalore Vs ADECCO Flexione Work Force Solutions Ltd. - 2011 (9) TMI 114 - KARNATAKA HIGH COURT . - Levy of penalty set aside.

Summary

Issues:
1. Short payment of service tax on billed amounts and payments received.
2. Non-payment of tax on advance receipts for rendering services.
3. Non-payment of tax on import of technical know-how.

Analysis:

1. The appellant was providing taxable services and registered under service tax laws. Short payment of service tax was pointed out during an audit, leading to a show cause notice for imposing a penalty under section 76 for contravention of provisions of section 68 of the Act. The appellant paid the entire tax liability along with interest and challenged the penalty imposition.

2. The appellant argued that they paid tax based on billings for convenience, mostly ahead of the accrual of actual liability. They explained an error in one case where tax was not paid despite billing and payment receipt, which was rectified promptly upon identification. Regarding advance receipts, the appellant believed that since advances were for material supply in works contracts, service tax was not applicable. Legal conflicts between different sections were cited, but the appellant paid the tax upon identification of the issue.

3. The appellant contended that they considered technical drawings as goods, hence not subject to service tax. However, upon audit revelation, they promptly paid the service tax along with interest. Reference was made to section 73(3) of the Finance Act, 1994, arguing that since tax with interest was paid before a show cause notice, no notice should have been issued. The appellant sought the waiver of penalty citing lack of suppression and compliance with tax payment upon identification of errors.

4. The Revenue argued that the appellant attempted to evade service tax, emphasizing the audit's role in identifying irregularities. They contended that the provisions of section 73(3) did not apply due to suppression of information. The Revenue relied on the adjudication order to highlight delays in tax payments, supporting the imposition of penalties under section 76. Legal precedents were cited to strengthen the argument against waiving penalties.

5. The Tribunal considered both arguments and noted that the appellant had paid the entire tax liability and interest promptly upon identification of issues. Drawing from legal interpretations and precedents, the Tribunal highlighted the purpose of provisions like section 73(3) to encourage immediate tax realization without prolonged litigations. Citing a similar case precedent, the Tribunal set aside the penalty imposed on the appellant, aligning with the decision of the Karnataka High Court. The appeal was allowed, emphasizing the appellant's prompt rectification of errors upon audit findings.