2014 (11) TMI 625 - AT - Service Tax

Penalties under Sections, 76, 77 and 78 - Issue of SCN u/s 73 - service tax liability along with interest is charged before the issue of show cause notice - Held that - From a perusal of Section 73(3) it is abundantly clear that once the assessee discharges the service tax liability along with interest thereon, either on his own account or on pointing out by the department, the proceedings abate and there is no need for issue of show cause notice. The explanation makes it abundantly clear that once the payment are made, no penalty can be imposed under the provisions of Chapter V of the Finance Act, 1994. The Board s circular relied upon by the appellants clarifies this position. In spite of the clear provision in law and clarification given by the Board in this regard, the appellate authority has completely ignored these provisions and chosen to proceed with imposition of penalties which is clearly unsustainable in law. Therefore, I set aside the penalties imposed on the appellants under Sections 76, 77 and 78 of the Finance Act, 1994. adjudicating authority directed to refund, within a period of one month from the date of receipt of this order, the amount of penalty pre-deposited by the appellants subsequent to passing of the impugned order - Decided in favour of assessee.

Summary

Issues involved:
1. Appeal against Orders-in-Appeal confirming service tax demand, interest, and penalties.
2. Interpretation of Section 73(3) of the Finance Act, 1994 regarding abatement of proceedings upon payment of service tax liability and interest.
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

Issue 1: Appeal against Orders-in-Appeal
The appeals were filed against Orders-in-Appeal confirming a service tax demand, interest, and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellants, small-time job-workers, had paid the service tax liabilities along with interest before the issuance of show cause notices. The appeals were made on the grounds that penalties should not be imposed post-payment of service tax and interest.

Issue 2: Interpretation of Section 73(3) of the Finance Act, 1994
Section 73(3) of the Finance Act, 1994 states that once the service tax liability along with interest is discharged before the issuance of a show cause notice, the proceedings abate, and no penalties can be imposed under Chapter V of the Act. The explanation to the section clarifies that no penalties shall be imposed in such cases. The Circular by the Central Board of Excise and Customs (CBEC) further supports this interpretation, emphasizing the conclusion of all proceedings against the person upon payment of service tax and interest.

Issue 3: Imposition of Penalties
The appellate authority had imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994 despite the clear provisions of Section 73(3) and the CBEC Circular. The Judge set aside the penalties imposed on the appellants, emphasizing that once the service tax liability and interest were paid, no penalties could be sustained in law. The adjudicating authority was directed to refund the pre-deposited penalty amount to the appellants within one month.

In conclusion, the appeals were allowed by quashing the penalties imposed, and the cross-objections were disposed of accordingly. The judgment highlighted the importance of complying with the provisions of the Finance Act, 1994 and the implications of payment of service tax liabilities on subsequent penalty imposition.