2014 (12) TMI 545 - AT - Service Tax

Imposition of penalty u/s 76, 77 & 78 - Simultaneous penalty u/s 76 & 78 - Held that - As regards the imposition of penalty under Section 76 of the Finance Act, 1994, it is evident from the records that the liability to pay service tax arose in January, 2009 when the bills for the services rendered by the group companies were received by the appellant in December, 2008. Section 78 of the Finance Act, 1944 was amended on 11-5-2008 so as to provide that if penalty is payable under this section, provisions of Section 76 shall not apply. Since in the present case, the liability to pay service tax arose in January, 2009, the question of invoking provisions of Section 76, especially when penalty was considered under Section 78 would not arise at all. Accordingly, the penalty imposed on the appellant under Section 76 is not sustainable in law. Appellant discharged the service tax liability along with interest thereon as soon as the short payment was pointed out to them and they also intimated to the same to the department vide letter dated 22-6-2011 under the provisions of Section 73(3) of the Finance Act, 1994, much before the show cause notice. It is also a fact that these transactions were reflected in the balance sheets of the appellant for the relevant years. These evidences available on records indicate that the appellant had no intention to suppress any information or withhold any information from the department with an intention to evade payment of service tax. In any case the appellant was eligible for Cenvat credit of service tax paid and there was no need for him to evade any payment of tax. In these facts and circumstances, the decision of the Tribunal in the case of Essar Ltd., cited 2008 (11) TMI 105 - CESTAT, AHMEDABAD squarely applies. Accordingly, we are of the view that the penalty is not imposable on the appellant under the provisions of Sections 77 & 78 of the Finance Act, 1994, in view of Section 73(3) of the Finance Act, 1994 read with Section 80. - Appellant has not disputed service tax and interest liability and therefore, the appropriation of the same by the adjudicating authority is upheld. - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty under Section 76 of the Finance Act, 1994.
2. Imposition of penalty under Sections 77 & 78 of the Finance Act, 1994.

Analysis:

Issue 1: Imposition of penalty under Section 76 of the Finance Act, 1994:
The appellant, M/s. Calderys India Refractories Ltd., Nagpur, received services from their group companies abroad during 2008-2009 and 2010-2011 but did not pay service tax on a reverse charge basis. The AG's audit revealed the non-payment, prompting the appellant to discharge the service tax liability along with interest. The appellant argued that the liability to pay service tax arose in January 2009 when bills were received in December 2008, and Section 78 of the Finance Act excludes penalty under Section 76 if imposed under Section 78. The Tribunal agreed, stating that as the liability arose in January 2009, penalty under Section 76 was not applicable.

Issue 2: Imposition of penalty under Sections 77 & 78 of the Finance Act, 1994:
The appellant contended that they promptly discharged the service tax liability with interest upon being informed of the shortfall, indicating good faith. The appellant had also intimated the department about the payment before any show cause notice was issued. The Tribunal noted that the transactions were reflected in the balance sheets, showing no intention to evade payment. Citing the decision in the case of Essar Steel Ltd., the Tribunal ruled that penalty under Sections 77 & 78 was not applicable, as the appellant had no intent to suppress information and was eligible for Cenvat credit. Therefore, the penalty was set aside, and the appeal was allowed, with the appellant not disputing the service tax and interest liability.

This judgment highlights the importance of timely payment of service tax liabilities, the impact of amendments in the Finance Act on penalty provisions, and the significance of good faith compliance in tax matters to avoid penalties under the relevant sections of the Act.