2015 (5) TMI 255 - AT - Service Tax

Penalty u/s 78 - Whether penalty under Section 78 of the Finance Act, 1994 is imposable upon the appellant when the entire amount of service tax along with interest was paid before the issue of show cause notice - Held that - Once it is categorically held by Commissioner (Appeals) that appellant was under a bonafide belief that service tax as demanded was not payable, then a view can not be entertained that the facts will justify imposition of penalty under Section 78 of the Finance Act, 1994. Duty demanded in the show cause notice was ₹ 11,10,965/- but was confirmed only to the extent of ₹ 7,14,996/- in the Adjudication proceedings. The differential tax was only a reconciliation of accounts maintained by the appellant. Appellant is a co-operative bank. In view of the above facts this case is not fit for imposition of penalty under Section 78 of the Finance Act, 1994 - Decided in faovur of assessee.

Summary

Issues involved:
1. Imposition of penalty under Section 78 of the Finance Act, 1994 when the entire service tax amount along with interest was paid before the issue of show cause notice.

Analysis:
The appellant filed an appeal challenging OIA No. AHM-SVTAX-000-APP-263-13-14 dated 12.12.2013. The appellant's representative argued that the books of accounts were audited, revealing a short payment of Service Tax amounting to Rs. 11,10,965. The appellant contested the calculations, ultimately agreeing to pay Rs. 7,14,996 along with interest before the show cause notice was issued. The appellant argued that since the entire tax along with interest was paid before the notice, no penalty should be imposed under Section 73(3) of the Finance Act, 1994. The appellant cited various case laws to support their case and invoked Section 80 of the Finance Act, 1994.

The Revenue, represented by Shri Gobind Jha, defended the penalties imposed under Section 78 of the Finance Act, 1994. After hearing both sides and examining the case records, the issue before the Tribunal was whether penalty under Section 78 was applicable when the entire service tax amount along with interest was paid before the show cause notice. The first appellate authority set aside penalties under Sections 76, 77, and 78 of the Finance Act, 1994, stating that the appellant had a bonafide belief that the service tax was not payable, and the payment was made within a reasonable period after detection of the lapse. The Commissioner held that since the appellant acted in good faith and the tax was reconciled, there was no justification for imposing a penalty under Section 78.

The Tribunal concurred with the Commissioner's findings, emphasizing that the appellant's belief that the service tax was not payable was genuine, and the differential tax amount was a result of reconciliation. Given the circumstances and case laws cited, the Tribunal ruled in favor of the appellant, stating that the case did not warrant a penalty under Section 78 of the Finance Act, 1994. Consequently, the appeal filed by the appellant was allowed, and the penalty was not imposed.

This judgment underscores the importance of bonafide belief, timely payment, and reconciliation in determining the imposition of penalties under the Finance Act, 1994. The case serves as a precedent for situations where taxpayers rectify discrepancies in good faith before the issuance of show cause notices, leading to a favorable outcome in penalty proceedings.