2016 (6) TMI 160 - AT - Service Tax

Waiver of penalty - Imposed under Section 78 of the Finance Act, 1994 - Services of Storage and Warehousing to various industries - non-payment of tax during the period Sept 2008 to Dec 2009 - entire demand along with interest paid before issuance of SCN - Held that - both the OIO and OIA have justified the imposition of penalty under Section 78 of the Act without appreciating the fact that the ingredients have not been incorporated in the show cause notice. The findings given by the first appellate authority in his order is to the effect that the payment of service tax, whether before or after the issue of show cause notice cannot alter the liability of penalty, as per Section 78 of the Finance Act and that the appellant has already been spared from non-imposition of penalty under section 78 of the Act. This is clearly an erroneous finding as the penalty under section 78 can be imposed only under the circumstances mentioned in the section. As per Judgment of Hon ble Supreme Court in the case of CCE, Nagpur Vs Ballarpur Industries Ltd. 2007 (8) TMI 10 - SUPREME COURT OF INDIA , the show cause notice is the very foundation in any proceedings. What is not alleged in the show cause notice, cannot be traversed at a later point of time in any proceedings. Therefore, by following the same the penalty under section 78 of the Finance Act is unsustainable which is proved by the judgment of the Tribunal in the case of CST, New Delhi Vs Independent News Services P.Ltd. 2011 (3) TMI 173 - CESTAT, NEW DELHI . Accordingly penalty is set aside. - Decided in favour of appellant

Summary

Issues:
Waiver of penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appeal was filed against the order passed by the Commissioner of Service Tax relating to the imposition of a penalty of ?25,51,403 under Section 78 of the Finance Act, 1994. The appellant, a service provider of Storage and Warehousing, had not paid service tax for the period from Sept'2008 to Dec'2009. The appellant contended that the non-payment was due to a calamity in their warehouse, and they paid the entire demand along with interest before the issuance of the show cause notice. The appellant argued that Section 73(3) of the Act should apply instead of Section 73(1) invoked by the Revenue. The appellant cited various case laws to support their plea for the waiver of penalty.

The main contention revolved around the interpretation of Sections 73(3) and 73(4) of the Finance Act, 1994. The appellant argued that since they paid the tax amount with interest before the show cause notice was issued, penalty under Section 78 should not be imposed, relying on Section 73(3). On the other hand, the Revenue relied on Section 73(4) which deals with cases involving fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade payment of service tax. The show cause notice did not specifically allege suppression of facts or any of the elements listed under Section 73(4).

The Tribunal held that the show cause notice forms the foundation of any proceedings, and what is not alleged in it cannot be raised later. Citing precedent judgments, the Tribunal concluded that the penalty under Section 78 of the Finance Act was unsustainable in this case. Therefore, the penalty imposed under Section 78 was set aside, and the appeal was allowed in this regard. The judgment emphasized the importance of the contents of the show cause notice in determining the validity of penalties under the Finance Act.

(Order pronounced in open court on 31.05.2016)