2016 (11) TMI 141 - AT - Service Tax

Imposition of penalty u/s 78 of Finance Act, 1994 - Manpower Recruitment and Supply Agency Service - import of services from the foreign companies - levy of tax on import of service u/r 2(1)(d)(iv) of the Service Tax Rules, 1994 - Sections 73, 76 & 78 of the Finance Act, 1994 - suppression of facts - Held that - Section 73(3) is very clear as it says that if tax is paid along with interest before issuance of the show-cause notice, then in that case, show-cause notice shall not be issued. In this case, I find that the contention of the appellant that he bonafide believed that he is not liable to pay service tax but during the audit, the audit party informed him that he is liable to pay service tax, then he immediately paid the entire service tax along with interest. Except mere allegation of suppression, the Department did not bring any material on record to prove that there was suppression and concealment of facts to evade payment of tax. Consequently, in my opinion, the imposition of penalty under Section 78 of the Act is not justified and bad in law. Moreover, in the impugned order, the learned Commissioner (Appeals) has not recorded any finding on suppression of facts by the appellant with an intention to evade tax - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against penalty under Section 78 of Finance Act, 1994 upheld by Commissioner (Appeals).

Analysis:
The appellant, registered under 'Manpower Recruitment and Supply Agency Service,' imported services from foreign companies, leading to a service tax liability under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. Following a show-cause notice in 2010, alleging non-payment of service tax and wrong availment of Cenvat credit, penalties under Sections 76 & 78 of the Finance Act, 1994 were proposed. The Additional Commissioner confirmed the proposal, leading to an appeal by the appellant. The Commissioner (Appeals) dropped the penalty under Section 76 but upheld the penalty under Section 78, prompting the present appeal.

During the hearing, the appellant argued that the penalty under Section 78 was unjustified as they had paid the service tax and interest before the show-cause notice was issued, citing Section 73(3) of the Finance Act, 1994. The appellant contended that once the tax is paid and informed to the officer, no show-cause notice should be issued. The appellant supported their argument with relevant case laws. On the other hand, the Department claimed suppression of facts regarding irregular Cenvat credit, justifying the penalty under Section 78.

The Tribunal analyzed the provisions of Sections 73, 76, and 78 of the Finance Act, 1994, along with the case laws presented. It noted that Section 73(3) clearly states that if tax is paid with interest before a show-cause notice, the notice should not be issued. The Tribunal found that the appellant paid the tax promptly upon being informed by the audit party, without evidence of suppression to evade tax. The Department failed to demonstrate any concealment of facts. As the Commissioner (Appeals) did not address the suppression of facts in the order, the Tribunal concluded that the penalty under Section 78 was unwarranted and set aside the impugned order, allowing the appeal of the appellant.