2008 (9) TMI 293 - AT - Service Tax

Demand and Recovery of Service Tax Deposit before issuance of SCN Penalty - In the scheme of Customs, Central Excise and Service Tax, the officers perform various functions. One function is an executive function where they initiate search, seizure, etc., then issue of show-cause notice. In another capacity, they carry out adjudication. They have to do the quasi-judicial function also. In any case, the order of the Adjudicating Authority is not final. Further appellants had made a point that the extended period cannot be invoked in the absence of suppression facts. On 11-12-2003, an amount of Rs. 15,50,000 has been paid. On 17-12-2003, a sum of Rs. 80,000 has been paid. On 20-12-2003, a sum of Rs. 38,522 has been paid. On 7-1-2004, an amount of Rs. 30,000 was paid. Thus the show-cause notice according to the appellants was received on 18-12-2003 Since the major amount has been paid before issuance of SCN, penalty set aside.

Summary

Issues:
- Non-compliance with formalities in payment of service tax
- Short payment of service tax
- Imposition of penalty
- Allegation of bias due to investigating authority also being the adjudicating authority
- Invocation of extended period for recovery
- Payment of service tax before the issue of show-cause notice
- Challenge to valuation of service tax in the Kerala High Court

Analysis:
The appeal was filed against the Order-in-Appeal passed by the Commissioner of Central Excise (Appeals) regarding non-compliance with formalities in payment of service tax under the category of Security Agency's Services. The appellants were found to have short paid service tax amounting to Rs. 16,98,522, leading to the issuance of a show-cause notice for recovery and imposition of penalty. The Adjudicating Authority confirmed the demands, but no penalty was imposed under sections 76, 77, and 78. However, a penalty of Rs. 10,000 was levied on the Managing Partner under section 81 of the Finance Act, 1994. The appellants contended that they had paid the disputed amount before the show-cause notice was issued, but the Commissioner (Appeals) disagreed, upholding the Order-in-Original. The appellants also raised concerns about recovering service tax from clients and alleged a violation of 'Natural Justice' principles due to the investigating authority also adjudicating the matter.

Upon review, the Tribunal acknowledged the different functions performed by officers in Customs, Central Excise, and Service Tax, including executive, quasi-judicial, and investigative roles. Despite the investigating authority also being the Adjudicating Authority, the Tribunal noted that appellants could seek remedial action from the Appellate Authority, provided there was no allegation of bias. The appellants argued against invoking the extended period for recovery, highlighting payments made before the show-cause notice was received. The Tribunal found that a significant amount was paid before the notice, with the appellants also pursuing legal action against defaulting clients. Notably, no penalties were imposed under relevant sections, and the appellants had challenged the valuation of service tax in the Kerala High Court. Consequently, the Tribunal set aside the Rs. 10,000 penalty but upheld the payment of interest as per the law, considering previous decisions on interest liability. The appeal was allowed, with the penalty overturned, pending a decision on the valuation issue by the Kerala High Court.