2017 (2) TMI 676 - AT - Service Tax

Imposition of penalties u/s 77 and 78 - sponsorship services - there was delays in depositing the taxes which were subsequently deposited along with deposition of interest - Held that - as per sub section 73 of Section 3 the FA, 1994 in case of non-levy or short levy of service tax, if the same is paid either by the appellants themselves or as ascertained by the central excise officers before the service and notice to him, no notice is required to be served - CBEC vide its letter no. 137/167/2006-CX-4 dated 03.10.2007 has clarified that if tax and interest is paid before SCN, all proceedings (which includes proceedings under Section 78 & 77 of the Act) under the Act are concluded - penalties set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of penalties under section 77 & 78 of the Finance Act 1994 for delay in depositing service tax on sponsorship services.

Analysis:
The judgment in the present appeal focused on the imposition of penalties under section 77 & 78 of the Finance Act 1994. The appellant, engaged in providing taxable services, was registered with the service tax department and received sponsorship services from various vendors. The appellant was required to discharge tax liability on a reverse charge basis for these services. While the appellant did discharge its service tax liability, there were delays in depositing taxes in some cases, which were later paid along with interest.

During the proceedings, the appellant cited Section 73 of the Finance Act, emphasizing that they had deposited the entire service tax before the issuance of the show cause notice. The appellant argued that there was no suppression or misstatement on their part, as all relevant facts were disclosed to the Revenue. It was contended that no show cause notice was required as the tax had been paid before any notice was served.

The Tribunal noted that the entire consideration paid by the appellant to the service provider was reflected in their tax return, with delays in depositing service tax or inadvertent mistakes in some cases. The Tribunal highlighted that as per the law, if service tax is paid before the issuance of a notice, no further notice is required. Explanation 2 of the relevant section clarified that no penalty would be imposed in such cases.

Additionally, a clarification from the CBEC stated that if tax and interest are paid before a show cause notice, all proceedings under the Act, including penalties under Section 77 & 78, are concluded. The Tribunal found no suppression or malafide intention on the part of the appellant, as the sponsorship agreements were duly disclosed to the Revenue, and service tax liabilities were being discharged. Consequently, the penalties imposed on the appellant were set aside, and the appeal was allowed in this regard.