2017 (5) TMI 339 - AT - Service Tax

Penalty u/s 78 - Insurance Auxiliary Service - commission paid to agents - It was noticed that this service tax @ 10.30% was applicable up to 24/02/2009 and subsequently the tax liability was 12.36%. CERA audit team pointed out the short levy of the service tax due to wrong application of the percentage by the appellant for the period 24/02/2009 onwards - assessee discharged duty with interest on being pointed out - Held that - the appellant had been filing service tax returns with the authorities and have also shown the amount of tax liability i.e. tax discharged by them. Wrong application of rate of service tax liability for the period 24/02/2009 cannot be held against them as an with intention to evade payment of tax as subsequently the appellant have discharged the service tax liability correctly at the application rate i.e. 12.26% - the lower authorities should not have issued any SCN to the appellant, who has discharged the service tax liability which was short-paid by them for the period 24/02/2009 to 28/02/2009 - penalty set aside - appeal allowed - decided in favor of assessee.

Summary

Issues involved:
Demand of service tax liability for February 2009, applicability of correct tax rate, imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appeal was against an Order-in-Original dated 14/06/2012 regarding the demand of service tax liability for February 2009. The appellant provided 'Insurance Auxiliary Service' and discharged the tax liability based on commission paid to agents. An error in applying the tax rate led to short levy of service tax, which was rectified upon audit team's observation. The Revenue authorities issued a show cause notice for penalty under Section 78 of the Finance Act, 1994. The appellant argued that as they had already paid the tax liability, Section 78 should not apply due to the extended limitation period. The Departmental Representative contended that the appellant's failure to rectify the short-levy amounted to suppression. The Tribunal found that the short-payment was due to applying the incorrect tax rate and upheld the tax liability and interest payment.

Regarding the penalties under Section 78, the adjudicating authority concluded that there was suppression with intent to evade tax. However, the Tribunal noted that the appellant had been filing returns and had rectified the tax liability error promptly. Section 73(3) of the Finance Act, 1994 mandates non-issuance of show cause notice if the assessee rectifies the short-levy on their own or upon officer's observation. Citing a judgment by the Hon'ble Karnataka High Court, the Tribunal held that the show cause notice should not have been issued as the appellant rectified the tax liability promptly. Consequently, the Tribunal set aside the penalty imposed under Section 78.

In conclusion, the Tribunal allowed the appeal on penalties, holding that the penalty imposed under Section 78 was unsustainable and set it aside based on the appellant's prompt rectification of the tax liability error.