2017 (10) TMI 966 - AT - Service Tax

Penalty - Closure proceedings - Section 73 (4) of FA - Held that - It would appear that the closure under Section 73 (3) was not considered, only on the ground that the service tax liability paid by the appellant was for period spread over more than three years. I find that as long as full service tax liability with interest is discharged by the assessee and the ingredients of Section 73 (4) could not be brought out with supporting evidence, the case has to be closed under Section 73 (3). Such closure is not barred only by the reason that the demand pertains to longer period. When the assessee admits the liability, irrespective of the duration and pay the same with interest, the case has to be closed - In the present case, the bar under Section 73 (4) cannot operate. While upholding the tax liability of the appellant with interest, I find the penalty imposed based on the proceedings initiated is not justifiable - appeal allowed in part.

Summary

Issues:
1. Imposition of penalty under Section 78 of the Finance Act, 1994 by the Original Authority and confirmed by the Commissioner (Appeals).
2. Applicability of Section 66A for service tax liability.
3. Justifiability of penalty imposition in the case.
4. Interpretation of Sections 73 (3) and 73 (4) of the Act.

Analysis:
1. The appeal challenged the penalty imposed on the appellant under Section 78 of the Finance Act, 1994, related to availing services of a foreign agent and paying commission. The service tax liability of ?3,70,547/- for the period from November 2006 to September 2009 was discharged by the appellants with interest before a show cause notice was issued. The Original Authority confirmed the tax liability and imposed an equivalent penalty, which was reduced on appeal, citing Section 67 (2) for recalculation. The learned Counsel argued that the liability arose under Section 66A and should have been closed under Section 73 (3) without a show cause notice, especially considering the legal uncertainties around reverse charge mechanisms until a 2008 Bombay High Court decision. The penalty imposition was contested based on the timing of liability discharge and lack of grounds for demand proceedings.

2. The appellant's argument regarding the applicability of Section 66A for service tax liability was supported by the fact that the liability was discharged promptly upon intimation by the Department, well before the show cause notice. The legal position on reverse charge mechanisms was highlighted, emphasizing the settlement post the Bombay High Court decision in 2008. The appellant's compliance with the liability and interest payment was stressed to counter the justification for penalty imposition.

3. The lower Authorities justified the penalty by pointing out the appellant's failure to register, file returns, or timely discharge the service tax liability. However, the appellant's prompt payment post-clarification on reverse charge mechanisms and lack of disputed liability raised questions on the penalty imposition. The argument that penal proceedings were warranted due to non-compliance was countered by the appellant's adherence to the liability post-clarification.

4. The Tribunal's analysis focused on Sections 73 (3) and 73 (4) of the Act concerning closure of cases without a show cause notice. The Tribunal noted that the liability was discharged with interest well before the notice was issued, questioning the invocation of Section 73 (4) to prevent closure under Section 73 (3). The absence of justifiable reasons in the show cause notice for not closing the case under Section 73 (3) highlighted the lack of grounds for penalty imposition based on the initiated proceedings. The Tribunal upheld the tax liability but set aside the penalty, emphasizing the closure of the case when the liability is admitted and paid with interest, irrespective of the duration.

This detailed analysis of the judgment showcases the legal intricacies surrounding the imposition of penalties, service tax liabilities, and the interpretation of relevant sections of the Finance Act, 1994.