2017 (11) TMI 94 - AT - Service Tax

Penalty u/s 76 and 77 - delayed payment of service tax - Held that - There is no dispute as to the fact that appellant had received the consideration and despite that they have not discharged the service tax liability. This reasonable/justifiable cause which has been accepted by the first appellate authority i.e., non-receipt of payment and written off bad debts, in my view cannot be a reasonable cause for setting aside the penalties imposed under Section 76 of the Finance Act, 1994 and to that extent, the impugned order needs to be set aside and the appeal of the Revenue needs to be allowed Since the penalty imposed under Section 76 is upheld the penalty imposed under Section 77 also needs to be upheld. CENVAT credit - duty paying documents - credit availed without producing any documents - Held that - the CENVAT credit was availed of the service tax paid by the Telephone Service providers and the courier services and the address is of the respondent at Belgaum - the finding of the first appellate authority that the respondent is eligible to avail CENVAT credit needs to be accepted and to that extent, the appeal of the Revenue on this point is rejected. Appeal allowed in part.

Summary

Issues:
1. Setting aside of penalties imposed under Section 76 of the Finance Act, 1994 and Section 77(2) read with Rule 7C of Service Tax Rules without justifiable reason.
2. Availment of CENVAT credit of ?11,723 without proper documents.

Analysis:

Issue 1: Setting aside of penalties under Section 76 and Section 77(2)
The Revenue appealed against the Order-in-Appeal that set aside penalties imposed under Section 76 of the Finance Act, 1994 and Section 77(2) read with Rule 7C of Service Tax Rules. The first appellate authority's decision was based on the grounds of written off bad debts amounting to ?37 crores due to recession, cash flow problems, and non-payment from clients. The Tribunal found that the appellant failed to discharge service tax liability promptly despite receiving consideration from clients. The Tribunal held that non-receipt of payment and written off bad debts cannot justify setting aside the penalties. The matter was remitted back to lower authorities for correct quantification of penalty under Section 76.

Issue 1.1: Penalty under Section 77
Since the penalty under Section 76 was upheld, the penalty under Section 77 was also upheld by the Tribunal.

Issue 2: Availment of CENVAT credit
Regarding the availment of CENVAT credit of ?11,723 without proper documents, the first appellate authority accepted the documents produced by the respondent showing that the credit was availed for service tax paid by telephone service providers and courier services. The Tribunal upheld the respondent's eligibility to avail CENVAT credit based on the documents provided, rejecting the Revenue's appeal on this point. Consequently, the interest liability and penalty on this amount were set aside.

In conclusion, the Tribunal disposed of the appeal by setting aside the penalties imposed under Section 76, upholding the penalties under Section 77, and rejecting the Revenue's appeal on the availment of CENVAT credit, based on the documents provided by the respondent.