2018 (5) TMI 484 - AT - Service Tax

Penalty u/s 78 - penalty imposed on the ground that appellant failed to disclose the facts about taxable service provided by them and receipt pf consideration from their clients and failed to show the same in the ST-3 returns - Held that - the lower authorities should not have issued any SCN to appellant for imposition of penalty as admittedly the entire amount of Service Tax liability with interest thereof was discharged on being pointed out. Reliance placed in the case of Commissioner of C. Ex., Nagpur-II Versus Galaxy Construction Pvt. Ltd. 2017 (4) TMI 503 - BOMBAY HIGH COURT , where it was held that when an assessee had paid the service tax in full together with interest, the proceedings against the assessee would be concluded including the proceedings under Section 73(3) of the Finance Act, 1994 - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appeal concerned the imposition of a penalty under Section 78 of the Finance Act, 1994. The appellant, engaged in manufacturing motor vehicles, had issued debit notes to suppliers for royalty recovery from Oil Companies, which were booked as "other income." Upon departmental audit, Service Tax liability was acknowledged and paid, except for the penalty. The adjudicating authority confirmed the tax liability, interest, and imposed a penalty under Section 78. The first appellate authority reduced the penalty to 15% due to the full discharge of Service Tax liability before the show-cause notice.

The appellant contested solely the penalty imposition under Section 78, claiming the oversight in recording income from Oil Companies under "other income" without discharging the Service Tax liability. The appellant cited relevant court judgments to support their argument against the penalty. The respondent argued that the appellant should have self-discharged the Service Tax liability and that the penalty was justified even if the tax was paid before the show-cause notice, citing legal precedents.

After considering both sides' submissions, the tribunal noted the issue of penalty imposition under Section 78. It acknowledged the appellant's payment of Service Tax liability upon authorities' notification and the inadvertent recording error under "other income." The tribunal found merit in the appellant's argument that the error was unintentional and not an attempt to evade tax. It referenced a recent judgment of the High Court of Bombay, emphasizing that once the Service Tax liability with interest is paid, further proceedings should cease without the need for a show-cause notice under Section 73(3) of the Finance Act, 1994. Following the legal precedent, the tribunal ruled in favor of the appellant, setting aside the penalty imposition under Section 78.

In conclusion, the tribunal held that no show-cause notice for penalty imposition should have been issued to the appellant since the entire Service Tax liability with interest had been paid upon notification. Consequently, the tribunal allowed the appeal by overturning the penalty imposition under Section 78 of the Finance Act, 1994.