2019 (2) TMI 211 - AT - Service Tax

Non-imposition of penalty - short payment of service tax - tax was paid before issuance of SCN - sub-section (3) of Section 73 of FA - Held that - The respondent has discharged the entire service tax liability along with interest before issuance of the show cause notice - As per sub-section (3) of Section 73, as it stood during the relevant period, no penalty can be imposed when the demand of service tax along with interest stands paid before issuance of show cause notice - The respondents have also explained the reason for delay in paying the service tax. It is seen that the accountant engaged had left the firm as it was proved that he is unreliable and mischievous. The respondent had paid the amount within 10 days of the department having intimated with regard to the short-payment of tax. All these would go to show that the Commissioner has rightly invoked section 80 to waive the penalties - imposition of penalty is not correct - appeal dismissed - decided against Revenue.

Issues:
1. Delay in paying service tax leading to penalties.
2. Applicability of Section 73(3) regarding imposition of penalties.
3. Commissioner's discretion to waive penalties.

Analysis:

Issue 1: Delay in paying service tax leading to penalties
The case involved respondents engaged in providing taxable services who were investigated for delaying payment of service tax. The department issued a show cause notice proposing to demand service tax, interest, and penalties for the delay in filing returns and paying the service tax. The Commissioner confirmed the demand and interest but waived the penalties, leading to the department filing an appeal against the non-imposition of penalties.

Issue 2: Applicability of Section 73(3) regarding imposition of penalties
The department argued that the respondents paid the service tax only after interference from the department, highlighting the significant delay in payment. However, it was revealed that the respondents had paid the entire service tax along with interest before the issuance of the show cause notice. As per Section 73(3), no penalty can be imposed when the demand of service tax along with interest is paid before the issuance of the show cause notice. The respondents also provided reasons for the delay, including difficulties in receiving payments from clients and challenges in ascertaining input credits, which influenced the delay in paying the service tax.

Issue 3: Commissioner's discretion to waive penalties
The Commissioner exercised discretion to waive penalties based on the circumstances presented by the respondents, including the timely payment of the entire service tax liability after being informed of the short-payment by the department. The Commissioner considered the reasons for the delay, such as unreliable accounting practices due to the accountant's departure, and the hardship faced in managing the affairs. Relying on various case laws, the Commissioner invoked Section 80 to waive the penalties, emphasizing that penalties cannot be imposed when the service tax demand along with interest is paid before the issuance of the show cause notice. The Tribunal found no grounds to interfere with the Commissioner's decision and dismissed the department's appeal.

In conclusion, the Tribunal upheld the Commissioner's decision to waive penalties based on the timely payment of service tax and interest before the show cause notice was issued, as allowed under Section 73(3). The case highlighted the importance of complying with tax obligations promptly and the discretion available to authorities in waiving penalties under relevant legal provisions.

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