2019 (3) TMI 1509 - AT - Service Tax

Demand of interest and penalty - service tax paid belatedly by adjustment of the CENVAT account - Held that - When there was sufficient balance in the CENVAT account for payment of service tax, the appellant cannot be burdened with payment of interest. Undoubtedly, though there was sufficient balance in the CENVAT account, the adjustment of the same by causing a debit entry in the CENVAT account has been made by the appellant only on 21.3.2012 when the department was informed about such adjustment from the CENVAT account. The demand therefore stands discharged fully only on 21.3.2012. Merely because the amount was lying in the CENVAT account, it cannot be said that the demand has been paid or discharged. Appellant has discharged the liability of service tax only on21.3.2012 when they informed the department that they are using the CENVAT credit to pay the service tax demand. Service tax has to be paid by the assessee on due dates as prescribed by statute. Whenever the service tax is not paid within such due dates it becomes belated payment. As per section 75 of Finance Act, 1994, liability to pay interest follows in case of belated payment or short-payment of service tax. Merely because there is some balance lying unutilized in the CENVAT account, it cannot be said that the assessee has discharged the liability to pay service tax. The liability to pay service tax will stand discharged only when such payment is made or manifested in the records - The liability to pay service tax will stand discharged only when such payment is made or manifested in the records. Until such payment, or manifestation in the accounts, the assessee is liable to pay interest on the amount of tax. Section 75 does not state that when there is sufficient balance in the CENVAT account and if utilized for payment of service ax, the assessee need not pay any interest - the claim of the assessee that they are not liable to pay interest when the tax amount is adjusted from credit lying in CENVAT account is without any legal basis. In the case of Nicholas Piramal (India) Ltd. (supra), the issue analysed was whether interest is liable to be paid on differential amount when there is credit available and whether penalty imposable. In the said case, credit was availed on inputs which was already reversed by the assessee and no duty was to be paid. Therefore, the question of payment of interest and imposition of penalty was held in favour of the assessee. Time limitation - penalty - Held that - The appellant is not contesting the tax liability adjusted from CENVAT account. Taking these facts into consideration, the invocation of extended period requires no interference - The argument of the ld. counsel that sub-section (3) of Section 73 would apply is not tenable for the reason that the appellant has not paid up the demand along with entire interest before issuance of show cause notice. The service tax demand of ₹ 11,01,03,335/- having been fully paid up before issuance of show cause notice and part of the interest relating to the cash payment also having been paid up before issuance of show cause notice, the equal penalty imposed under section 78 is unwarranted. The impugned order is modified to the extent of setting aside the penalty imposed under section 78 without disturbing the remaining portion of the impugned order - appeal allowed in part.

Summary

Issues Involved:
1. Short-payment of service tax due to reclassification of services.
2. Liability to pay interest on service tax adjusted from the CENVAT account.
3. Imposition of penalty under section 78 of the Finance Act, 1994.
4. Applicability of the extended period for the demand.

Issue-wise Detailed Analysis:

1. Short-payment of Service Tax Due to Reclassification of Services:
The appellants initially classified their services under Works Contract Service and later reclassified them under Construction of Residential Complex Service, resulting in a short-payment of service tax amounting to ?11,01,03,335/-. The appellants paid ?5,40,45,243/- in cash with interest and adjusted the remaining ?5,60,58,092/- from the CENVAT account. The department issued a show cause notice demanding the short-paid service tax and interest.

2. Liability to Pay Interest on Service Tax Adjusted from the CENVAT Account:
The appellant argued that since there was sufficient balance in the CENVAT account, they should not be liable to pay interest on the amount adjusted from the CENVAT account. However, the Tribunal held that the liability to pay service tax is discharged only when the payment is manifested in the records. The adjustment in the CENVAT account was made only on 21.3.2012, and until such adjustment, the appellant is liable to pay interest as per section 75 of the Finance Act, 1994. The Tribunal concluded that the claim of the appellant that they are not liable to pay interest when the tax amount is adjusted from the CENVAT account is without any legal basis.

3. Imposition of Penalty Under Section 78 of the Finance Act, 1994:
The appellant contended that no penalty should be imposed as there was no suppression of facts with the intention to evade payment of service tax. The Tribunal noted that the appellant had paid the entire demand and part of the interest before the issuance of the show cause notice. Therefore, the imposition of an equal penalty under section 78 was deemed unwarranted and was set aside.

4. Applicability of the Extended Period for the Demand:
The Tribunal upheld the invocation of the extended period, noting that non-payment of service tax was discovered only through the department's intervention. The appellant's activities were known to the department, and they complied with the differential tax payment upon being advised. However, the Tribunal found no grounds to interfere with the extended period invocation, considering the facts and circumstances of the case.

Conclusion:
The Tribunal modified the impugned order to the extent of setting aside the penalty imposed under section 78, while upholding the remaining portion of the order, including the demand for interest on the service tax adjusted from the CENVAT account. The appeal was dismissed with the above observations.