2019 (5) TMI 269 - HC - Service Tax

Imposition of penalty - reversal of CENVAT Credit with interest on being pointed out before issuance of Demand notice - Section 73(3) of the Finance Act, 1994 - HELD THAT - Section 73(3) of the Finance Act, 1994, provides that where a party pays its tax and the interest thereon before the issue of show cause notice, then there is no occasion for the Revenue to issue a show cause-cum-demand notice can arise. However, by virtue of Section 73(4) of the Finance Act, 1994, which begins with the non- obstance clause clearly provides that Section 73(3) of the Finance Act,1994 would not be applicable to an assessee where there has been suppression/ mis-declaration etc. with an intention to evade tax. In the present facts, the show cause notice as well as the orders of the authorities under the Act have on facts held that there was suppression of facts on the part of the Appellant to evade payment of tax - the issuing of show cause-cum-demand notice and imposition of penalty is justified and in accordance with the clear mandate of the law. Appeal dismissed - decided against appellant.

Summary

Issues:
Challenge to order upholding penalty for taking Cenvat Credit on software not used as inputs despite payment and interest before demand notice issuance.

Analysis:
The Appellant, engaged in software development, paid service tax under specific heads during 2010-11 and 2011-12. They purchased software for trading, not as inputs, and took Cenvat Credit of ?31.77 lakhs paid on the software. Upon audit objection, the Appellant paid the Cenvat Credit and interest to the Revenue. Subsequently, a show cause notice was issued seeking penalty under Section 78 of the Finance Act, 1994. The Appellant contested, citing payment before the notice and no intent to evade tax.

The Joint Commissioner confirmed the tax payment and interest but imposed a penalty, alleging deliberate suppression to evade tax. The Commissioner (Appeals) upheld the penalty, stating the Appellant's repeated actions indicated intent to evade tax. The Tribunal agreed, concluding it was not a mistake but an intentional act to evade tax. The Appellant argued that as per Section 73(3) of the Finance Act, no penalty should be imposed if tax and interest are paid before notice issuance.

However, Section 73(4) of the Finance Act overrides this provision in cases of suppression or misdeclaration to evade tax. The Tribunal found the Appellant's actions not to be a mistake, as claimed, but intentional. The findings of all authorities were consistent, deeming the penalty justified. The appeal was dismissed as the facts did not show any perversity in the findings.

In conclusion, the Appellant's appeal challenging the penalty for taking Cenvat Credit on software not used as inputs was dismissed, as the actions were deemed intentional to evade tax, justifying the penalty imposed under Section 78 of the Finance Act, 1994.