2019 (6) TMI 957 - AT - Service Tax

Imposition of penalty - differential rate of tax paid before issuance of SCN with interest - Section 73(3) of Finance Act - Management Consultancy services - HELD THAT - Since the tax with applicable interest stood discharged well before the issuance of SCN, the very SCN could not be issued in terms of Section 73(3) of the Act and the question of further imposition of equivalent penalty under Section 78 should not have arisen. The appellant has never disputed the differential service tax that became payable on account of change in tax rate. Since they have duly paid the differential tax with interest before issue of SCN, the imposition of penalty in this case is unwarranted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of penalty under Section 78 of the Finance Act, 1994 when the service tax amount and interest were paid before the issuance of Show Cause Notice.

Analysis:
1. The case involved a dispute regarding the payment of service tax on taxable services received from group companies outside India by the appellant. The Department contended that the appellant should have paid service tax at the rate applicable during the period when the service was rendered, i.e., 12%, instead of the reduced rate of 10% applicable at the time of foreign remittance. The appellant paid the differential service tax and interest before the issuance of a Show Cause Notice (SCN) dated 17.04.2012, proposing a penalty equivalent to the service tax amount.

2. The appellant argued that since the service tax amount and interest were paid immediately upon being pointed out during an audit, the SCN could not be legally issued as per Section 73(3) of the Act. The appellant relied on various decisions to support their contention, emphasizing that the case was revenue neutral due to the availability of CENVAT credit. The appellant also highlighted previous decisions in their favor by the Ld. Commissioner (Appeals) for the years 2008 and 2009, where penalties were dropped for similar circumstances.

3. The Tribunal noted that the appellant had paid the differential service tax and interest before the issuance of the SCN, and there was no dispute regarding the payment. The Tribunal observed that the appellant had not disputed the differential tax payable due to the change in the tax rate and had only sought a waiver of the penalty. Considering that the tax and interest were discharged before the SCN was issued, the Tribunal held that the imposition of a penalty under Section 78 was unwarranted. The Tribunal referred to previous decisions where penalties were dropped in similar cases and set aside the penalty imposed under Section 78.

4. In conclusion, the Tribunal allowed the appeal filed by the appellant, setting aside the penalty under Section 78 of the Finance Act, 1994, and granting consequential benefits to the appellant based on the facts and circumstances of the case.

End of Analysis