2019 (7) TMI 335 - AT - Service Tax

Imposition of penalty u/s 78 of FA - service tax alongwith interest paid before issuance of SCN - Section 73 (1) and 73 (3) of the Finance Act 1994 - HELD THAT - While discussing the applicability of extended period the Adjudicating Authority has inter alia apparently picked up the gross receipts as per the P L Account and gross receipts as per ST-3 from the appellant s books and thereafter has quoted Section 73 (1) ibid. but however has not discussed anywhere as to the misconduct in the nature of fraud collusion wilful mis-statement etc. It is a settled position of law that mere quoting of a Section or Sub-Section leads to nowhere unless the Revenue discharges the initial burden. Further there is no doubt that the leviability of penalty under Section 78 is not mandatory and the same is controlled by Section 80 ibid. Even the Ld. Commissioner (Appeals) though recorded that Section 73 (4) prevails over Section 73 (1) and (3) but still there is no recording of any finding as to the conduct of the appellant that could be termed as fraud etc. The penalty under Section 78 ibid could not have been levied - appeal allowed.

Summary

Issues:
Challenge to Show Cause Notice invoking extended period of limitation and levy of penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appellant contested the Show Cause Notice issuance, arguing that the alleged non-payment/short payment was rectified before the notice was issued, citing Section 73 (1) and 73 (3) of the Finance Act, 1994. The Adjudicating Authority's reliance on the Point of Taxation Rules, 2011, conflicted with the appellant's mercantile accounting system. The appellant emphasized that Service Tax was paid on raised bills, indicating no suppression, supported by the absence of misconduct findings. The Adjudicating Authority's failure to prove fraud or misconduct led to the conclusion that penalty under Section 78 was unjustified, as reinforced by legal precedents.

The Revenue acknowledged the appellant's early tax payment before the Show Cause Notice and the Order-in-Original's adjustment of Service Tax. The Adjudicating Authority's observations revealed discrepancies in Service Tax payments based on billing practices, countered by the appellant's accounting method explanation. Despite quoting relevant sections, the absence of fraud or misconduct allegations weakened the case for penalty imposition, aligning with legal interpretations emphasizing the necessity of such elements for penalty enforcement.

The Tribunal, after reviewing contentions and lower authorities' orders, noted the appellant's early tax payment and the partial adjustment made. The discrepancies in Service Tax payments were attributed to differing billing practices, not indicative of suppression or misconduct. Citing legal precedents, the Tribunal found no justification for the penalty under Section 78, ultimately setting aside the penalty imposed by the Adjudicating Authority. The appeal was allowed, and the penalty was deleted accordingly.

In conclusion, the Tribunal's decision focused on the lack of evidence supporting misconduct or fraud, leading to the setting aside of the penalty under Section 78. The judgment highlighted the importance of establishing such elements for penalty imposition, as demonstrated through legal interpretations and precedents referenced throughout the analysis.