2019 (11) TMI 178 - AT - Service Tax

Imposition of penalty - construction service - Point of taxation rules - appellant were discharging Service Tax liability on the basis of receipt of payment instead of accrual basis - period from July 2011 to March 2012 - HELD THAT - Before issuance of SCN, differential Service Tax and interest thereupon were paid by the appellant therefore as provided under sub-section 3 of section 73 of Finance Act, 1994 there was no provision for issue of SCN - the impugned order confirming imposition of penalty under section 78 of Finance Act, 1994 is not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Tax liability calculation based on receipt of payment instead of accrual basis.
2. Imposition of penalty under Section 78 of Finance Act, 1994.

Analysis:
1. The judgment pertains to a case where the appellant was providing taxable service under the category of 'construction service' from July 2011 to March 2012. The appellant discharged their Service Tax liability based on receipt of payment rather than accrual basis as required by the Point of Taxation Rules, 2011. This led to an audit objection, resulting in the appellant paying the differential Service Tax amounting to ?5,68,486/- along with interest of ?5,34,603/- before the issuance of a show cause notice.

2. Subsequently, a show cause notice was issued on 30 September 2016 proposing to appropriate the already paid Service Tax and interest, along with imposing a penalty under Section 78 of the Finance Act, 1994. The impugned order-in-appeal sustained the penalty imposed under Section 78. However, upon hearing both sides and examining the records, it was noted that the appellant had paid the differential Service Tax and interest before the show cause notice was issued. As per sub-section 3 of section 73 of the Finance Act, 1994, in such cases, there was no provision for issuing a show cause notice.

3. Consequently, the Tribunal held that the imposition of penalty under Section 78 of the Finance Act, 1994 was not sustainable. The impugned order confirming the penalty was set aside, and the appeal was allowed in favor of the appellant. The judgment highlights the importance of adhering to the prescribed rules for tax liability calculation and the procedural requirements for imposing penalties under the relevant legislation.

4. The decision was rendered by the Appellate Tribunal CESTAT ALLAHABAD, with Mrs. Archana Wadhwa, Hon'ble Member (Judicial), and Shri Anil G. Shakkwar, Hon'ble Member (Technical) presiding over the case. The legal representation for the parties included Shri S.K. Sarwal, Advocate for the Appellant(s), and Shri Gyanendra Kumar Tripathi, Deputy Commissioner (A.R.), for the Revenue. The judgment serves as a significant precedent in clarifying the application of tax laws and penalties in cases of incorrect tax liability calculation methodologies.