2022 (12) TMI 1191 - AT - Service Tax

Levy of penalty - discharge of entire service tax liability prior to the issuance of any show cause notice and the appellant - reverse charge basis in respect of business auxiliary services received from abroad - HELD THAT - If Commissioner (Appeals) is correct in his observation As mentioned in the Show Cause Notice. was only after verification of the details submitted by the Appellants, the short payment of Service Tax liability was detected, which otherwise would have gone undetected which takes the colour of malafide intent and not a voluntary payment , then penalty should have been imposed under Section 78 of the Finance Act, 1994. Hon ble Supreme Court has in the case of UNION OF INDIA VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS AND COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VERSUS M/S. LANCO INDUSTRIES LTD. 2009 (5) TMI 15 - SUPREME COURT specifically held that if the ingredients for invocation of extended period are present, then mandatory penalty as provided under Section 11AC of the Central Excise Act, 1944 (corresponding to Section 78 of the Finance Act, 1994) should have been imposed. Section 78 also provides that if the penalty under Section 78 is imposed, no other penalty under Section 76 could have been imposed on the appellant. Accordingly the contention raised by the learned AR that there was malafide intention to evade payment of duty cannot be upheld. Secondly, Section 73(3) clearly provides that payment of tax could have been on own violation or on being pointed out by the department. Then also no notice could have been issued. Appeal allowed.

Issues Involved:
1. Confirmation of service tax demand.
2. Appropriation of paid amounts towards service tax and interest.
3. Imposition of interest on the short-paid service tax.
4. Imposition of penalty under Section 76 of the Finance Act, 1994.
5. Validity of the show cause notice issued under Section 73(1) of the Finance Act, 1994.
6. Applicability of Section 73(3) of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Confirmation of Service Tax Demand:
The Joint Commissioner confirmed the demand of service tax amounting to Rs. 41,29,290/- under Section 73(1) read with Section 73(2) of the Finance Act, 1994. This was upheld by the Commissioner (Appeals) who noted that the appellant had short-paid service tax for the financial year 2011-12 and paid the amount only after the initiation of investigation.

2. Appropriation of Paid Amounts Towards Service Tax and Interest:
The Joint Commissioner ordered the appropriation of Rs. 41,29,290/- from the amount of Rs. 47,80,965/- already paid by the appellant. Additionally, Rs. 6,97,747/- was appropriated towards the interest recoverable from the appellant. The Commissioner (Appeals) agreed with this appropriation, noting that the appellant paid the service tax and interest only after the investigation commenced.

3. Imposition of Interest on the Short-paid Service Tax:
The Joint Commissioner confirmed the demand of interest amounting to Rs. 6,97,747/- under Section 75 of the Finance Act, 1994. This was also upheld by the Commissioner (Appeals), who observed that the appellant should have paid the service tax and interest in a timely manner, given their prior knowledge of tax liabilities from previous years.

4. Imposition of Penalty under Section 76 of the Finance Act, 1994:
The Joint Commissioner imposed a penalty under Section 76, which was calculated at Rs. 100/- per day or 1% per month, whichever is higher, not exceeding 50% of the service tax payable. The Commissioner (Appeals) upheld this penalty, rejecting the appellant's contention that no penalty should be imposed if the tax liability is paid before the issuance of the show cause notice voluntarily.

5. Validity of the Show Cause Notice Issued Under Section 73(1) of the Finance Act, 1994:
The Commissioner (Appeals) observed that the show cause notice was valid as the short payment of service tax was detected only after verification of details submitted by the appellant. This indicated a malafide intent and not a voluntary payment, justifying the issuance of the show cause notice.

6. Applicability of Section 73(3) of the Finance Act, 1994:
The appellant argued that under Section 73(3), since they had paid the service tax along with interest before the issuance of the show cause notice, no notice should have been issued. The Tribunal agreed with this argument, noting that the entire tax liability was discharged and the matter was intimated to the concerned Revenue authorities effectively. Therefore, the entire proceedings initiated were contrary to Section 73(3) and were liable to be set aside.

Conclusion:
The Tribunal concluded that since the appellant had discharged the entire service tax liability prior to the issuance of any show cause notice and had informed the Revenue authorities, no show cause notice should have been issued. Consequently, the imposition of penalty under Section 76 was not justified. The Tribunal set aside the impugned order and allowed the appeal, stating that the proceedings were contrary to Section 73(3) of the Finance Act, 1994.

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