CESTAT Chennai: No penalty for late service tax payment if paid with interest.

The Appellate Tribunal CESTAT, Chennai, ruled in favor of the assessees, who were penalized for late payment of service tax. The Tribunal held that when service tax is paid with interest, even if delayed, no penalty for failure to pay tax on time should be imposed. Relying on past decisions and a CBEC Circular, the Tribunal set aside the penalty imposed by the Commissioner under Section 76 of the Finance Act, 1994. The appeal was allowed without predeposit of the penalty, providing relief to the assessees engaged in providing photography services.

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Issues: Penalty waiver for failure to pay service tax on time.

In this judgment by the Appellate Tribunal CESTAT, Chennai, the issue revolved around the waiver of a penalty of Rs. 10,43,582/- imposed on the assessees under Section 76 of the Finance Act, 1944 for failure to pay service tax on time. The assessees, engaged in providing services related to computer graphics, digital intermediate processing, and registered under the category of "Photography Services," had paid the service tax belatedly along with interest for the period April 2007 to February 2008. A Show Cause Notice was issued for penal action based on the delay in payment, leading to the imposition of the penalty by the Commissioner. The Tribunal decided to hear and decide the appeal without predeposit of the penalty, as the issue stood settled by previous decisions of the Tribunal.

The Tribunal agreed with the assessees' contention that the penalty for failure to pay tax on time does not apply when the service tax has been paid along with interest, even if there was a delay. Citing previous decisions such as Santhi Casting Works Vs. CCE, Coimbatore and U.B. Engineering Ltd. Vs. CCE, Rajkot, the Tribunal highlighted that no show cause notice under Section 73 of the Finance Act, 1994 can be issued for imposing a penalty in such situations. Referring to the CBEC Circular No. 137/167/06-CX-4 dated 03.10.2007, which clarifies that no show cause notice is required if tax liabilities are paid with interest, the Tribunal set aside the penalty imposed by the Commissioner and allowed the appeal. The order was pronounced and dictated in the open court, providing relief to the assessees in this case.

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