2012 (6) TMI 393 - AT - Service Tax

Appeal successful in waiving penalties under Finance Act due to accounting discrepancies

The appeal contested the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994, for a differential service tax demand despite the ... Difference in income shown in the balance sheet and in ST-3 returns – Held that:- As Chartered Accountant has made all considerable efforts to prepare the statement and details which would show that a proper verification has been carried out this would nowhere show that there was mistake or with an intention to evade duty - differential service tax demand has arisen because of different methods followed for the purpose of preparation balance sheet and ST-3 return - waiver of penalties by invoking Section 80 instead of remanding the matter to original adjudicating authority for verification of records – in favour of assessee. Issues involved:1. Imposition of penalty for differential service tax demand.2. Discrepancy between figures in balance sheet and ST-3 returns.3. Application of Section 80 of the Finance Act, 1994 for penalty waiver.Analysis:Issue 1: Imposition of penalty for differential service tax demandThe appellant, registered under various service categories, faced a show cause notice for not properly paying service tax, resulting in a demand of Rs. 2,25,917. Although the appellant paid the dues under the Dispute Resolution Scheme, a subsequent notice was issued for differential service tax for a different period. Despite the appellant's explanation and payment of the demanded amount with interest, penalties were imposed under Sections 76 and 78 of the Finance Act, 1994. The appeal contested only the penalty imposition, not the demand for service tax and interest.Issue 2: Discrepancy between figures in balance sheet and ST-3 returnsDuring the hearing, the Bench questioned the appellant's Chartered Accountant about the persistent discrepancies in figures between the balance sheet and ST-3 returns, even after previous proceedings. The Chartered Accountant sought an adjournment to verify records and later submitted a statement for the year 2006-07, revealing that the service tax was correctly paid. The differences arose due to different methods of accounting - accrual method for the balance sheet and cash receipt basis for ST-3 returns. The meticulous statement preparation demonstrated proper verification, indicating no intentional evasion of duty.Issue 3: Application of Section 80 of the Finance Act, 1994 for penalty waiverAfter reviewing the Chartered Accountant's submissions and the statement, it was evident that the differential service tax demand stemmed from accounting method differences, not intentional evasion. Considering the minimal amount involved and the effort put into verification, the judgment invoked Section 80 of the Finance Act, 1994 to waive penalties. This decision aimed to avoid unnecessary scriptory work and save time for all parties involved, as the demand for service tax and interest was not contested. The appeal was allowed by setting aside the penalty, emphasizing the fit case for penalty waiver under Section 80.This comprehensive analysis highlights the key legal issues, explanations provided during the proceedings, and the judgment's reasoning behind the penalty waiver under Section 80 of the Finance Act, 1994.