2013 (5) TMI 671 - AT - Service Tax

Appellate Tribunal overturns penalty for late Service Tax payment, emphasizing genuine belief and lack of intent.

The Appellate Tribunal CESTAT KOLKATA allowed the appeal, setting aside the penalty imposed under Section 78 of the Finance Act, 1994, on the appellant ... Penalty under Section 78 of the Finance Act, 1994 - bona fide belief - suppression and wilful misstatement - fraud or collusion - waiver of pre-deposit of penaltyPenalty under Section 78 of the Finance Act, 1994 - suppression and wilful misstatement - fraud or collusion - Whether equal amount of penalty under Section 78 can be imposed when Service Tax and interest were paid after audit pointing out and the show cause notice does not allege suppression, wilful misstatement, fraud or collusion - HELD THAT: - The Tribunal found that the only controversy related to imposition of equal penalty under Section 78. The appellant had paid the Service Tax and interest after audit pointed out non-payment; they do not dispute the tax and interest. The show cause notice did not allege that the escaped tax resulted from fraud, collusion, wilful misstatement, suppression of facts or contravention of the Chapter or rules with intent to evade tax. The appellant asserted a bona fide belief that Service Tax became payable only on completion of the entire service and therefore delayed payment when amounts were received in installments. The Tribunal held that in absence of any material or allegation of suppression, wilful misstatement, fraud or collusion, imposition of equal penalty under Section 78 was not sustainable. The Tribunal also observed that the Supreme Court authority relied upon by the department (Rajasthan Spinning Mills) applies only where ingredients of fraud, collusion, wilful misstatement or suppression with intent to evade are present.Equal penalty under Section 78 set aside for lack of allegation or proof of suppression, wilful misstatement, fraud or collusion; appeal allowed on this ground.Waiver of pre-deposit of penalty - requirement of pre-deposit for stay - Whether the requirement of pre-deposit of penalty should be waived and the appeal disposed of on merits - HELD THAT: - On consent of both parties and after considering submissions, the Tribunal waived the requirement of pre-deposit of the penalty and proceeded to decide the appeal on merits. Having found the penalty unsustainable for the reasons stated, the Tribunal allowed the appeal and disposed of the stay petition.Requirement of pre-deposit of penalty waived; appeal disposed of on merits and stay petition disposed.Final Conclusion: The appeal is allowed: the penalty imposed under Section 78 is set aside for want of any allegation or proof of suppression, wilful misstatement, fraud or collusion; the requirement of pre-deposit of penalty was waived and the stay petition is disposed of. Issues: Application for waiver of pre-deposit of penalty, Imposition of penalty under Section 78 of Finance Act, 1994In this judgment by the Appellate Tribunal CESTAT KOLKATA, the applicant filed an application seeking waiver of pre-deposit of penalty amounting to Rs. 4,51,758. The applicant contended that they had already paid the Service Tax and interest before the show cause notice was issued. The Tribunal found that the appeal could be disposed of at that stage with the consent of both parties, waiving the pre-deposit requirement. The case involved the appellant's failure to pay Service Tax for a specific period, despite receiving the amount from their client. Upon audit detection, the appellant paid the Service Tax and interest. The department then issued a show cause notice for penalty under Section 78 of the Finance Act, 1994.The appellant argued that they believed Service Tax was due only upon completion of the entire service, hence they did not pay based on partial payments received. They acknowledged the Service Tax and interest paid but disputed the imposition of an equal penalty under Section 78, asserting no intent to evade tax and citing a genuine belief as the reason for delayed payment. The department, represented by the ld. A.R. Shri K.P. Singh, contended that the penalty was justified under sub-section 78(1)(d)(e), emphasizing the failure to pay tax until pointed out, suggesting potential evasion if not detected. The department also relied on a Supreme Court decision in Union of India v. Rajasthan Spinning Mills.The Tribunal clarified that the issue at hand was solely the imposition of an equal penalty under Section 78, not the Service Tax or interest payment. It noted that the department's allegation of intentional suppression of facts by the appellant was unfounded, as the show cause notice did not indicate fraud, collusion, wilful misstatement, or intent to evade tax. The appellant's belief regarding payment timing was deemed genuine, with no evidence of suppression or intent to evade tax. The Tribunal referenced the Supreme Court's decision in Rajasthan Spinning Mills, highlighting the necessity of fraud or collusion for penalty imposition. Consequently, the impugned order-in-appeal was set aside, and the appeal was allowed, with the stay petition also being disposed of.