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 for failure to pay Service Tax timely. The Tribunal found the appellant's belief regarding payment timing genuine and noted the absence of evidence indicating intent to evade tax. Emphasizing the necessity of fraud or collusion for penalty imposition, the Tribunal disposed of the stay petition and ruled in favor of the appellant, highlighting that no intentional suppression of facts was established in the case.

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Issues: Application for waiver of pre-deposit of penalty, Imposition of penalty under Section 78 of Finance Act, 1994

In 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.

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