Court upholds Tribunal decision on service tax penalty, citing revenue neutrality and Cenvat credit

The High Court upheld the Customs, Excise & Service Tax Appellate Tribunal's decision to set aside the penalty imposed under Sections 76 and 78 of the Finance Act, 1994. The Court agreed with the Tribunal's reasoning that the service tax payment was revenue neutral due to the availability of Cenvat credit, indicating no deliberate tax evasion. Consequently, the Court dismissed the appeals, finding no merit in them and declining to award costs.

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Issues:
Appeals against setting aside penalty under Sections 76 and 78 of the Finance Act, 1994 by the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad.

Analysis:
The High Court dealt with two appeals together as they involved a similar question of law. The primary issue for determination was whether the Tribunal was justified in setting aside the penalty under Section 80 of the Act. The respondents had obtained service tax registration but failed to pay the service tax for the years 2005-06 and 2006-07, although they paid the entire amount along with interest before the show cause notice was issued. The Commissioner imposed a penalty limited to 25% of the service tax under Section 78 of the Act. However, the Tribunal set aside the penalty, reasoning that since the appellant was providing services to the central excise assessee, the service tax paid was available as Cenvat credit, making the payment revenue neutral with no deliberate intention to evade tax. The High Court agreed with the Tribunal's reasoning, finding that the discretion exercised under Section 80 of the Act was appropriate in these circumstances. Therefore, the Court dismissed the appeals, stating that there was no merit in them and no costs were awarded.

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