2013 (12) TMI 433 - AT - Service Tax

Service Tax Appeal: Penalties under Sections 76 and 78 Set Aside

The appeal challenged the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994. The Ld. Commissioner(Appeals) upheld the ... Penalty under Section 76 of the Finance Act, 1994 - payment of service tax and interest before issuance of show cause notice - section 73(3) - bar on serving notice and imposition of penalty where tax and interest paid before notice - Explanation 2 to section 73(3) - prohibition on penalty for such payments - section 73(4) - exception for fraud, collusion, willful misstatement or suppression of factsPenalty under Section 76 of the Finance Act, 1994 - payment of service tax and interest before issuance of show cause notice - section 73(3) - bar on serving notice and imposition of penalty where tax and interest paid before notice - Explanation 2 to section 73(3) - prohibition on penalty for such payments - section 73(4) - exception for fraud, collusion, willful misstatement or suppression of facts - Whether penalty under Section 76 could be imposed where the assessee paid the entire service tax and interest before issuance of the show cause notice and there was no fraud, collusion, willful misstatement or suppression of facts - HELD THAT: - The Tribunal applied sub-section (3) of section 73 which provides that where service tax and interest are paid before service of a show cause notice and the fact of payment is informed to the authority, no notice shall be served in respect of the amount so paid, and Explanation 2 to sub-section (3) declares that no penalty shall be imposed in respect of such payment. The Court noted that the Commissioner (Appeals) had recorded that elements of fraud, suppression or willful misstatement were absent and that the Revenue did not challenge that finding. In those circumstances the statutory bar in section 73(3) operates and section 73(4) - which excludes cases involving fraud, collusion, willful misstatement or suppression - does not apply. Consequently there was no legal basis to issue a show cause notice for penalty or to sustain penalty under section 76 once the tax and interest were discharged before issuance of the notice. [Paras 7, 8, 11]Impugned order sustaining penalty under section 76 set aside; penalty cannot be imposed where tax and interest were paid before issuance of show cause notice and no fraud etc. is found.Final Conclusion: Appeal allowed; order imposing penalty under Section 76 set aside because the assessee had discharged the service tax liability and interest prior to issuance of the show cause notice and there was no finding of fraud, collusion, willful misstatement or suppression of facts. Issues:Challenge against imposition of penalty under Section 76 of the Finance Act, 1994.Analysis:The appeal was filed against Order-in-Appeal No.75/BOL/2011 dated 24.06.2011. The appellant provided taxable services under commercial or industrial construction service and manpower recruitment agency service. The adjudicating authority demanded a differential amount of Service Tax of Rs.15,42,052/- along with interest and imposed penalties under Sections 76 and 78 of the Finance Act, 1994. The Ld. Commissioner(Appeals) upheld the order-in-original but set aside the penalty under Section 78. The appellant challenged the penalty under Section 76, arguing that they regularly paid Service Tax, faced financial hardship, paid the differential amount before the show cause notice, and cited relevant judgments supporting their case.The Ld. A.R. for the Revenue contended that the appellant did not disclose the full taxable amount in their returns, leading to the penalty for delayed payment of Service Tax. After hearing both sides and examining the records, it was noted that the appellant had paid the entire Service Tax liability and interest before the show cause notice. The provisions of sub-section (3) of section 73 of the Finance Act, 1994 were analyzed, which state that no penalty can be imposed if the tax and interest are paid before the notice.The judgment referred to various cases supporting the appellant's position, emphasizing that if the entire amount of Service Tax liability and interest is paid before the issuance of the show cause notice, no penalty should be imposed. The High Court's decision in the case of CCE & ST, LTU, Bangalore v. Adecco Flexione Work Force Solutions Ltd. supported this stance. Additionally, the judgment in the case of Commissioner of Service Tax, Bangalore vs. Master Kleen highlighted that if tax and interest are paid before the show cause notice, no penalty should be imposed. Following these precedents, the impugned order was set aside, and the appeal was allowed.In conclusion, the judgment emphasized that if the Service Tax liability and interest are paid before the issuance of the show cause notice, no penalty should be imposed under Section 76 of the Finance Act, 1994. The decision was based on established legal principles and precedents, ensuring that penalties are not levied when the tax and interest obligations are fulfilled in a timely manner.