2014 (1) TMI 1557 - AT - Service Tax

Timely Payments Exempt from Penalties: Tribunal Clarifies Tax Compliance Rules

The Tribunal held that penalties under Section 76 cannot be imposed when payments are made under Section 73(3) of the Finance Act, 1994. The appellant's ... Outdoor catering service - Suppression of facts - Delay in payment - Penalty u/s 78 - Invokation of Section 73 - Applicant was not discharging the service tax liability promptly but they were paying service tax along with interest as applicable with delays ranging from 1 day to 293 days in different months - Held that:- allegations regarding suppression or other ingredients in terms of Section 78 were not raised in the show cause notice. This confirms the position that this is only a case of delay in payment of service tax and not a case of suppression of information - Decided in favour of assessee. Issues:1. Delay in payment of service tax and interest by the appellant.2. Imposition of penalty under Section 76 of the Finance Act, 1994.3. Interpretation of Section 73(3) regarding payment of tax and interest before the issue of show cause notice.4. Applicability of penalty under Section 76 when tax and interest are paid under Section 73(3).5. Compliance with the provisions of Section 73(3) and the effect of the proviso.Analysis:1. The appellant was engaged in outdoor catering services in Chennai and had delays in paying service tax and interest ranging from 1 day to 293 days. The department issued a show cause notice for recovery of unpaid tax, interest, and imposition of penalty under Section 76. The appellant paid the outstanding amounts before the notice but the department demanded further amounts. The issue was whether the appellant's delayed payments and subsequent compliance with Section 73(3) exempted them from penalty.2. The appellant argued that their timely payments before the show cause notice should exempt them from penalty under Section 76. They cited a Karnataka High Court decision criticizing penalties on prompt payers. The Revenue contended that the appellant was a habitual defaulter and had not paid the full outstanding amount even after the notice. Various case laws were cited by both sides to support their arguments.3. The Tribunal noted that the show cause notice did not allege suppression of information but only delayed payment of service tax. The key issue was the applicability of Section 73(3) and whether penalties under Section 76 could be imposed when tax and interest were paid promptly. The Tribunal highlighted conflicting decisions on this matter and a circular clarifying that penalties should not be initiated under such circumstances.4. Relying on the Karnataka High Court decision, the Tribunal held that penalties under Section 76 cannot be imposed when payments are made under Section 73(3). The proviso to Section 73(3) was crucial in determining the scope of recovery for short-paid amounts. The Tribunal differentiated cases involving suppression of facts and penalties under Section 78, which were not invoked in this case.5. Consequently, the Tribunal set aside the penalty imposed and remanded the matter to determine the remaining short-paid amounts in accordance with Section 73(3). The decision emphasized the importance of following statutory provisions and clarified the impact of timely payments on penalty imposition under the Finance Act, 1994.