2016 (4) TMI 155 - AT - Service Tax

Tribunal Waives Penalties for Service Tax Non-Payment

M/s Prakash Sadashiv Karde Versus Commissioner of Central Excise, Customs & Service Tax, Aurangabad

The Tribunal waived penalties and fees imposed under Sections 76, 77, 78, and 70 of the Finance Act, 1994 for non-payment of service tax for 2007-08 and ... Waiver of penalties levied u/s 76,77 & 78 of the Finance Act, 1994 - Provider of services of ‘Manpower Recruitment or Supply Agency' falling under Section 65 (105)(k) of the Finance Act, 1994 - Held that:- appellant on advice of the Jurisdictional Asstt. Commissioner, on his visit to Range Office, agreeing with the Asstt. Commissioner, discharged the entire service tax liability along with interest. Appellant was assured that no further action will be taken if the payment of service tax along with interest is made. It is clear that the appellant paid entire service tax along with interest and opted the waiver of the show cause notice with clear intention that they do not want to contest payment which they have made with a clear view that no action should be taken against them. It is found that the appellant is a small time service provider without any higher education background. It is also found that on perusal of the invoices submitted by the appellant, it is observed that they have neither charged the service tax to their client nor collected any amount towards the service tax. The appellant paid the entire service tax and interest from their own pocket. So, this itself is a burden on the appellant. When the assessee discharged service tax alongwith interest before issuance of show cause notice penalty has been waived, therefore, when the appellant themselves after discharging the service tax liability along with interest, opted the waiver of show cause notice the case is clearly falls under the provisions of Section 73(3) of Finance Act and the appellant has made out a fit case for waiver of penalty. The penalties and fees imposed under Sections 76, 77, 78 and 70 of the Finance Act, 1994 by invoking Section 73(3) read with Section 80 are waived of. - Decided in favour of appellant ISSUES PRESENTED AND CONSIDERED 1. Whether penalties under Sections 76, 77, 78 and late fee under Section 70 (read with Rule 7C) are exigible where the assessee paid the service tax and interest before issuance of a show cause notice - applicability of Section 73(3) of the Finance Act, 1994. 2. Whether Section 80 (power to remit penalty) can be invoked where tax and interest have been paid before show cause notice and where the assessee claims bona fide ignorance, small scale operation and no mala fide or suppression. 3. Whether imposition of penalties is sustainable where departmental officers had pointed out the liability, the assessee paid tax and interest on persuasion/advice and asserted that payment was made to avoid further action. 4. Whether allegations of suppression, fraud or misstatement are established so as to justify invocation of extended penalties or denial of benefit under Section 73(3) and Explanation 2 thereto. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Section 73(3) where tax and interest are paid before issuance of show cause notice Legal framework: Section 73(3) provides that where service tax not paid may be paid by the person on own ascertainment or on basis of tax ascertained by an officer before service of notice under sub-section (1) and on informing the officer in writing, no notice under sub-section (1) shall be served in respect of the amount so paid; Explanation 2 to sub-section (3) bears on penal consequences. Precedent treatment: The Tribunal relied on consistent precedents holding that payment of tax with interest before issuance of show cause notice precludes issuance of such notice and removes justification for penalty - judgments treating Section 73(3) as mandating non-issuance of SCN where statutory prepayment and intimation are made have been followed. Interpretation and reasoning: The Court found, on the record, that the assessee discharged the entire service tax liability and interest before the show cause notice was issued. The Tribunal interpreted Section 73(3) as mandatory in such circumstances and observed that where the statutory preconditions of payment and intimation are met, issuance of SCN and imposition of penalty is impermissible. The Tribunal also noted that the assessee had not been adjudged to owe any additional tax beyond the amounts already paid. Ratio vs. Obiter: Ratio - Section 73(3) applies to bar issuance of show cause notice and thereby negates imposition of penalties for the amounts paid before SCN; Obiter - citations of particular earlier cases and extended discussion of related facts (e.g., adequacy of cenvat credit) are explanatory. Conclusion: Section 73(3) applies; issuance of SCN and imposition of penalties for the periods where tax and interest were paid prior to SCN is not sustainable. The penalties so imposed are set aside. Issue 2 - Invocation of Section 80 (remission of penalty) where payment preceded show cause notice and where appellant claims bona fide ignorance Legal framework: Section 80 empowers remission of penalties in specified circumstances; courts and tribunals have considered Section 80 where facts disclose reasonable cause or where strict penal consequences would be harsh in the light of payment and surrounding circumstances. Precedent treatment: The Tribunal followed precedents where Section 80 was invoked to remit penalties - particularly where assessees voluntarily paid tax and interest before SCN, lacked qualified staff, were small traders or had bona fide misunderstandings, and no mala fide suppression was found. Interpretation and reasoning: Even if Section 73(3) were not solely determinative, the Tribunal held that facts (small-time provider, lack of education/qualified staff, payment from own funds without recovering tax from recipient, payment on persuasion and with intent to avoid further action) constitute sufficient grounds for invoking Section 80. The Tribunal regarded these circumstances as making the imposition of penalty inappropriate; it treated the voluntary payment and absence of malafide as material for remission. Ratio vs. Obiter: Ratio - where taxpayer pays tax and interest prior to SCN and can show bona fide cause and absence of suppression, Section 80 may be invoked to remit penalties; Obiter - detailed factual comparisons with other cases are illustrative. Conclusion: Section 80 is attracted; penalties and fees imposed under Sections 76, 77, 78 and 70 (read with Rule 7C) are remitted in exercise of power under Section 80, maintaining the tax and interest payments. Issue 3 - Effect of departmental persuasion/advice and the assessee's motive for payment on liability to penalty Legal framework: Penalty provisions require establishment of default, suppression or mala fide conduct for imposition in appropriate measure; voluntary payment and cooperation with department are relevant mitigating factors. Precedent treatment: Tribunal decisions cited recognize that payment on the basis of departmental visit/persuasion, coupled with prompt compliance before SCN, weighs against penalty. High Court decisions upholding Tribunal rulings in analogous circumstances were followed. Interpretation and reasoning: The Tribunal accepted that departmental officers visited and apprised the assessee, who thereafter paid tax and interest without protest on the assurance or belief that payment would avoid further action. The Tribunal found that this conduct and the absence of evidence of suppression or fraud negate the foundation for penalty. The courts treated the assurance/understanding with departmental staff and the immediate payment as substantive contextual facts reducing culpability. Ratio vs. Obiter: Ratio - payment made on persuasion/advice before SCN, especially where no suppression is found, is a relevant ground for negating penalties; Obiter - assessment of specific officer assurances is factual and illustrative. Conclusion: The circumstances of departmental persuasion and the assessee's motive to avoid further action contributed to the finding that penalties were not warranted. Issue 4 - Whether suppression, fraud or misstatement was established so as to deny benefit under Section 73(3) or Section 80 Legal framework: Benefit of Section 73(3) and remission under Section 80 is not available where suppression or fraud is satisfactorily established; adjudicating authorities must record material supporting such allegations. Precedent treatment: The Tribunal and higher courts have set aside penalties where authorities did not establish fraud or suppression and where the assessee had paid tax and interest pre-SCN; conversely, cases finding deliberate suppression were upheld. Interpretation and reasoning: The Tribunal noted that the first appellate authority had expressly found absence of fraud, suppression or misstatement and that Revenue had not challenged that finding. On record, invoices showed no tax was collected from the service recipient and the assessee bore the burden. No material established deliberate concealment. Therefore the conditions to deny Section 73(3) or to sustain penalties were absent. Ratio vs. Obiter: Ratio - in absence of proven suppression/fraud, penal provisions cannot be sustained where statutory prepayment and intimation under Section 73(3) exist; Obiter - discussion of what would suffice to establish suppression is explanatory. Conclusion: Allegations of suppression/fraud were not proven; benefits of Section 73(3) and/or remission under Section 80 are available and penalties cannot be sustained. Final Disposition (as applied to the facts) The Tribunal applied Section 73(3) and, alternatively, Section 80, held that the assessee had paid service tax and interest prior to issuance of show cause notice, found no mala fide suppression, and set aside the penalties and late fees while maintaining the tax and interest payments. The appeal was allowed in these terms.