2017 (2) TMI 676 - AT - Service Tax

Appellant wins appeal against penalties for late service tax deposit

The penalties imposed on the appellant under sections 77 & 78 of the Finance Act 1994 for delays in depositing service tax on sponsorship services ... Payment of service tax before issuance of show cause notice bars initiation of proceedings and imposition of penalties - Application of reverse charge liability for sponsorship services - No penalty where tax and interest are paid under the self payment provision and Explanation 2 - Requirement of disclosure in returns and absence of suppression or misstatementPayment of service tax before issuance of show cause notice bars initiation of proceedings and imposition of penalties - No penalty where tax and interest are paid under the self payment provision and Explanation 2 - Whether penalties under the Finance Act could be imposed where the assessee had paid the service tax (and interest) relating to reverse charge sponsorship services before issuance of the show cause notice - HELD THAT: - The Tribunal accepted the appellants' contention that sub section (73) permits a person to pay service tax on his own ascertainment and to inform the authorities, and that once tax and interest are paid before service of notice no notice is required. The Tribunal noted Explanation 2 which declares that no penalty shall be imposed in respect of payment of service tax under this provision. The CBEC letter of 03.10.2007 was also noted as clarifying that if tax and interest are paid before show cause notice, proceedings including those for penalties are concluded. Applying these principles to the facts, where the assessee had discharged the service tax liability (albeit with some delays) and interest before the show cause notice, the statutory bar on imposing penalties applied and the penalties were not sustainable.Penalties set aside as tax and interest had been paid before issuance of the show cause notice; no penalty could be imposed in terms of the self payment provision and Explanation 2.Requirement of disclosure in returns and absence of suppression or misstatement - Application of reverse charge liability for sponsorship services - Whether there was suppression, misstatement or malafide conduct by the assessee warranting imposition of penalties despite payment of tax - HELD THAT: - The Tribunal found that the consideration paid to service providers for sponsorship services was reflected in the assessee's returns and that the assessable transactions had been brought to the Revenue's notice. The delays in deposit were described as inadvertent or mere delay in payment and not amounting to concealment or mala fide intention. In the absence of suppression or misstatement, and given disclosure in returns and payment of tax and interest, imposition of penalties could not be justified.No suppression or misstatement found; penalties cannot be sustained on the basis of alleged concealment or malafide.Final Conclusion: The appeal is allowed to the extent that penalties imposed under the Finance Act are set aside: the assessee had disclosed the transactions in returns and paid the service tax and interest (including for reverse charge sponsorship services) prior to issuance of the show cause notice, and therefore proceedings for imposition of penalty could not be sustained. Issues:Imposition of penalties under section 77 & 78 of the Finance Act 1994 for delay in depositing service tax on sponsorship services.Analysis:The judgment in the present appeal focused on the imposition of penalties under section 77 & 78 of the Finance Act 1994. The appellant, engaged in providing taxable services, was registered with the service tax department and received sponsorship services from various vendors. The appellant was required to discharge tax liability on a reverse charge basis for these services. While the appellant did discharge its service tax liability, there were delays in depositing taxes in some cases, which were later paid along with interest.During the proceedings, the appellant cited Section 73 of the Finance Act, emphasizing that they had deposited the entire service tax before the issuance of the show cause notice. The appellant argued that there was no suppression or misstatement on their part, as all relevant facts were disclosed to the Revenue. It was contended that no show cause notice was required as the tax had been paid before any notice was served.The Tribunal noted that the entire consideration paid by the appellant to the service provider was reflected in their tax return, with delays in depositing service tax or inadvertent mistakes in some cases. The Tribunal highlighted that as per the law, if service tax is paid before the issuance of a notice, no further notice is required. Explanation 2 of the relevant section clarified that no penalty would be imposed in such cases.Additionally, a clarification from the CBEC stated that if tax and interest are paid before a show cause notice, all proceedings under the Act, including penalties under Section 77 & 78, are concluded. The Tribunal found no suppression or malafide intention on the part of the appellant, as the sponsorship agreements were duly disclosed to the Revenue, and service tax liabilities were being discharged. Consequently, the penalties imposed on the appellant were set aside, and the appeal was allowed in this regard.