2017 (5) TMI 1090 - AT - Service Tax

Tribunal sets aside penalty under Finance Act, 1994

The Tribunal upheld the appellant's argument and set aside the penalty imposed under section 78 of the Finance Act, 1994. The appeal was allowed, ... Preclusion of show-cause notice where tax paid before issuance - penalty under Section 78 of the Finance Act, 1994 - application of Section 73(3) of the Finance Act, 1994 - reverse charge mechanism - appropriation of pre-paid tax and interestApplication of Section 73(3) of the Finance Act, 1994 - preclusion of show-cause notice where tax paid before issuance - penalty under Section 78 of the Finance Act, 1994 - appropriation of pre-paid tax and interest - Whether the penalty imposed under Section 78 could be sustained where the assessee had paid the service tax and interest prior to issuance of show-cause notice and the amounts were appropriated by the department. - HELD THAT: - The Tribunal found, on the undisputed facts, that the appellant had ascertained and paid the service tax with interest on 05.04.2011 before the show-cause notice was issued. Under the statutory scheme embodied in Section 73(3) of the Finance Act, 1994, where an assessee pays the amount of service tax on the basis of his own ascertainment or on the basis of tax ascertained by a Central Excise Officer and informs the officer in writing, no notice under Section 73(1) shall be served in respect of the amount so paid. The Tribunal applied this principle and held that issuance of a show-cause notice in respect of the amount already paid was precluded. The Tribunal relied on the reasoning of the Hon'ble High Court of Karnataka in CST, Bangalore Vs. C Ahead Info Technologies India Pvt. Ltd. to support this statutory interpretation and its application. Consequently, the penalty imposed under Section 78, being predicated on a demand for amounts in respect of which the statutory bar under Section 73(3) operated, could not be sustained. The Tribunal therefore set aside the penalty while noting that the departmental authorities had appropriated the tax and interest already paid by the appellant. [Paras 4, 5]Penalty imposed under Section 78 set aside as Section 73(3) precluded issuance of notice in respect of amounts paid prior to notice; appeal allowed to that extent.Final Conclusion: The appeal is allowed insofar as it challenges the penalty; the penalty imposed by the adjudicating and appellate authorities is set aside because the service tax and interest had been paid before issuance of the show-cause notice and Section 73(3) precluded such notice in respect of the amounts so paid. Appeal disposed on these terms. Issues Involved:Payment of service tax under reverse charge mechanism for services rendered by a foreign service provider; Discharge of service tax liability based on audit objection; Show cause notice issued for demanding and confirming service tax amount; Calculation of tax demand including entire amount paid as commission; Challenge of penalty imposed under section 78 of Finance Act, 1994.Analysis:The appeal before the Appellate Tribunal CESTAT Hyderabad revolved around the payment of service tax under the reverse charge mechanism for services provided by a foreign service provider to the appellant during a specific period. The appellant had paid the service tax liability and interest based on an audit objection raised by the audit team. Subsequently, a show cause notice was issued proposing to demand and confirm the service tax amount paid by the appellant. The dispute mainly centered on the calculation of the tax demand, where the department included the entire amount paid as commission without extending cum-tax benefit. The appellant's contention in the appeal was primarily focused on challenging the penalty imposed under section 78 of the Finance Act, 1994.Upon considering the submissions from both parties, the Tribunal noted that the appellant had indeed paid the service tax amount along with interest before the show cause notice was issued. This payment was made based on an ascertainment of the tax liability by the appellant and informed to the departmental officer. The Tribunal referred to Section 73(3) of the Finance Act, 1994, which prohibits the issuance of a show cause notice in situations where the tax amount has already been paid by the assessee before the notice is served. The Tribunal's decision was supported by a previous judgment of the Hon'ble High Court of Karnataka, emphasizing the preclusion of a show cause notice when the assessee acknowledges and pays the entire service tax due with interest before the notice is issued.In light of the above legal provisions and precedents, the Tribunal upheld the appellant's argument and set aside the penalty imposed under section 78 of the Finance Act, 1994. The appeal was allowed to the extent that it challenged the penalty imposed by the adjudicating authority and the first appellate authority. The impugned order was modified accordingly, and the appeal was disposed of in favor of the appellant.Overall, the Tribunal's decision was based on the statutory provisions and legal principles governing the payment of service tax under reverse charge mechanism, emphasizing the importance of prior payment to preclude the issuance of a show cause notice. The judgment highlighted the significance of compliance with tax liabilities and the consequences of such compliance on subsequent enforcement actions.