2019 (2) TMI 1104 - AT - Service Tax

Penalty under Finance Act, 1994 overturned due to lack of evidence for fraud or suppression

The Member (Judicial) analyzed the case involving a challenge to a penalty under Section 78 of the Finance Act, 1994. The appellant had paid the service ... Penalty u/s 78 of FA - appellant had paid the entire service tax with interest prior to issuance of SCN - suppression of facts - Held that:- Revenue should have reasons before alleging fraud, suppression etc. and secondly the provisions of Section 78 stand controlled by Section 80 of the Finance Act, 1994, ibid. This makes that for every default, penalty under Section 78 is not automatic. In the case on hand, much before the issuance of show cause notice the assessee has paid the taxes along with applicable interest and there is no dispute on this. In the orders of the lower authorities, the Revenue has but for reiterating the wordings in the Section itself, has not gone beyond that to put on record any reasons on the alleged fraud or suppression etc. - Penalty cannot sustain - appeal allowed - decided in favor of appellant. Issues: Challenge to penalty levied under Section 78 of the Finance Act, 1994.Analysis:1. The dispute in this case pertains to the period from July 2014 to February 2016, where the appellant contested the penalty imposed by the adjudicating authority and upheld by the Commissioner GST & CE (Appeals) under Section 78 of the Finance Act, 1994.2. During the hearing, the appellant's advocate argued that the first appellate authority dismissed the appeal without considering the merits, upholding the penalty under Section 78. The advocate contended that the allegation of suppression of facts was incorrect, as the appellant had paid the service tax with interest before the show cause notice. It was emphasized that there was no intention to evade tax, making the penalty unwarranted. The advocate cited relevant case laws to support these arguments.3. On the other hand, the department's representative opposed the appellant's arguments, stating that the discovery of material facts during an audit led to the allegation of suppression of facts, justifying the penalty under Section 78.4. The Member (Judicial) carefully analyzed the submissions and relevant legal provisions. Section 78 of the Finance Act, 1994 addresses failure to pay service tax and reasons like fraud or suppression. The section requires the Revenue to have valid reasons before alleging fraud or suppression, and it is controlled by Section 80 of the same Act. The Member noted that the appellant had paid the taxes and interest before the show cause notice, and the Revenue failed to provide specific reasons for fraud or suppression. Consequently, the Member concluded that the penalty could not be sustained, setting aside the impugned order and directing the deletion of the penalty, thereby allowing the appeal.