Appeal success: Penalty revoked under Section 78 for alleged non-payment of service tax.

The appeal centered on the imposition of a penalty under Section 78 for alleged non-payment of service tax. The appellant contested the tax on cash discount but had paid tax on Low Volume Compensation. The Commissioner (Appeals) dropped the cash discount demand but upheld the penalty for the service tax. However, the Member (Judicial) ruled in favor of the appellant, finding no concealment or contumacious conduct. As the appellant had rectified the tax issue upon audit, the penalty under Section 78 was deemed inapplicable. Consequently, the appeal was successful, and the penalty was revoked.

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Issues: Penalty under Section 78

The issue in this appeal was whether the penalty under Section 78 was rightly imposed. The appellant had shown income for Low Volume Compensation and cash discount in their balance sheet, which was considered as Declared Service under Section 66E(e) of the Finance Act, chargeable to Service Tax. The appellant deposited the tax on Low Volume Compensation but contested the tax on cash discount. A show cause notice was issued proposing recovery of Service Tax and interest, along with the imposition of penalty under Section 78. The adjudicating authority confirmed the demand and imposed an equal penalty.

The appeal was filed before the Commissioner (Appeals), who dropped the demand related to the cash discount but confirmed the penalty for alleged non-payment of service tax on Low Volume Compensation. The appellant argued that they recorded the transaction in their books and deposited the tax upon audit pointing it out. The appellant relied on Section 73(3) of the Finance Act, stating that if tax is deposited upon self-ascertainment or upon pointing by the officer, no notice shall be served. The appellant contended that the penalty under Section 78 should be set aside.

After considering the arguments, the Member (Judicial) found that there was no concealment or contumacious conduct by the appellant. The levy of service tax under Section 66E(e) was a matter of interpretation, and the appellant had accepted the audit objection and deposited the tax with interest. Therefore, the Member concluded that no penalty was imposable under Section 78. The appeal was allowed, and the penalty was set aside.

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