Tribunal overturns penalty for late Service Tax payment citing timely payment with interest.

The Appellate Tribunal CESTAT AHMEDABAD set aside the penalty imposed under Section 78 of the Finance Act, 1994, on the appellant for delayed payment of Service Tax. The Tribunal found that the appellant had paid the Service Tax with interest before the show cause notice was issued, as allowed under Section 73(3), and had not suppressed any facts. Consequently, the Tribunal ruled in favor of the appellant, concluding that the penalty under Section 78 was unjustified.

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Issues:
1. Imposition of penalty under Section 78 for delayed payment of Service Tax.

Analysis:
The case involved a dispute regarding the imposition of a penalty under Section 78 of the Finance Act, 1994, on the appellant for delayed payment of Service Tax. The appellant, engaged in providing taxable services, had not discharged the Service Tax on due dates for services provided during a specific period. The adjudicating authority confirmed a penalty of 200% of the Service Tax amount, which the appellant contested through an appeal before the Commissioner (Appeals) and subsequently in the present appeal before the Appellate Tribunal CESTAT AHMEDABAD.

The appellant's representative argued that the Service Tax was paid with interest before the issuance of the show cause notice, as per Rule 73(3), which exempts the issuance of a notice in such cases. It was contended that there was no suppression of facts, and the appellant had issued valid invoices and maintained proper records, demonstrating no malafide intention. The representative cited various judgments to support their arguments, emphasizing that the penalty was not justified.

On the other hand, the Revenue's representative supported the penalty upheld in the impugned order and cited judgments to strengthen their position.

After considering the submissions and perusing the records, the Tribunal focused on the key issue of whether the appellant was liable for penalty under Section 78. The Tribunal noted that the case did not involve suppression of services, as the appellant had issued legitimate invoices reflecting the Service Tax. The delay in payment was the main issue, which was rectified by the appellant by paying the Service Tax along with interest before the show cause notice was issued.

The Tribunal referred to Section 73(3) of the Finance Act, 1994, which states that if the Service Tax is paid by the assessee on their own ascertainment or upon departmental notification, without the need for a show cause notice, no penalty can be imposed. In this case, since the appellant had paid the Service Tax with interest before the notice was served, their actions fell within the purview of Section 73(3). The Tribunal found merit in the appellant's arguments and the judgments cited in their support, concluding that the penalty imposed under Section 78 was unwarranted.

Therefore, the Tribunal set aside the penalty under Section 78 and allowed the appeal in favor of the appellant, providing consequential relief. The judgment was pronounced in open court on 30.06.2022.

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