2022 (10) TMI 582 - AT - Service Tax

Tribunal overturns penalties under Finance Act, cites taxpayer's good faith and legal ambiguity

M/s. RPP Infra Projects Ltd. Versus Commissioner of GST & Central Excise, Salem

The Tribunal concluded that the penalties imposed under sections 77 and 78 of the Finance Act were not legal and proper. The appellant had paid the ... Levy of penalty u/s 77 and 78 of the Finance Act - goods transport agency service - short payment of service tax - service tax along with interest paid on being pointed out by the department - deliberate suppression of facts or not - HELD THAT:- It can be seen that the department has to refrain from issuing Show Cause Notice if the appellant pays up the service tax along with interest as ascertained by himself or by the officers - In the present case, the appellant has paid up the service tax along with interest on 4.5.2012 and 16.8.2012. The Show Cause Notice was issued only on 22.10.2012. The learned AR has submitted that there is deliberate suppression of facts and therefore the Show Cause Notice issued and the penalties imposed are proper. It can be seen that the appellant on being pointed out has paid the service tax immediately. It is also seen that they have paid 1% penalty in case the matter falls under sec. 73(4A) of Finance Act, 1994. The conduct of the appellant pursuant to the verification of accounts shows that they had the intention to pay up the service tax. Further, the payment of service tax on GTA service during the relevant period was under litigation before various forums and there were conflicting decisions. It is also argued that the entire issue is a revenue neutral as they would be eligible to take credit of the service tax being tax paid on input services. Taking note of these submissions that there is no deliberate suppression of facts. On such score, sub-section (3) of section 73 would apply. The decision of the Hon'ble High Court of Karnataka in the case of COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S ADECCO FLEXIONE WORKFORCE SOLUTIONS LTD [2011 (9) TMI 114 - KARNATAKA HIGH COURT] has held that no penalty can be imposed under sub-section (3) of section 73 of Finance Act, 1994. The penalties imposed under sections 77 and 78 are not legal and proper and requires to be set aside - Appeal allowed - decided in favor of appellant. Issues:1. Whether the penalty imposed under sec. 77 and 78 of the Finance Act is legal and proper.Analysis:The case involves an appeal before the Tribunal regarding the imposition of penalties under sections 77 and 78 of the Finance Act, 1994 on an appellant who had short-paid service tax for the period 2010-11 and 2011-12 on goods transport agency service. The appellant had paid the service tax along with interest upon being pointed out by the department, but a Show Cause Notice was still issued proposing penalties. The appellant argued that there was confusion regarding the tax liability on GTA service during the relevant period and that they had paid the tax in good faith upon realization. The appellant also mentioned that they had paid a 1% penalty under sec. 73(4A) to avoid litigation. The department contended that there was deliberate suppression of facts and justified the penalties imposed.The Tribunal referred to sub-section (3) of section 73 of the Finance Act, which states that if the service tax is paid along with interest before the issuance of a Show Cause Notice, no penalty shall be imposed. The appellant had indeed paid the tax along with interest before the Show Cause Notice was issued. The Tribunal noted that the appellant's conduct showed an intention to pay the service tax promptly upon realization of the issue. The Tribunal also considered the confusion and conflicting decisions regarding the tax liability on GTA service during the relevant period. Referring to a decision of the High Court of Karnataka, the Tribunal held that no penalty could be imposed under sub-section (3) of section 73 of the Finance Act, 1994 in such circumstances.Ultimately, the Tribunal concluded that the penalties imposed under sections 77 and 78 were not legal and proper. The impugned order was modified to set aside the penalties, and the appeal was allowed with consequential relief, if any.