2023 (3) TMI 497 - AT - Service Tax

Tribunal nullifies penalties under Sections 76 & 78, stresses tax payment and interest

The Tribunal set aside penalties imposed under Section 76 & 78, emphasizing the payment of service tax and interest before penalties were imposed. It ... Levy of penalty u/s 76 & 78 of FA - the service tax along with interest had already been paid - Applicability of Section 73 (3) of Finance Act 1994 - HELD THAT:- As regard, the imposition of penalty under Section 76 in the present case, it is found that the issue is settled by various High Court judgments in CCE VERSUS FIRST FLIGHT COURIER LTD. [2011 (1) TMI 52 - PUNJAB AND HARYANA HIGH COURT] where it was held that simultaneous penalty under Section 76 cannot be imposed when penalty under Section 78 is imposed - thus, the penalty imposed under Section 76 is not sustainable, hence, the same is set aside. Penalty under Section 78 - HELD THAT:- The adjudicating authority even though invoked the extended period but by invoking Section 80 set aside the penalty by considering the fact that the appellant had admittedly paid the entire service tax along with interest before issuance of show cause notice. It is further found that the non payment of service tax was detected only during audit of the appellant’s books of accounts, therefore, the transaction on which the service tax demanded were very much entered in the books of the appellant’s account. The adjudicating authority has rightly set aside the penalty under Section 76 & 78 of the Finance Act, 1994 - there are no infirmity in the order of the adjudicating authority - appeal allowed - decided in favour of appellant. Issues:Challenge of penalties under Section 76 & 78 due to payment of service tax and interest, imposition of penalties based on suppression of facts and extended period, applicability of Section 80 of the Finance Act, 1994, simultaneous imposition of penalties under Section 76 and Section 78, validity of penalties under Section 76 & 78.Analysis:1. Challenge of Penalties under Section 76 & 78:The appellant contested the penalties imposed under Section 76 & 78, arguing that since the service tax and interest were already paid, the case should have been closed without any penalty. The appellant's counsel submitted that the adjudicating authority correctly dropped the penalties under Section 76 & 78 by invoking Section 80 of the Finance Act, 1994. The appellant further argued that penalties were erroneously imposed by the Learned Commissioner (Appeals) based on the grounds of suppression of facts and the invocation of the extended period. The counsel relied on various judgments to support their argument that penalties under Section 76 cannot be imposed when penalties under Section 78 are already imposed.2. Applicability of Section 80 of the Finance Act, 1994:The appellant's counsel emphasized the provisions of Section 80 of the Finance Act, which allows for the setting aside of penalties under certain circumstances. They contended that despite the extended period being invoked, the penalty could be set aside based on the facts and circumstances of the case. The counsel also argued that the appellant's case fell under Section 73(3) of the Finance Act, 1994, which should have precluded the issuance of a show cause notice since the duty and interest were paid before the notice.3. Simultaneous Imposition of Penalties under Section 76 and Section 78:The Tribunal referred to various High Court judgments to establish that simultaneous penalties under Section 76 and Section 78 cannot be imposed. Citing specific cases from Gujarat, Delhi, Karnataka, and Punjab and Haryana High Courts, the Tribunal concluded that when a penalty under Section 78 is imposed, a penalty under Section 76 cannot be sustained. Therefore, the penalty under Section 76 was set aside.4. Validity of Penalties under Section 76 & 78:After reviewing the submissions and records, the Tribunal found that the adjudicating authority had appropriately set aside the penalties under Section 76 & 78. The authority considered that the appellant had paid the entire service tax and interest before the show cause notice was issued. Additionally, the non-payment of service tax was discovered during an audit where the transactions were recorded in the appellant's books. Consequently, the Tribunal upheld the decision to set aside the penalties under Section 76 & 78, finding no error in the original authority's order.5. Conclusion:The Tribunal, after careful consideration, set aside the impugned order and allowed the appeal with consequential relief. The judgment emphasized the correct application of Section 80 of the Finance Act, 1994, and the inapplicability of simultaneous penalties under Section 76 and Section 78. The decision highlighted the importance of paying taxes and interest promptly to avoid penalties and the significance of proper documentation in audit processes.(Pronounced in the open court on 08.02.2023)