2009 (8) TMI 289 - AT - Service Tax

CESTAT Bangalore: Penalties under Finance Act waived, citing timely tax payment & precedent.

The Appellate Tribunal CESTAT, Bangalore allowed the appeal, setting aside penalties imposed on the appellant under Sections 76, 77, and 78 of the Finance ... Imposition of penalty under Sections 76, 77 and 78 of the Finance Act, 1994 - effect of payment of service tax with interest under Section 73(3) of the Finance Act, 1994 - conclusion of proceedings upon payment of tax and interest - waiver of penalty where there is no mala fide or intention to evade - administrative clarification in Board's Circular dated 3-10-2007 on Section 73Imposition of penalty under Sections 76, 77 and 78 of the Finance Act, 1994 - effect of payment of service tax with interest under Section 73(3) of the Finance Act, 1994 - administrative clarification in Board's Circular dated 3-10-2007 on Section 73 - absence of intention to evade / bona fide financial difficulty - Whether penalties under Sections 76, 77 and 78 could be imposed where the assessee had paid the service tax and interest after discovery of default and relied on Section 73(3) and the Board's Circular - HELD THAT: - The Tribunal found that the appellant admitted non-deposit of service tax for the period January 2007 to June 2007 but paid the tax with interest on 5-7-2007 and 19-7-2007 and explained the delay as due to financial crunch arising from non-release of payment by a major client. The Bench held that payment of tax together with interest brought Section 73(3) into operation. The Board's Circular dated 3-10-2007 was held to clarify that conclusion of proceedings under sub-sections (1A) and (3) of Section 73 implies conclusion of the entire proceedings under the Finance Act, 1994, and thus precludes initiation or continuance of penal proceedings under Sections 76, 77 and 78 where the statutory conditions for conclusion are satisfied. The Tribunal also relied on its consistent precedent (including Vee Aar Secure) where, in facts showing absence of mala fide and where tax and interest were discharged once the lapse was pointed out, penalty was not warranted; the original authority's exercise of discretion under Section 80 could not be reopened to enhance penalty. Applying those principles to the present facts, the Bench concluded that a prima facie case was made out for non-imposition of penalties as there was no evidence of intention to evade and the statutory/administrative scheme contemplated closure of proceedings upon payment of tax and interest. [Paras 5, 6, 7]The imposition of penalty under Sections 76, 77 and 78 of the Finance Act, 1994 for the period January 2007 to June 2007 was set aside.Final Conclusion: The appeal is allowed; penalties imposed under Sections 76, 77 and 78 are set aside in respect of the period January 2007 to June 2007, consequent relief to follow. The Appellate Tribunal CESTAT, Bangalore heard an appeal against an Order-in-Original passed by the Commissioner of Service Tax, Bangalore. The issue involved an appellant allegedly charging, collecting, but not depositing service tax with the department from January 2007 to June 2007. The appellant admitted a delay in discharging the service tax due to financial difficulties and non-payment from a client. The lower authorities issued a show cause notice for the demand of service tax, interest, and penalties. The appellant contested the notice, claiming remedies under Section 73(3) of the Act. The authorities confirmed the demand and imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellant appealed the penalties.The appellant argued that the penalties were unjustified due to financial constraints and prompt payment in previous years. The Department argued that penalties were warranted due to non-payment and non-filing of returns. The Tribunal found that the appellant had discharged the tax liability with interest before the conclusion of proceedings, invoking Section 73(3) of the Act. They referenced a Board Circular supporting this conclusion. The Tribunal cited previous cases where penalties were waived when the tax liability was paid immediately after being pointed out. Following these precedents, the Tribunal set aside the penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appeal was allowed with consequential relief. The decision was pronounced on August 6, 2009.