Threshold exemption and ST-3 filing: late fee was dropped for the exempt period, but penalty and balance late fee were sustained.

Late fee for non-filing of an ST-3 return was not sustainable for the first half of the financial year where the assessee was within the threshold exemption limit, because the return under Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1994 was required only from a person liable to pay service tax. The late fee for 1 April 2016 to 30 September 2016 was therefore set aside. However, penalty under Section 78 was upheld once the demand was confirmed by invoking the extended period of limitation, and the remaining late fee for the later return period was also sustained because the assessee remained registered and the return was still required.

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Issues: (i) Whether late fee for non-filing of the ST-3 return for the first half of the financial year was payable when the assessee was within the threshold exemption limit; (ii) Whether the penalty under Section 78 and the remaining late fee were liable to be interfered with.

Issue (i): Whether late fee for non-filing of the ST-3 return for the first half of the financial year was payable when the assessee was within the threshold exemption limit.

Analysis: The return under Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1994 is required only from a person liable to pay service tax. Where the impugned order itself recognises entitlement to threshold exemption, and the receipts for the relevant first half-year remained below the exemption limit, the assessee was not required to file the ST-3 return for that period. In such circumstances, levy of late fee for that return could not be sustained.

Conclusion: The late fee for non-filing of the ST-3 return for the period 1 April 2016 to 30 September 2016 was set aside.

Issue (ii): Whether the penalty under Section 78 and the remaining late fee were liable to be interfered with.

Analysis: Penalty under Section 78 of the Finance Act, 1994 was treated as mandatory once the demand was confirmed by invoking the extended period of limitation. The remaining late fee relating to the later ST-3 return was also upheld, since the assessee remained registered and the return for that period was still required. The penalty under Section 77(1)(c) had already been set aside in the impugned order and was not revived.

Conclusion: The penalty under Section 78 and the remaining late fee were upheld.

Final Conclusion: The appeal succeeded only to the extent of relief against the late fee for the first return period, while the penalty under Section 78 and the balance late fee were sustained, resulting in a partial modification of the impugned order.

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