2017 (9) TMI 1073 - AT - Service Tax

Non-payment of service tax - case of appellant is that the appellants were doing the job work as well as the work of maintenance and repair. Due to bona-fide mistake, they showed the maintenance and repair charges under the ledger relating to job work - Held that - The appellants, who are registered under this service and regularly paying the Service Tax for this service, are expected to be aware of repair charges and job work. They failed to establish that the job charges as reflected in the balance sheet are different from the repair and maintenance service charges. Besides, there is no job work challans or any other documentary evidence to justify the receipt of so called job work charges. Hence, we hold that the appellants had knowingly and deliberately shown the repair charges as job work charges to mislead about their taxability. Since they had deliberately and knowingly suppressed the value of taxable services in the guise of job charges and mis-declared the value, we find no infirmity in the order of the Ld. Commissioner (Appeals) upholding the demand, interest and penalty under Section 78 of the Finance Act. However, the appellants would be entitled to the benefit of 25% of the reduced penalty in view of the ratio laid down in the judgment of the Hon ble Punjab & Haryana High Court in the case of M/s Sunshine Steel Corporation Vs. CCE, Chandigarh-I 2017 (4) TMI 34 - PUNJAB AND HARYANA HIGH COURT - Section 78(I) is pari-materia to Section 11AC and the second and third proviso to Section 78 of the Finance Act, 1994 are pari-materia to first and second proviso respectively of Section 11 AC of the Central Excise Act. Since they had already paid the full amount of duty determined under Section 73(2) and the interest before the issue of show cause notice thereby meeting the requirement of second proviso of Section 78 of Finance Act, 1994, the appellants are entitled to the benefit of reduced penalty. As for the simultaneous penalty under Section 76 and 78, the Hon ble Punjab & Haryana High Court in the case of CCE Vs. First Flight Courier Ltd. 2011 (1) TMI 52 - PUNJAB AND HARYANA HIGH COURT has held that penalty under Section 76 may not be justified if the penalty has already been imposed under Section 78 of the Finance Act 1994. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Whether the appellants were liable to pay Service Tax on repair services provided for Radio Communication Systems.
2. Whether the penalty under Section 76 and 78 of the Finance Act, 1994 was correctly imposed.
3. Whether the appellants were entitled to a reduced penalty.

Analysis:

Issue 1: Liability for Service Tax on Repair Services
The appellants held Central Excise and Service Tax registrations for manufacturing and maintenance services. The audit revealed nonpayment of Service Tax on repair services for PCB assembly modules for Radio Communication Systems. The appellants admitted providing repair services to the Army Units and received charges for the same. The contention that repair charges were mistakenly shown under job work was rejected. The Tribunal held that the appellants deliberately misstated repair charges as job work charges to evade tax liability. The demand, interest, and penalty under Section 78 were upheld as the appellants failed to differentiate between job work and repair charges, lacking supporting documentation.

Issue 2: Imposition of Penalties under Section 76 and 78
The Revenue argued that penalties under both Section 76 and 78 were warranted, citing deliberate suppression of taxable service value. However, the Tribunal referred to case law stating that if a penalty is imposed under Section 78, penalty under Section 76 may not be justified. Relying on the judgment, the Tribunal upheld the dropping of penalty under Section 76 by the Ld. Commissioner (Appeals) as penalty under Section 78 was already imposed. The order was consistent with the jurisdictional High Court's interpretation.

Issue 3: Entitlement to Reduced Penalty
The appellants claimed entitlement to a reduced penalty of 25% due to early tax payment before show cause notices. The Tribunal agreed, citing a judgment absolving parties from paying the entire penalty if the duty and interest were paid within the specified period. As the appellants met this condition, they were granted the benefit of reduced penalty under Section 78, which was to be paid within thirty days of the order.

In conclusion, the Tribunal rejected the appeal filed by the assessee, upheld the reduced penalty benefit, and rejected the Revenue's appeal. The judgment provided a detailed analysis of the liability for Service Tax, imposition of penalties, and entitlement to reduced penalties, ensuring adherence to legal precedents and interpretations.