DEEMED CONCLUSION OF PROCEEDINGS ARISES ONLY IF TAX PAID VOLUNTARILY AND THE SAME IS NOT APPLICABLE FOR PENAL ACTION FOR DEFAULT

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

Sec. 73 of the Finance Act, 1994 provides for recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. Sec. 73(1) provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short levied or short paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

The proviso to Sec. 73(1) provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of-

fraud; or

collusion; or

willful misstatement; or

suppression of facts; or

contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax

by the person chargeable with the service tax or his agent, the provisions of this section shall have effect, as if, for the words 'one year', the words 'five years' had been substituted.

Explanation to Sec. 73(1) provides that where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case ma be.

Sec. 73(1A) provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Chapter or the rules made there under, with intent to evade payment of service tax, by such person or his agent, to whom a notice is served under the proviso to sub section (1) by the Central Excise Officer, such person or agent may pay service tax in full or in part as may be accepted by him, and the interest payable thereon under Section 75 and penalty equal to twenty five per cent of the service tax specified in the notice or the service tax as accepted by such person within thirty days of the receipt of the notice.

Sec. 73(2) provides that the Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and there upon such person shall pay the amount so determined. Where such person has paid the service tax in full together with interest and penalty under sub-section (1A), the proceedings in respect of such person and other persons to whom notices are served under sub-section (1) shall be deemed to be concluded. Where such person has paid service tax in part along with interest and penalty under sub-section (1A), the Central Excise Officer shall determine the amount of service tax or interest not being in excess of the amount partly due from such person.

Sec. 73(3) provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid. The Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner, specified in this section, and the period of 'one year' referred to in sub section (1) shall be counted from the date of receipt of such information of payment.

Explanation to Sec. 73(3) declares that the interest under section 75 shall be payable on the amount paid by the person under this sub section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub section.

Sec. 73(4) provides that notwithstanding anything contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of-

fraud; or

collusion; or

willful mis-statement; or

suppression of facts; or

contravention of any of the provisions of the Chapter or of the rules made there under with intent to evade payment of service tax.

It is, thus, clear that the proceedings initiated against an assessee is deemed to be concluded if the assessee pays the service tax along with interest before issue of show cause notice. But such payment should be voluntary. It is not applicable for penal action for default. It is illustrated in the case law'Raisoni Tyres Private Limited V. Commissioner of Central Excise & Customs, Nasik' - [2010 -TMI - 75980 - CESTAT, MUMBAI]

In the above said case the appellant is engaged in the activity of retreading of tyres. They registered with the department for the services rendered under the heading 'Maintenance and Repair Service' From October 2006 to March 2007 they committed default of service tax. Later on they paid the service with interest on 6.10.2007 and filed return on 22.01.2008. A show cause notice was issued by the Department on 05.06.2008 demanding an amount of Rs. 28/- as differential interest and also proposed to impose of penalty under section 76 of the Act.

The assessee gave reply to the show cause notice. In the reply they have submitted that they were not liable to pay any penalty since they had paid the service tax before the issue of show cause notice. But they did not object to the demand of different interest which they readily paid up. The Adjudicating Officer imposed penalty as indicated in the show cause notice under Section 76 for the delayed payment of service tax. The assessee filed appeal before the Commissioner of Central Excise (Appeals) but he did not succeed.

The assessee filed appeal before the Appellate Tribunal. In the memorandum of appeal the appellant has harped on taxability and valuation aspects also. It was submitted that the show cause notice ought not to have been issued inasmuch as the service tax with interest had been paid before the date of issue of the notice.  They had no intention to evade payment of service tax, and, therefore, any penalty under Section 76 was uncalled for.

The Tribunal held that the penal provision invoked in the show cause notice and the orders of the lower authorities in Section 76 of the Finance Act, 1994 and the same provides for a penalty on an assessee for default of service tax simpliciter. There is no requirement, for such penalty, that the assessee should have committed default with intent to evade payment of tax. The appellant had got registered themselves with the department. They must be aware of their tax liability since then.  The delay in payment of service tax for the disputed period is more than 1500 days, which is not in dispute. It is imperative for any assessee to pay tax in due time, failing which they will be penalized. Such penalty cannot be resisted in any manner other than provided in the relevant statute. Insofar as the penalty under Sec. 76 is concerned, the only option for the appellant to avoid such penalty was to state a valid reason as envisaged under Section 80 of the Act. In the present case the assessee never invoked Sec. 80, neither in their reply to the show cause notice nor in their appeals filed with the lower authority and the Tribunal. Sec. 73(3) restrains the department from issuing any show cause notice for demand of service tax from an assessee where they have already self-determined and paid up the tax under intimation to the department. This provision of law in no manner restrains the authorities from taking penal action against such an assessee for default/delay of payment of service tax. This is what happened in the instant case. The extent of penalty which could be imposed on an assessee in appropriate circumstances like these obtaining in the present case, under Section 76 is Rs. 200/- per day or 2% of the amount of tax per month, whichever is higher. Obviously, when calculated on this basis, the amount of penalty @ Rs.200/- per day of delay of payment of tax would exceed the amount of tax itself. The lower authorities have, however, chosen to impose a penalty equal to service tax on the assessee and the department has no grievance in this behalf.