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2025 (6) TMI 448 - AT - Service TaxLevy of penalty u/s 78 of the Finance Act - main contention of the Appellant is that the SCN was issued after lapsing of 2 years from the date of visit of the audit officers and the payments made by them along with interest were not considered for extending the benefit of provision of Section 73(3) of the Finance Act 1994 - HELD THAT - In terms of provisions of Section 73(3) of the Finance Act 1994 when the Appellant has paid the service tax on his own ascertainment no Show Cause Notice should have been issued. Reportedly there was a short payment to the tune of Rs.6, 12, 428/- by the Appellant. Further the reason that was advanced for not giving the benefit of Section 73(3) was that the Appellant had not produced evidence of interest payment. However it has to be observed that out of total demand of service tax of Rs.1, 25, 34, 226/- the Appellant has paid Rs.1, 19, 21, 798/- which is not disputed thus leaving a short fall of Rs.6.12 lakhs. There is no evidence that the Central Excise Officer has communicated this shortfall in payment of tax to the Assessee. Further there was evidence produced for payment of interest of Rs.5, 18, 466/- on 25.02.2011 which was much before the issuance of the Show Cause Notice dated 10.04.2013. Within a reasonable time the Appellant has filed all the service tax returns due for the period from April 2008 to March 2011 on 17.06.2011 which is much before the issuance of the Show Cause Notice which was dated 10.04.2013. There is no justification for invoking the extended period and the issue should have been treated as settled under the provision of Section 73(3) of the Finance Act 1944 as prevalent in 2011. Conclusion - No interference is called for in appropriating the service tax paid by the Appellant but there is no case made out for imposition of penalty under Section 78 of the Finance Act 1994 in the facts of this case and as such it is ordered that the impugned order dated 01.09.2015 is modified to the extent of setting aside the penalty under Section 78 of the Finance Act 1994. However it is not in dispute that the Appellant has not filed the returns on the due dates as required and so we confirm the demand of late fee of Rs.1, 03, 000/- under Section 70 read with Rule 7C of the Service Tax Rules 1994 of the Finance Act 1994 for failure to file ST-3 returns for the period 2008-2009 to 2010- 2011 within due dates. Appeal allowed in part.
The core legal questions considered by the Tribunal in this appeal are:
1. Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 is invokable against the appellant for alleged non-payment of service tax collected from customers during the period April 2008 to March 2011. 2. Whether the appellant is entitled to the benefit of Section 73(3) of the Finance Act, 1994, which protects an assessee from issuance of a show cause notice and penalty if the service tax is paid on self-ascertainment before notice is issued. 3. Whether penalty under Section 78 of the Finance Act, 1994 is justifiable in the facts and circumstances of the case. 4. Whether interest under Section 75 and late fee under Section 70 read with Rule 7C of the Service Tax Rules, 1994 are rightly imposed. Issue-wise detailed analysis: 1. Applicability of extended period under proviso to Section 73(1) of the Finance Act, 1994: Relevant legal framework and precedents: Section 73(1) provides that recovery of service tax not levied or paid can be made within thirty months from the relevant date. However, the proviso extends this period to five years if the non-payment arises from fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade tax. The Supreme Court has held that invocation of the extended period requires clear proof of conscious or deliberate intention to evade tax, not mere omission or error. Court's interpretation and reasoning: The Tribunal examined the facts and found that the appellant had collected service tax but had not remitted the entire amount to the Government account for the period April 2008 to March 2011. However, the appellant had paid a substantial portion of the tax and interest before the issuance of the Show Cause Notice (SCN) dated 10.04.2013, following an audit visit in 2011. The appellant also filed the delayed returns on 17.06.2011. The Tribunal noted that the appellant's failure was due to financial hardship and a mistaken belief regarding filing returns only after full payment of tax liability, which was mitigated by available input credit. Key evidence and findings: The appellant paid Rs.1,19,21,798/- out of Rs.1,25,34,226/- demanded, reversed input service tax credit of Rs.2,21,71,638/-, and paid interest of Rs.5,18,466/- in 2011 itself. The audit report triggered the reassessment. The Tribunal found no evidence of fraud, collusion, or wilful misstatement. The shortfall of Rs.6,12,428/- was not communicated to the appellant before the SCN, and interest payments were evidenced by challans. Application of law to facts: Since the appellant had paid service tax on self-ascertainment before the issuance of SCN and there was no evidence of deliberate evasion, the extended period under the proviso to Section 73(1) was not justified. The Tribunal held that the issue should have been treated under Section 73(3), which bars issuance of SCN if tax is paid on self-ascertainment. Treatment of competing arguments: The Revenue argued suppression of facts and failure to file returns timely, justifying extended period and penalties. The appellant argued bonafide delay, financial hardship, and substantial pre-notice payments. The Tribunal sided with the appellant, noting absence of malafide intent or suppression. Conclusion: The extended period of limitation was wrongly invoked; the demand should have been restricted to the normal thirty months period or treated under Section 73(3). 2. Benefit of Section 73(3) of the Finance Act, 1994: Relevant legal framework: Section 73(3) states that if the service tax is paid on self-ascertainment before issuance of notice, no SCN shall be issued for that amount and no penalty shall be imposed for such payment and interest. Court's reasoning: The Tribunal found that the appellant had paid the major portion of the tax and interest before the SCN. Although a minor shortfall existed, the Revenue failed to communicate this to the appellant. The appellant also filed returns before the SCN. Therefore, the conditions for Section 73(3) benefit were met. Application of law to facts: The Tribunal held that the appellant's payments and disclosures fell within the ambit of Section 73(3), barring issuance of SCN and penalty for the paid amounts. Competing arguments: The Revenue contended that the shortfall and delayed payments negated this benefit. The appellant demonstrated payment of interest and tax with documentary proof. The Tribunal accepted the appellant's submissions. Conclusion: The appellant was entitled to protection under Section 73(3) for the amounts paid before notice. 3. Imposition of penalty under Section 78: Legal framework and precedents: Penalty under Section 78 is imposed for contravention of provisions with intent to evade tax. The Supreme Court and Tribunal decisions require establishing contumacious conduct or gross negligence. Bonafide errors or financial hardship do not warrant penalty. Case law relied upon by the Revenue requires reasonable cause to avoid penalty. Court's interpretation: The Tribunal found no evidence of wilful evasion, fraud, or suppression by the appellant. The appellant acted bonafide, paid most dues promptly after audit, and filed returns, albeit late. The delay was due to financial hardship and misunderstanding of input credit rules. Application of law to facts: Since no contumacious conduct or intentional evasion was established, penalty under Section 78 was not justified. Treatment of competing arguments: The Revenue relied on judgments denying penalty relief where tax was paid before SCN but returns were not filed timely. The appellant relied on bonafide conduct and partial payments. The Tribunal distinguished the facts and held penalty was not warranted. Conclusion: Penalty under Section 78 was set aside. 4. Interest and late fee: Legal framework: Interest under Section 75 is mandatory on short-paid tax. Late fee under Section 70 read with Rule 7C is leviable for delayed filing of ST-3 returns. Court's reasoning: The appellant admitted delayed filing of returns and non-payment of late fee. Interest was paid on due amounts. The Tribunal confirmed the demand of late fee but recognized interest payments made. Conclusion: Interest and late fee demands were upheld as per law. Significant holdings: "As the entire payment of tax due from the Appellant has been computed on the basis of the records maintained by them and as the Appellant has paid their entire tax dues along with interest and a substantial part of the tax before the issuance of the Show Cause Notice dated 10.04.2013 consequent to Audit verification, attributing the motive of suppression or fraud or intent to evade is not justified." "In view of the above discussion, we are of the view that there is no justification for invoking the extended period and the issue should have been treated as settled under the provision of Section 73(3) of the Finance Act, 1944 as prevalent in 2011." "No interference is called for in appropriating the service tax paid by the Appellant but there is no case made out for imposition of penalty under Section 78 of the Finance Act, 1994 in the facts of this case and as such, it is ordered that the impugned order dated 01.09.2015 is modified to the extent of setting aside the penalty under Section 78 of the Finance Act, 1994." Core principles established include:
Final determinations: The Tribunal set aside the penalty imposed under Section 78 of the Finance Act, 1994. It held that the extended period under the proviso to Section 73(1) was wrongly invoked and the matter should have been treated under Section 73(3). The demand for late fee under Section 70 read with Rule 7C was confirmed. The appeal was partly allowed accordingly.
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