2025 (4) TMI 1599 - AT - Service Tax

Short payment of service tax - entire SCN is based on the difference between the 26AS/ITR data and the gross value reflected by the appellant for their ST-3 returns - HELD THAT - There is no other evidence on record to suggest that any cogent ground was taken by the department to come to the conclusion as regards the nature of the service which was being provided or whether the service tax was liable to be paid on said service. However despite this the appellant on their own have come forward and they have already paid the service tax due along with interest thereon - the show cause notice was issued without invoking proviso to Section 73(1) and OIO has also been confirmed under Section 73(1) and proviso to section 73 (1) has not been invoked while confirming the demand. There are no substantive or cogent ground for invoking the provisions under Section 78 and there does not appear to be any willful withholding of information or misstatement by them therefore on holistic appreciation of the facts of the case and evidence relied upon by the Department the penalty under Section 78 is not invokable in this case and therefore upholding of imposition of penalty of Rs. 72, 500 is set aside. Conclusion - The entire show cause notice is based on the difference between the 26AS/ITR data and the gross value reflected by the appellant for their ST-3 returns. The appeal is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant was liable to pay the service tax demand of Rs. 72,500 under Section 73(1) of the Finance Act, 1994, along with interest under Section 75.

- Whether the penalty under Section 77 and equal penalty under Section 78 were rightly imposed on the appellant for alleged short payment and non-disclosure of service tax liability.

- Whether the appellant's voluntary payment of service tax and interest justifies relief from penalty under Section 78.

- Whether the show cause notice and adjudication proceedings complied with the procedural requirements, including invocation of proviso to Section 73(1).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability to pay service tax demand under Section 73(1) and interest under Section 75

Relevant legal framework and precedents: Section 73(1) of the Finance Act, 1994 empowers the authority to demand service tax where there is short payment or non-payment of tax. Section 75 prescribes interest on delayed payment. The proviso to Section 73(1) requires that the demand be made within a specified period unless certain conditions are met.

Court's interpretation and reasoning: The Tribunal noted that the demand was based on a difference of Rs. 27,56,583 between the income tax returns/26AS data and the service tax returns filed by the appellant. The appellant did not initially explain the discrepancy, leading to issuance of the show cause notice. However, the Tribunal observed that the demand was ultimately confirmed at Rs. 72,500 after rectification of an arithmetical error during adjudication.

Key evidence and findings: The appellant had filed service tax returns for 2015-2016, which were inconsistent with income tax data. The appellant admitted short payment by attempting to deposit Rs. 82,650, which was reversed by RBI, and later successfully deposited the amount with interest on 10.04.2023. The show cause notice was issued without invoking the proviso to Section 73(1), but the demand was confirmed under Section 73(1) itself.

Application of law to facts: The Tribunal found that the appellant had ultimately discharged the service tax liability along with interest. The demand was validly confirmed under Section 73(1) despite the initial procedural lapse regarding the proviso. The original authority was directed to verify the correctness of the payment and recover any shortfall.

Treatment of competing arguments: The appellant did not contest the demand or interest but argued that payment was voluntary and timely. The Department relied on the admitted short payment and data discrepancies to justify the demand.

Conclusions: The Tribunal upheld the demand of service tax and interest under Section 73(1) and Section 75, subject to verification of actual payment.

Issue 2: Imposition of penalty under Section 77 and equal penalty under Section 78

Relevant legal framework and precedents: Section 77 authorizes penalty for failure to pay service tax, and Section 78 imposes an equal penalty for willful misstatement or suppression of facts. Penalty under Section 78 requires proof of willful intent or deliberate concealment.

Court's interpretation and reasoning: The Tribunal carefully examined the show cause notice and adjudication order and found no substantive or cogent grounds for invoking Section 78. There was no evidence of willful withholding of information or misstatement by the appellant. The appellant's attempt to pay the tax and interest was considered a mitigating factor.

Key evidence and findings: The appellant had responded to the show cause notice, made efforts to pay the tax, and did not contest the demand. The adjudicating authority relied primarily on the appellant's admission of short payment but did not establish willful evasion.

Application of law to facts: Since penalty under Section 78 requires willful intent, and such intent was not demonstrated, the Tribunal held that the penalty could not be sustained. The penalty under Section 77 was upheld as it relates to failure to pay tax.

Treatment of competing arguments: The appellant argued for leniency based on voluntary payment and absence of willful evasion. The Department contended that the admitted short payment justified penalty. The Tribunal favored the appellant on the ground of absence of willful concealment.

Conclusions: The penalty under Section 78 was set aside, while the penalty under Section 77 was upheld.

Issue 3: Procedural compliance regarding issuance of show cause notice and invocation of proviso to Section 73(1)

Relevant legal framework: The proviso to Section 73(1) specifies conditions for issuing a show cause notice beyond the normal limitation period.

Court's interpretation and reasoning: The Tribunal noted that the show cause notice was issued without invoking the proviso to Section 73(1) and the demand was confirmed under Section 73(1) itself. There was no invocation of extended limitation provisions.

Key evidence and findings: The record showed no invocation of the proviso. However, this procedural lapse did not invalidate the demand as it was confirmed under Section 73(1) within limitation.

Application of law to facts: The Tribunal held that the procedural lapse did not prejudice the appellant or affect the validity of the demand.

Conclusions: The procedural issue did not warrant interference with the demand.

3. SIGNIFICANT HOLDINGS

- "The entire show cause notice is based on the difference between the 26AS/ITR data and the gross value reflected by the appellant for their ST-3 returns. There is no other evidence on record to suggest that any cogent ground was taken by the department to come to the conclusion as regards the nature of the service which was being provided or whether the service tax was liable to be paid on said service."

- "Despite this, the appellant on their own have come forward and they have already paid the service tax due along with interest thereon."

- "I do not find any substantive or cogent ground for invoking the provisions under Section 78 and there does not appear to be any willful withholding of information or misstatement by them, therefore, on holistic appreciation of the facts of the case and evidence relied upon by the Department, I find that the penalty under Section 78 is not invokable in this case."

- "The original authority will verify the correctness of the amount of service tax claimed to have already been paid by the appellant along with interest and if there is any short payment, the same would be recovered from the appellant."

Core principles established include that mere discrepancy between tax returns and income tax data, without evidence of willful concealment or misstatement, does not justify penalty under Section 78. Voluntary payment of tax and interest prior to adjudication supports leniency in penalty imposition. Procedural lapses in issuance of show cause notice under proviso to Section 73(1) do not invalidate the demand if confirmed within limitation.

Final determinations:

- The service tax demand of Rs. 72,500 along with interest under Sections 73(1) and 75 is upheld subject to verification of payment.

- Penalty under Section 77 is upheld.

- Penalty under Section 78 is set aside for lack of willful evasion or misstatement.

- Appeal is partly allowed accordingly.