Service Tax - Waiver of penalty where the amount of service tax along with interest is deposited before issue of Show Cause Notice (SCN)

Relevant Provisions:

Section 73(3) of the Finance Act, 1994 (Service Tax)

Letter F. No. 137/167/2006-CX-4 - dated - 03-10-2007 - Service Tax

Facts of the Case:

The appellant paid certain commission to the foreign agents to procure export orders for their goods. Since the commission was paid in foreign exchange, the appellants were under misconception that they are not liable to pay Service Tax. However, when the departmental authorities informed that they are liable to pay Service Tax, they immediately paid the Service Tax along with interest much before the issue of show cause notice. The period involved in this case is from 09.07.2004 to 31.3.2006. The show cause notice was issued on 9.10.2006. But even before the issue of the show cause notice, the Service Tax along with interest liability was paid.

Held:

In this case, it is not in dispute that the Service Tax along with interest had been paid on 30.8.2006 and 12.9.2006 but the show cause notice itself had been issued much latter only 9.10.2006, hence, the issue is squarely covered by Section 73 (3) of the Finance Act and therefore, there would not have been any necessity even to issue the show cause notice. This is also in consonance with the Board's Circular Lr. dated 3.10.2007 cited supra by the learned advocate. In any case, the appellant was also having a bonafide doubt in the activity being subject to levy of Service Tax. In our opinion, this is a reasonable cause for not imposing penalty under Section 78 of the Finance Act. In these circumstances, the impugned order has no merit and therefore, we set aside the same and allow the appeal with consequential relief.  

(For full text of judgment - visit 2008 -TMI - 3756 - CESTAT, BANGALORE)