Appellant, a service receiver, liable to tax under reverse charge mechanism, did not pay service tax, but paid the same when the omission was pointed out — Appellant under the impression that there was no need to pay interest — No reply to the letter of appellant regarding payment of service tax — Department initiated proceed-ings by issuing the show-cause notice and even though the appellant paid interest as soon as the show-cause notice was issued, penalties were imposed — Held, for penalty imposed for sup-pressing value of service tax, there was no need for the appellant to resort to suppression since whatever tax was to be paid they were eligible for CENVAT credit — By delaying the payment of service tax, the appellant had to pay interest on the amount which was not available as CENVAT credit — Penalty not invokable.

Facts:

The appellant availed services of Machine Maintenance & Repair from Germany and paid the required amount to the service provider in foreign currency. The appellant did not pay service tax since the service provider did not have their office in India. They paid service tax when the omission was pointed out. The mistake occurred because the payment of service received was to be made by the head office and services were received in factory. The appellant was under the impression that they were not required to pay interest and after payment of service tax they had intimated the department about the same. No reply to this letter was received and the Department initiated proceedings by issuing the show-cause notice and even though the appellant paid the interest as soon as the show-cause notice was issued, penalties were imposed.

Held:

After receiving the intimation from the appellant, the Central Excise Officer should determine the interest payable and communicate to the appellant and if the appellant did not pay the same, they had a period of one year to issue the show-cause notice. Without intimating the appellant that he is liable to pay interest, show cause notice was issued. At least after issuance of show-cause notice when the appellant paid the amount of interest, further proceedings should have been dropped. In respect of penalty, it was held that there was no need for the appellant to resort to suppression since whatever tax was to be paid they were eligible for CENVAT credit and by delaying the payment of service tax, the appellant had to pay interest on the amount which was not available as CENVAT credit; Hence the Tribunal found no justification to sustain penalty.