By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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Promptness in payment of service tax, reflection of transactions in Balance Sheets and revenue neutrality were evidences of a bonafide case for non-levy of penalty u/ss. 77 and 78 of the Finance Act, 1994.
Facts:
The Appellants on detection paid service tax with interest immediately and filed a letter with the department stating that since service tax with interest was paid and since the non-payment was unintentional, no penalties should be levied on them.
Further with effect from 10-05-2008 when section 78 is invoked, no penalty u/s. 76 of the Finance Act, 1994 is payable. It was contested that since the liability pertained to January, 2009, penalty cannot be levied under section 76 of the Finance Act, 1994. Further, the dropping of penalty u/s. 77 and 78 of the Finance Act, 1994 was pleaded on factual grounds. It was argued that they did not suppress any information with an intention to evade service tax and this was a bonafide case.
The department contended that the issue was noticed only when the audit party examined the records and therefore, there was suppression of facts.
Held:
In view of amendment to section 78 during the relevant period, penalty u/s. 76 of the Finance Act, 1994 was not sustainable in Law. The payment of service tax was made immediately on discovery and was intimated to the department much before the issuance of Show Cause Notice, the transaction was already reflected in respective Balance Sheets. Accordingly, it was evident that there was no intention to suppress facts. Further, since it was a case of reverse charge mechanism, the situation was revenue neutral in view of CENVAT Credit available to the Appellants. Relying on the decision of Ahmedabad Tribunal in case of Essar Steel Ltd. 2009 (13) STR 579 (Tri.-Ahmd.), it was held that penalty was not imposable u/ss. 77 and 78 vide section 73(3) read with section 80 of the Finance Act, 1994.
