CESTAT deletes Penalty since Delay in Payment of Service Tax was due to Financial Crunch [Read Order]

The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has deleted the penalty order passed against a Company by holding that the delay in paying the service tax by them was due to financial crunch.

In the instant case, the appellants were paying service tax regularly upto August 2010 except for few days delay. From September 2010 to December 2010, there was a delay in payment of tax and such delay ranges from 30 to 40 days for each month.

The CESTAT noted that the show-cause notice requiring tax from the petitioners was sent on 06.01.2011. further, the audit was conducted on 01.02.2011 and the assessee paid entire amount of service tax of Rs.1,05,84,653/- on 07.02.2011 after a delay of 32 days.

“Hence there appears to no malafide intention on the part of assessee to evade payment of service tax and that ST-3 returns had also been filed without delay. For these reasons, the adjudicating authority has held that ingredients of proviso to Section 73 (1) are not present in this case and in consequence there is no scope for imposition of penalty under Section 78 ibid. While so giving the appellants benefit of doubt in respect of penalty under Section 78, the adjudicating authority in para 7.3 nonetheless took the view that there is no reasonable cause for non-payment of service tax and has confirmed the penalty under Section 76.”

While dropping the penalty, the Tribunal noted that “The adjudicating authority has held that ingredients of fraud, suppression, misstatement etc. are not present on the part of the appellant against which conclusion there is no appeal filed by the department. This being so, the reason of financial crunch given by the appellant should be given some credence, particularly in view of the mitigating factor that it is not a case of absolute non-discharge of tax liability but delayed payment of tax, that too with interest paid thereon. In the circumstances, there is reasonable cause for failure to discharge the tax liability and hence we hold that imposition of penalty under Section 76 ibid also is not justified and requires to be set aside, which we hereby do. Appeal is allowed to the extent of setting penalty under Section 76 of the Finance Act, 1994.”