In a notable judgment, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Eastern Zonal Bench in Kolkata, set aside significant penalties imposed on the assessee/ appellant, M/s. Ashirbad Enterprises, a firm based in Gua, West Singhbhum, Jharkhand. The penalties were initially levied by the Commissioner of Central Excise & Service Tax, Jamshedpur, despite the fact that the firm had cleared its service tax liability well before the issuance of the show cause notice.
The assessee/ appellant, M/s. Ashirbad Enterprises, filed an appeal against an order dated June 20, 2011, passed by the Commissioner of Central Excise & Service Tax, Jamshedpur. In the impugned order, the Commissioner had imposed a penalty of Rs. 1,30,00,000 under Section 78 and an additional penalty of Rs. 5,000 under Section 77 of the Finance Act, 1994. These penalties were levied despite the fact that the appellant had already paid the entire service tax amount due along with the applicable interest before the issuance of the show cause notice.
Aggrieved, the appellant appeared before CESTAT.
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Before the tribunal, the appellant argued that this payment absolved them from any penalties as per the provisions of Section 73(3) of the Finance Act, 1994, which provides that no penalties should be imposed if the service tax liability and interest are paid before the issuance of the show cause notice. However, the adjudicating authority failed to take this into account and imposed the penalties nonetheless.
The appellant was represented by Mr Sushil Kumar Goyal, Chartered Accountant. He argued that the penalties imposed were unjustified given that the service tax amount of Rs. 1,29,85,674 and interest of Rs. 25,10,951 had been paid in full before the show cause notice was issued.
Mr Goyal drew the Tribunal’s attention to the fact that these payments had been acknowledged in the show cause notice itself. He referred to specific portions of the notice, particularly page 4, and cited the demand quantification in paragraphs (i) and (ii), which clearly showed that the service tax amount and the interest had been paid before the notice was issued. The notice even contained proposals to appropriate the amounts already paid towards the service tax and interest liabilities.
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Despite this, the Commissioner’s order did not appropriately account for these facts. Shri Goyal argued that under Section 73(3) of the Finance Act, the payment of service tax and interest prior to the issuance of a show cause notice should shield the appellant from any penalties. He contended that the penalties imposed under Sections 77 and 78 should be set aside, as there was no justification for them.
On behalf of the Revenue, Shri Tariq Suleman, Authorized Representative for the Department, reiterated the findings of the Commissioner. He argued that the penalties had been correctly imposed in accordance with the law. The Revenue maintained that the appellant was liable for the penalties under Sections 77 and 78 of the Finance Act despite the payments made before the issuance of the show cause notice.
After considering the submissions from both sides, the bench of Mr R Muralidhar and Mr Rajeev Tandon closely examined the facts of the case. It found that the adjudicating authority had indeed acknowledged the payments made by the appellant, as reflected in the show cause notice. However, despite this acknowledgment, the Commissioner had proceeded to impose penalties without discussing the appellant’s compliance in making the payments before the issuance of the notice.
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The Tribunal noted that the adjudicating authority had appropriately appropriated the amounts paid by the appellant towards the service tax and interest liabilities, which indicated that the payments had been received and accounted for. However, the Tribunal found that there was no justification for imposing penalties on the assessee, given the clear legal provisions under Section 73(3) of the Finance Act.
The Tribunal also observed that the Commissioner had not discussed the appellant’s full compliance with the service tax and interest liabilities prior to the issuance of the show cause notice, which was a crucial element in determining whether penalties should be imposed.
Based on the evidence presented and the legal framework under Section 73(3) of the Finance Act, the Tribunal held that the penalties imposed by the Commissioner were unwarranted. It ruled that the appellant had made the payments in good faith before the issuance of the show cause notice, and as such, the penalties under Sections 77 and 78 could not be sustained.
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Accordingly, the Tribunal allowed the appeal to the extent of setting aside the penalties of Rs. 1,30,00,000 under Section 78 and Rs. 5,000 under Section 77, while upholding the appropriation of the amounts already paid towards the service tax and interest liabilities.
In its final order, the Tribunal stated, “We do not find any justification for imposing penalties on the Appellant by the Adjudicating authority. Accordingly, we set aside the penalties.”
The appeal was thus allowed, and the penalties were removed, providing relief to M/s. Ashirbad Enterprises. The judgment was delivered and pronounced in the open court on September 17, 2024.
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