The New Delhi bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the penalty under section 78 of the Finance Act 1994, was impossible as there was no evidence relating to evasion of tax and allowed the appeal by Bharat Aluminium Company Ltd (The Appellant) against The Commissioner of Central Excise, Customs, and Service Tax.
The appellant provides services of consulting engineers, business auxiliary, manpower recruitment or supply, goods transport agency, etc. their records were audited by the Accountant General of Chhattisgarh, Raipur and it was felt that they had short-paid service tax to the extent of Rs. 72,33,994/- during the year 2008-2009 for the amount received by them from foreign companies for services provided by them, thus a show cause notice was issued demanding service tax of Rs. 3,31,55,802/- under the proviso to section 73 (1) of the Finance Act, 1994 with interest under section 75 and penalties under section 77 and 78 of the Finance Act.
While adjudicating the show cause notice, the Principal Commissioner passed the impugned order confirming the demand for service tax of Rs. 15,69,570/- along with interest. He dropped the remaining demand of Rs. 3,15,86,232/- and imposed a penalty of Rs. 10,000/- under section 77 of the Finance Act for failing to file the proper return and a penalty of Rs. 15,69,570/- under section 78 for intentional evasion of service tax by deliberately suppressing facts from the department.
The counsel who appeared on behalf of the appellant submitted that they were not contesting the demand of service tax of Rs. 6,24,074/- on other payments which it made to overseas service providers on a reverse charge basis but was contesting the demand of Rs. 9,45,494/- as service tax on the payments made to Pual Cerullo and Pual Cerullo was an employee of the appellant and any payments made by an employer to an employee for the services of the employee do not form a taxable service as per the Finance Act.
The counsel who appeared on behalf of the revenue submitted that the necessary evidence was not produced before the Principal Commissioner and since the documents have now been produced, the matter may be remanded to the Principal Commissioner for adjudication.
The two-member bench consisting of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) held that “We are not inclined to remand the matter as it is evident from the impugned order that the only reason the Principal Commissioner confirmed the demand on the payment made to Pual is that the employment contract and other evidence were not produced before him”
The bench further held that “Having considered the rival submissions on this issue, we find that to impose penalty under section 78 of the Finance Act elements of fraud or collusion or willful mis-statement or suppression of facts or violation of Act or Rules made thereunder with an intent to evade payment of tax must be established. In the absence of evidence of such an intent, no penalty under section 78 can be imposed. In this case, not only is there “no evidence” of such an intent but the entire payment is revenue neutral at the hands of the appellant” and the appeal was allowed.
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