The Karnataka High Court directed the Chartered Accountant (CA)Firm, the petitioner to pay 250000 rupees which is 25% of the total penalty imposed against non-payment of Service Tax due to Delayed Payment of Salary by KSFC. The 25% penalty was accepted to be paid by the petitioner itself in the affidavit submitted.
M/S V K Niranjan and Co, the appellant/ petitioner filed a review petition under Section 114 r/w Order XLVII Rule 1 of the Code of Civil Procedure r/w Section 35G of the Central Excise Act, 1944, seeking a review of the Order dated 11.02.2021 passed in C.E.A.No.21/2018.
The Review Petitioner is a registered Chartered Accountant firm and therefore, was required to adhere to the terms of the registration and responsibilities, thereof. The Review Petitioner was appointed as an internal auditor for Karnataka State Financial Corporation (‘KSFC’ ), a State Government undertaking vide work order dated 14.11.2005.
The petitioner firm appointed 45 persons to carry out the audit work with KSFC and KSFC was required to pay salary for 45 persons engaged in the said activity of audit work. KSFC delayed making the payment. During the period under consideration, which is the subject matter of the present case, the petitioner firm was required to pay service tax, only on receipt of service tax from KSFC.
The petitioner, in view of the delay in receipt of payments from KSFC, made delayed payment of service tax with interest. The Department issued a show cause notice which was received by the petitioner without there being any details of specific work attracting the service tax. The show cause notice was duly replied by letter and despite said reply, the petitioner was served with the summons and the same was replied to.
The show cause notice covered the period from April 2005 to September 2007. The Department acknowledged the payment of service tax by the petitioner and also acknowledged ST-3 returns about the period from 2005-06 to 2006-07.
They issued a show cause notice invoking the proviso to Section 73(1) of the Finance Act, 1994 (‘Act’), i.e., the extended period of limitation by stating that there was suppression of material facts by the petitioner and petitioner firm contravened the provisions of the Act and Rules with an intent to evade the payment of service tax, in time.
It was further contended by the petitioner that in the show cause notice, the Department was of the prima facie opinion that there was suppression of the value of taxable services rendered with an intent to evade payment of service tax. Therefore, the assessee rendered themselves liable to imposition of penalty under Sections 76, 77 and 78 of the Act.
The second show cause notice was also duly replied to by the petitioner on 20.12.2008 explaining the delay in payment of service tax and petitioner further submitted that there was no suppression of material facts and requested the Department not to take the extreme step of levying penalty under Section 78 of the Act.
Review Petitioner contended that it is incorrect to state that evasion of service tax has come to the notice of the Department only after a detailed investigation of the assessee account. The Petitioner further contended that when once the service tax with interest is paid, there is no scope for invoking the extended period. It was further contended that the penalty was levied on the ground that the assessee has not filed an ST-3 return nor paid service tax suppressing the very fact from the Department.
The first show cause notice acknowledges the payment of service tax and the interest thereon and therefore, the Additional Commissioner of Service Taxes, at the first instance who passed the order in original ought not to have saddled a 100% penalty on the Review Petitioner. The said aspect of the matter is ignored by subsequent authorities in the appeals filed by the Review Petitioner. Before this Court also, said aspect of the matter was not urged by the Review Petitioner, as he did not know that KSFC had not issued a letter to the Department that it had paid the service charge to 45 persons, in time.
The order passed by the Additional Commissioner, which came up to the Court was confirmed was based on the said letter issued by KSFC whereby, KSFC has categorically stated that entire service charges had been paid well in time and it is the default on the part of the review petitioner to pay the service tax in time.
A division bench comprising Justice P S Dinesh Kumar and Justice V Srishananda observed that “Further, order imposing Rs.10,12,433/- as penalty under Section 78 of the Act, itself needs to be set aside, if there is a factual error, especially in the absence of department making an available copy of the letter issued by the KSFC. The affidavit filed by the Review Petitioner mentions that he is intending to put quietus by paying 25% of the penalty. “
It was held that the matter needed to be considered fresh, if the matter is put to rest by accepting the affidavit filed by the review petitioner and directing the review petitioner to pay Rs.2,50,000/- would meet the ends of justice.
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