Penalty Imposition and Extended Limitation Period for Pre-SCN Tax Payment: CESTAT Sets Aside Commissioner’s Order [Read Order]

The Chennai Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT) sets aside the Commissioner’s order imposing penalties and applying the extended limitation period for pre- Show Cause Notice(SCN) tax payment.

Madhangi Enterprises (P) Ltd.,appellant-assessee,stated that they did not pay the service tax or file their ST-3 returns on time due to financial issues. They claimed to have paid the full tax and interest by 07.01.2011, before the show-cause notice was issued on 19.02.2013. The show-cause notice proposed to adjust the amount already paid and impose penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

In response, the assessee argued that since they had paid the tax and interest before the notice, the extended period under Section 73(3) should not apply. They cited judicial rulings to support their claim. However, the Commissioner applied Section 73(4), stating that the appellant had suppressed facts, justifying the extended period. The Commissioner then ordered the payment adjustment and imposed the penalties as proposed.

The assessee aggrieved by the decision appealed before the tribunal.

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The main issue was whether the demand and penalty were correct, given that the tax and interest were paid before the show-cause notice was issued.

The tribunal found that suppression of facts to evade tax should be based on the show-cause notice itself, as Section 73(3) prevents issuing a notice when tax and interest are already paid. The officer should have checked this before issuing the notice. Allegations of suppression should show an intent to evade tax, not just missing returns.

Read More: Extended Limitation cannot be Invoked Twice for the Same Issue: CESTAT

In this case, the assessee said financial issues stopped them from filing returns and paying the tax on time. However, they paid the full tax and interest before the SCN was issued. The CESTAT found their explanation reasonable, and the Revenue didn’t dispute it. The notice claimed suppression but didn’t show intent to evade tax.

The two member bench comprising P.Dinesha( Judicial Member ) and M.Ajit Kumar(Technical Member) also noted that the order only adjusted the tax and interest payments and imposed penalties. It concluded the notice was issued to impose penalties using the extended limitation period, which is not allowed under Section 73(3). The tribunal set aside the Commissioner’s order.

To Read the full text of the Order CLICK HERE

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