The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai bench has held that prompt payment of service tax and interest by an assessee before the issuance of a Show Cause Notice (SCN) relieves them from facing penalties.
The ruling came in response to an appeal filed by M/s. Alstom T&D India Limited, a company based in Chennai.
The issue arose from a dispute over the nature of services provided by the appellant. The appellant was rendering services under the category of “business auxiliary service”, availing CENVAT credit for the service tax paid on input services received. Additionally, the appellant was distributing credit to its other units as an Input Service Distributor (ISD).
An internal audit was conducted by the Internal Audit Party of the Large Taxpayer Unit (LTU), Chennai, which raised questions about payments made by M/s. Areva group to Alstom T&D India Limited for deputing employees and providing expertise.
The Revenue authorities asserted that these payments fell under the purview of “manpower supply agency service”, making the appellant liable to pay service tax under the Reverse Charge Mechanism (RCM) as per Section 66A of the Finance Act, 1994, read with Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
Consequently, a Show Cause Notice was issued proposing the assessment of service tax, interest and the imposition of penalties under Sections 78 and 76 of the Finance Act, 1994, for what the Revenue perceived as a deliberate suppression of facts and an attempt to evade service tax.
The appellant assessee justified its non-payment of service tax citing precedents in their favour.
The original authority confirmed the demand for service tax, interest and penalties as proposed in the SCN and the first appellate authority upheld the order, leading to the assessee filing an appeal before the CESTAT.
The appellant, represented by Shri Joseph Prabhakar, informed that they were no longer contesting the grounds of appeal on merits but instead focused on the issue of invoking the larger period of limitation and the levy of penalties under Section 78 of the Finance Act, 1994.
The appellant argued that they had paid the entire service tax liability and interest voluntarily after it was highlighted during the audit. Therefore, the issuance of the SCN was purely an attempt to impose penalties under Section 78 and no revenue loss was involved.
The respondent revenue, Commissioner of Central Excise and Service Tax, represented by Smt. Anandalakshmi Ganeshram reiterated the findings of the lower authorities.
The CESTAT noted that the appellant had discharged the service tax liability and interest amount before the issuance of the SCN and the SCN was primarily issued to impose penalties for what the Revenue perceived as suppression of facts.
The bench cited the judgment of the High Court of Karnataka in a similar case involving Adecco Flexione Workforce Solutions Ltd. and ruled that when an assessee pays the service tax and interest before the issuance of SCN, Section 73(3) of the Finance Act, 1994 applies, preventing the issuance of such notices and the imposition of penalties.
In conclusion, the two-member bench comprising Mr. P. Dinesha (Judicial Member) and Mr. M. Ajit Kumar (Technical Member) upheld the demand for the normal period alone and thus upheld the principle that prompt payment of service tax and interest before the issuance of SCN can absolve an assessee from penalties.
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