Service Tax SCN turns Invalid if Assessee Paid Tax Liability Along with Interest before issuance of SCN: CESTAT [Read Order]

In a recent case, the Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held a show cause notice (SCN) demanding Service Tax turns invalid if the assessee had paid tax liability along with interest before issuance of SCN.

Jayhind Buildcon Pvt Ltd, the officers of the audit wing on 06.08.2015 conducted the audit of record maintained by the appellant for the period 2010-11 to 2014-15. In their tax audit report for the financial year 2014-15, the appellant had shown service tax liability of  Rs. 42,92,189/-. On 01.09.2015. Officers of the anti-evasion wing, Rajkot initiated an inquiry and recorded statements of director of appellant.

The same documents that were produced before audit officers were produced before the anti-evasion wing officers. Based on the same documents, the audit officer issued final audit report dated 03.11.2015 inter alia observing that  there was short payment of service tax  of Rs. 43,07,981/-.

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A show cause notice dated 31.08.2018 demanding the service tax of Rs. 40,65,565/-, for the same period as audit, by invoking extended period of limitation, was issued. The appellant had already deposited service tax amounting to Rs. 40Lakh as duty noted in the show cause notice and interest amounting to Rs. 6,34,560/- before issuance of show cause notice. The adjudicating authority has confirmed demand of Rs. 46,65,565/- and have also imposed mandatory penalty of Rs. 40,65,565/- under Section 78 of the Finance Act, 1994, against which the appellant filed an appeal before the Commissioner (Appeals) who has rejected the appeal.

Shri Vikas Mehta, Consultant appearing on behalf of the appellant submits that the non-payment of  service tax was on account of financial difficulty and not on account of any mala fide in as much as the same was not  only duly accounted in the final tax report, the liability was also discharged and service tax returns were also filed before the issuance of show cause notice. On this basis he argued that a lenient view may be taken in penalty under Section 78 and the same may be set aside.

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Further submitted that as regard the invoice dated 05.06.2013 issued to M/s Kalpataru Power Transmission Ltd for an amount of Rs. 9,84,270 +VAT @ 4% (Rs. 39370.80) + additional VAT @ 1%(Rs. 9,842/-) totally amounting to Rs. 10,33,483 on which the appellant had duly paid VAT as per the VAT  form-201A as well as certificate of chartered accountant  M/s Sunecha and Amlani. Therefore, the demand of service tax amounting to Rs. 1,13,687/- (Sr. No. 2 of year 2013-14 of annexure B to the show cause notice) is not tenable. Consequently net service tax liability of appellant is Rs. 39,51,878/- (Rs. 46,65,565- Rs. 1,13,687). The appellant has already deposited Rs. 40Lakh toward service tax liability along with interest before issuance of show cause notice.

The Tribunal found that the appellant is contesting only penalty amount. However, there is some discrepancy in the calculation. As regard to the invoice issued by the Kalpataru, the same can be reconsidered by the adjudicating authority. Therefore, we are addressing the issue only of penalty imposed under Section 78.

A single bench of Ramesh Nair, Member (Judicial) observed that if the assessee pays the tax liability along with interest before issuance of show cause notice, the entire case stands closed and no show cause notice should be issued. Since, the appellant did not have mala fide intention, their case was held to be not hit by Section 73 (4) also.

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The  Tribunal found that  the appellant has been able to  show the reasonable cause for nonpayment of  service tax and set aside the penalty Imposed under Section 78 of the act.

To Read the full text of the Order CLICK HERE

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