CESTAT quashes Service Tax Penalties, upholds Admitted Demands [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad bench, quashed significant service tax penalties on the assessee, while upholding the service tax demands that were admitted by the company.

The order had confirmed a service tax demand of ₹6.64 crore along with interest and imposed equivalent penalties under Section 78 of the Finance Act, 1994, as well as a penalty of ₹20,000 under Rule 7C of the Service Tax Rules for non-filing of returns.

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Anand Motor Agencies challenged the order before the Tribunal. Initially, in 2022, the Tribunal set aside the entire demand and penalties, citing procedural lapses and the principles of judicial discipline. However, the Revenue department successfully appealed to the Allahabad High Court, which remanded the matter to the Tribunal for fresh consideration, directing that the issues be examined in conjunction with related pending appeals.

Following the High Court’s directions, the Tribunal re-examined the case. It was noted that Anand Motor Agencies had admitted and paid service tax dues related to specific heads, such as incentives received from financers and job receipts. The Tribunal observed that the company had accepted these liabilities and deposited the requisite amounts, some even before the issuance of the show cause notice.

In its order pronounced on January 10, 2025, the Tribunal modified its earlier decision, confirming the admitted service tax demands and ordering appropriation of the amounts already paid by the appellant. However, it quashed the penalties imposed under the Finance Act, 1994, recognizing that the tax dues had been paid prior to the issuance of the show cause notice. CESTAT emphasized that in such circumstances, penalties were not warranted.

The Tribunal reiterated its earlier stance on other disputed demands, where it had found the tax liabilities to be unsustainable. It pointed out that no further issues required adjudication beyond what had been addressed in its prior orders and the admitted liabilities.

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