No Penalty where Service Tax Paid Before SCN in Absence of Fraud, Suppression or Willful Misstatement: CESTAT Sets Aside Penalty [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, held that where service tax along with interest is paid prior to issuance of show cause notice (SCN) and there is no element of fraud or suppression, penalty under sections 77 and 78 is not sustainable.

The appellant, Ganesh & Co, is a provider of Business Auxiliary Services. During the audit, it was noticed that service tax was not paid from August 2006 to March 2008 and short payment was made for the period September 2008 to December 2009 on services rendered to certain clients.

The respondent issued a show cause notice demanding service tax along with interest and proposing penalties.

The appellant filed an appeal challenging the Order dated 27.07.2016 where the Adjudicating Authority upheld the penalties imposed under sections 77 and 78 of the Finance Act, 1994 despite payment of service tax and interest.

R. Sumedha, the counsel for the appellant, contended that immediately upon audit objection, service tax along with applicable interest was paid in March 2010, much prior to issuance of show cause notice dated 11.01.2011.

It was also submitted by appellate counsel that the appellant is entitled to immunity from penalty under explanation (2) to section 73(3) of the Finance Act, which provides that no penalty shall be imposed where service tax and interest are paid before issuance of notice.

M. Selvakumar, the respondent counsel contended that the appellant had failed to register and pay service tax and suppression of facts was detected only during audit and therefore penalty was rightly imposed.

M. Ajit Kumar, Technical Member observed that section 73(3) clearly provides that where service tax along with interest is paid before issuance of show cause notice, no notice shall be issued and no penalty shall be imposed, unless the case involves fraud, suppression or wilful misstatement.

The Tribunal noted that the order does not establish any element of fraud or wilful suppression with intent to evade tax. It was held that mere non-payment or failure to obtain registration does not automatically attract penal provisions in the absence of intent to evade.

Accordingly, the Tribunal set aside penalties with consequential relief.

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