No Section 78 Penalty When Service Tax & Interest Paid Before SCN u/s 73(3): CESTAT [Read Order]
CESTAT ruled that penalty under Section 78 cannot be imposed when service tax and interest are paid before issuance of SCN under Section 73(3)
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) ruled that penalty under Section 78 of the Finance Act, 1994 cannot be imposed when service tax and interest were paid before the issue of show cause notice under Section 73(3).
SPI Technologies India Pvt. Ltd., the appellant, challenged the order of the Commissioner (Appeals), Chennai, only to the extent it upheld penalty under Section 78. The appellant did not challenge the demand on merits.
The appellant’s counsel argued that when the show cause notice was issued on 27.08.2013, it had already paid service tax under reverse charge mechanism in 2010 itself, when it obtained registration. The appellant submitted that Explanation 2 to Section 73(3), read with Section 80 of the Finance Act, protected it from penalty.
The appellant’s counsel relied on the Karnataka High Court decision in Commissioner v. C. Ahead Info Technologies India P. Ltd. It argued that once service tax and interest were paid before notice and the department was informed, no show cause notice should have been issued for penalty.
The revenue counsel supported the order of the lower authorities. It relied on the Karnataka High Court ruling in Madhav Kamath Brothers and Co. v. CCE, Hubli, where the court held that payment of service tax before show cause notice does not automatically remove penalty liability.
The single-member bench comprising P. Dinesha (Judicial Member) observed that the only issue was whether the appellant deserved the benefit of Section 80 of the Finance Act, 1994. The tribunal examined Section 73(3) and observed that when service tax is paid before service of notice and the department is informed, the officer shall not serve notice for the amount so paid.
The tribunal also referred to Explanation 2, which says that no penalty shall be imposed in respect of payment made under this sub-section along with interest. The tribunal pointed out that the revenue did not dispute that the appellant had paid service tax much before the show cause notice. It also observed that the lower appellate authority had not properly considered the appellant’s plea under Section 73(3) read with Section 80.
The tribunal explained that the decision relied on by the revenue did not discuss Section 73(3). Following the Karnataka High Court ruling in C. Ahead Info Technologies, the tribunal held that the appellant was entitled to the benefit of Section 80.
The tribunal set aside the penalty imposed under Section 78 and allowed the appeal to that extent, with consequential benefits as per law.
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