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Reduced Penalty u/s 78 of GST Applies If Tax and Interest Paid Within 30 Days of Demand Order: CESTAT Cuts Penalty to 25% [Read Order]

CESTAT ruled that taxpayers are entitled to a 25% reduced penalty under Section 78 if tax and interest are paid within 30 days of the GST demand order

Kavi Priya
Reduced Penalty u/s 78 of GST Applies If Tax and Interest Paid Within 30 Days of Demand Order: CESTAT Cuts Penalty to 25% [Read Order]
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The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a reduced penalty under Section 78 Proviso (ii) of the Finance Act applies if tax and interest are paid within 30 days of the demand order. Minerals Marketing & Consultancy, the appellant, is engaged in providing taxable services. Based on third-party data for FY 2015-16,...


The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a reduced penalty under Section 78 Proviso (ii) of the Finance Act applies if tax and interest are paid within 30 days of the demand order.

Minerals Marketing & Consultancy, the appellant, is engaged in providing taxable services. Based on third-party data for FY 2015-16, the department found a difference between the income shown in Form 26AS and the taxable value declared in ST-3 returns. A show cause notice was issued demanding Rs. 11,16,723 in service tax, interest, and penalties.

The department passed an order confirming the demand. On appeal, the Commissioner (Appeals) noted that the appellant had already paid Rs. 9,88,319 with interest before the show cause notice, reducing the demand to a differential amount of Rs. 1,28,404 with an equal penalty imposed. Aggrieved by the imposition of a full penalty, the appellant approached the CESTAT.

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The appellant’s counsel argued that under Section 78 Proviso (ii), the penalty should be limited to 25% since the confirmed tax, interest, and penalty were paid within 30 days of the demand order. The counsel relied on the statutory provision that allows for a reduced penalty if payment conditions are met within the stipulated time.

The revenue’s counsel countered that the appellant did not pay the penalty at the time of the initial payment of tax and interest and argued that the Commissioner (Appeals) was correct in imposing the full penalty amount under Section 78.

The single-member bench comprising Dr. Rachna Gupta (Judicial Member) observed that the appellant paid the confirmed tax, interest, and 25% penalty within 30 days of the demand order, fulfilling the conditions under Section 78 Proviso (ii). It explained that since the law allows a reduced penalty when payment is made within the prescribed period, the appellant was entitled to this benefit.

The tribunal clarified that the purpose of Section 78 is to encourage timely payment and compliance, and the benefit of reduced penalty should not be denied when statutory conditions are satisfied. The tribunal modified the Commissioner (Appeals) order to impose only a 25% penalty on the confirmed demand, partly allowing the appeal in favour of the appellant.

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