No penalty if all taxes are paid before issuance of SCN

The CESTAT, Chennai in M/s. Susee Auto Sales & Service Pvt. Ltd. v. Commissionerof GST & Central Excise [Service Tax Appeal No.40764 of 2013 dated July 31, 2023] quashed the penalty imposed by the adjudicating authority and held that penalty under section 77 and 78 of the Finance Act, 1994 ("the Finance Act") will not to be imposed in cases where duty and interest are paid voluntarily.

Facts

M/s. Susee Auto Sales & Service Pvt. Ltd. ("the Appellant") is an authorized service dealer dealing in repair and recondition of two-wheeler motor vehicles and the motor cars manufactured by M/s. Bajaj Auto Ltd. and M/s. Mahindra & Mahindra through their authorized service stations.

The Revenue Department ("the Respondent") verified the accounts of the Appellant and concluded that that the staff of the Appellant were carrying out the functions / activities like processing of purchase orders, distribution and logistics, accounting and processing of transactions on behalf of the Appellant’s sister concern and the above charges were debited in the accounts of the sister concerns and credited to the accounts of the Appellant at the end of each financial year. 

On the discussed grounds concluded that the Appellant is liable to pay service tax on the services provided to their sister concerns with effect from May 01, 2006.

The Appellant before issuance of Show Cause Notice voluntarily paid the service tax of INR 6,76,675/- on May 19, 2009 and interest of INR 1,83,385/- on March 03, 2010 and March 04, 2010.

The Respondent contended that the Appellant was not discharging service tax on such amount collected on the amounts collected as ‘Administrative and Handling Charges from the sister concerns as the services fall under business auxiliary services as defined under section 65(104) (c) of the Finance Act for the period 2006-07 to 2007-08.

The Respondent issued a Show Cause Notice dated December 28, 2010 ("the SCN") to the Appellant demanding the service tax along with interest and imposed the penalty.

Thereafter, the Adjudicating Authority, who vide an Order ("the Impugned Order") confirmed the demand along with interest and imposed penalty of INR 6,76,675/- under section 78 of the Finance Act and further imposed the penalty under section 77 of the Finance Act.

Aggrieved by the Impugned Order the Appellant filed an appeal before the CESTAT, Chennai.

The Appellant relied upon the Judgement in Hospitech Management Consultants Pvt. Ltd. Vs. CST (2023) 7 CENTAX 134 (Tri. Del.) wherein CESTAT New Delhi, held thatthat extended period of limitation for raising demand under proviso to section 73(1) of

Finance Act could not be invoked if alleged suppression of facts was not willful with an intent to evade payment of service tax. He therefore pleaded that the penalty imposed under sections 77 and 78 may be set aside.

Issue

Whether penalty can be imposed if the assessee has voluntary paid the service tax before issuance of show cause notice? 

Held

The CESTAT, Chennai in Service Tax Appeal No.40764 of 2013 held as under: -

• Observed that, the Appellant had voluntarily paid the tax liability hence judicious exercise of discretion on the part of the Respondent was required before imposition of such a penalty. 
• Relied upon the Judgement in Hospitech Management Consultants Pvt. Ltd. Vs. CST (2023) 7 CENTAX 134 (Tri. Del.) wherein the CESTAT, New Delhi held thatthat extended period of limitation for raising demand under proviso to section 73(1) of Finance Act could not be invoked if alleged suppression of facts was not willful with an intent to evade payment of service tax.
• Opined that, Service tax on "Support Services of Business or Commerce" came into force from May 2006. In the initial period there was some confusion on the nature of services covered by the said declared service. The service tax amount paid INR 6,41,376/- was paid for the period 2006-07 and only INR 35,300/- pertained to 2007-08.
• Opined that, the Appellant had accepted and paid the service tax with interest before issue of the SCN, the matter should have been closed and allowed to rest in terms of section 73 (3) of the Finance Act.
• Modified the Impugned Order and quashed the penalty imposed under section 77 and 78 of the Finance Act.