ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Review Adjudication Order No. 18/2007 dated 22.2.2007, passed by the Commissioner of Service Tax, Bangalore.
2. Shri K. Parameswaran, learned Advocate appeared on behalf of appellants and Ms. Sudha Koka, learned SDR for the Revenue.
3. The appellants, M/s Price Water House Coopers Development Association Ltd. are the service providers under the category of “Management Consultancy Services”.
4. We heard both the sides. The Revenue proceeded against the appellants by issuing a Show Cause Noted dated 9.9.2003 on the ground that they had not paid the Service Tax amounting to Rs. 24,33,230/- for the month of August 2001, September 2001 and February 2002. Interest was demanded under Section 75 of the Finance Act. Penal provisions were invoked under Sections 76 & 78 of the Finance Act, 1994. The adjudicating authority after going through the records of the case and after giving a personal hearing to the appellants dropped the demand of service tax as the same has already been paid by the Noticee on 28.2.2002. He also dropped the imposition of penalty under Sections 76 & 78 of the Finance Act. The revisionary authority, Commissioner of Service Tax, Bangalore, examined the order of the Assistant Commissioner dropping the proceedings and came to the conclusion that the said order was not legal and proper on several grounds. According to the revisionary authority, the Asst Commissioner dropped the proposal to impose penalty by arbitrary exercise of powers conferred under Section 80 of the Finance Act, 1994. The assessee did not prove any reasonable cause for their failure to comply with the provisions mentioned in Section 80 of the Act. The Assistant Commissioner did not record any reason for exercising the discretion under the said Section 80 of the Act. On the above grounds, the revisionary authority reviewed the order of the Assistant Commissioner in exercise of the powers conferred on him under Section 84 of the Act. Consequently he issued a Show Cause Notice to the appellants.
5. The appellants submitted that the order of the Assistant Commissioner was legal and proper. They referred to the finding of facts in the Order-in-Original and urged that the Assistant Commissioner was fully satisfied with the fact that there was reasonable cause for the failure to deposit the tax on time, while exercising the power entrusted to them under Section 80 of the Act. The revisionary authority did not accept the contention urged by the appellants. The appellants relied on various case laws. They urged the point that even before the Department issued a show cause notice, they paid the service tax liability along with the interest. It was also submitted that they were under mistaken impression that the remuneration received for the services rendered in foreign exchange is not liable for service tax. There was also another reason for not remitting the service tax in time because their client, Karnataka Government did not pay the service tax in time. Further it was urged by them that the appellants themselves filed the return ending March 2003 and even while filing the return, they had already discharged the service tax liability. Considering all the facts, it was urged by them that the Assistant Commissioner dropped the proceedings initiated against them.
6. The Review authority in his finding at Para 3 of the order stated all the legal provisions and observed that just because the assesse paid the interest, the penal provision cannot be levied. He has not given any proper finding on the facts of the case. He has stated that the findings of the Assistant Commissioner in his order suffered from the following defects:
(i) Assessee did not record the value of taxable service in the relevant ST3 returns.
(ii) There was no mention about the date on which the service tax element was realized and the date on which the amount of service tax was paid/deposited to the credit of the Government Account.
Moreover, the Commissioner has not discussed the case laws cited by the appellants. He has made a general statement that the contention of the assessee that the service tax and interest are paid before the issue of the show cause notice, no penalty is warranted, is entirely misconceived and contrary to the provisions of law. He also observed the provisions laid down under service tax is not in pari materia with the Central Excise provisions. After observing the above, he set aside the order of the Assistant Commissioner with regard to waiver of penalty under Sections 76 & 78 of the Act. He imposed penalty of Rs. 100/- for everyday during which the failure to make payment continued, under Section 76 of the Act. He imposed penalty of Rs. 30,00,000/- on the appellants under the provisions of Section 78 of the Act. The appellant is highly aggrieved over the impugned order of the Commissioner. Hence they come before the Tribunal for relief.
7. The learned Advocate who appeared on behalf of the appellants invited our attention to the following decisions of the Tribunal:
S/No.
Case law
Gist of case law
1.
Maa Communications
Bozell Ltd. v. CCE 2006 (3) STR 748 (T. – Ban.)
No Show Cause Notice to
be issued while undertaking review Under Section 84 for alleging suppression
and also without challenging the factual position involved.
2.
Mass Marketing &
Advertising Services Pvt. Ltd. v. CCE 2006 (3) STR 333 (T.-Ban.)
Duty paid before Show
Cuse Notice – Apex Court having confirmed the view of Larger Bench decision
of Tribunal & in view of Karnataka High Court judgment of Shree Krishna
Pipes penalty not leviable and the same is applicable even for Service Tax
provisions.
3.
CCE v. Sigma Steel Tubes
2007 (82) RLT 361 (P&H)
Penalty under Section
11AC not leviable when duty is paid before issue of Show Cause Notice
particularly when it is not a case of clandestine removal and the
differential amount of duty is paid well before the issue of show cause
notice. The principles laid down in the case of Machino Montell, reported in
2006 (76) RLT 650 of the same Hon’ble High Court not followed.
4.
CCE v. Chelpark Co. (P) Ltd.
2007 (216) ELT 364 (Kar.)
The decision of Machino
Montell has been considered as in conformity with the view taken and unless
there is an intention to evade payment of duty penalty cannot be imposed
under Section 11AC and thus where payment is made prior to the issue of show
cause notice penalty is not imposable. The Hon’ble High Court has followed
the principles laid down in CCE v. Shree Krishna Pipe Industries
5.
CCE v. Sunitha Shetty
When discretion under
Section 80 is exercised in the facts and circumstances of the case, the
provisions of Section 76 or 78 will not apply and the Commissioner was not
justified in reviewing the order passed under Section 84 particularly when
interpretation of Section 76 or any other provision does not arise thereof.
The decision of the Tribunal as , has
accordingly been upheld.
6.
ETA Engg. Ltd. v. CCE
Penalty not imposable
when there was bona fide belief regarding the non-coverage of activity and
when the reason has been clearly given in the Order-in-Original in terms of
Section 80, notwithstanding the provisions of Section 76, 77, etc.
7.
CCE v. Impress Ad-Aids
& Displays 2006 (3) STR 386 (T-Ban)
Service Tax being new
levy and service tax being deposited along with interest exorbitant penalty
not imposable. This principle laid down by following the decision rendered in
the case of Smitha Shetty which has been upheld by the Hon’ble High Court in
the above said decision .
8.
The Financers v. CCE
2007 (8) STR 7 (T. – Del.)
&
Opus Media &
Entertainment v. CCE 2007 (8) STR 368 (T.-Del.)
Penalties both under
Section 76 and 78 simultaneously not imposable as both the provisions are
mutually exclusive and since Section 76 does not require mens rea whereas
Section 78 involves evasion with guilty mind thereof.
9.
Sharad Jambhekar &
Associates v. CCE 2006 (3) STR 509 (T. – Mum) and which is followed in Desk
to Desk Courier & Cargo Ltd. v. CCE 2007 (7) STR 515
When there is no finding
as to the penalty levels having to be kept at mandatory levels, no
justification for imposing mandatory penalty, particularly by exercising the
discretion under Section 84, while undertaking review and giving of
sufficient reason is a must for sustaining the same, in respect of a review
adjudication order.
10.
G.S. Financials v. CCE 2007 (8) STR 541 (T. – Mum)
Merely because nominal
penalty imposed has been accepted and paid, the same does not mean that the
assessee has no right to challenge enhancement of penalty in review
proceedings, since from the beginning the stand has been very clear and also
as the facts and circumstances will have to be looked into and further as
bonafide lapse cannot be equated with malafide intentions thereof.
Further the learned Advocate distinguished the ratio of the decision in the case of CCE v. First Flight Couriers Ltd. 2007 (8) STR 225 (Kar.) wherein it has been laid down that the order passed by the original authority for imposing penalty when not unreasonable or arbitrary and also when reasons for setting aside findings of fact has not been given in the subsequent appellate orders, it cannot be interfered with by reducing or dropping the penalty. The learned Advocate submits that the said decision is clearly distinguishable in cases where review has been undertaken under Section 84 by the Commissioner of Service Tax only for imposing or enhancing penalty and hence would not apply to proceedings where penalty which has been dropped or not levied has been imposed/enhanced in review proceedings under Section 84 thereof, particularly in view of the binding decision of the Hon’ble High Court of Karnataka in the case of Sunitha Shetty, cited supra, which is directly applicable thereto.
8. The learned SDR took us through the order of the revisionary authority and urged that the order is legal and proper and the same has to be upheld.
9. On a very careful consideration of the issue, we find that the following facts are not disputed. The appellants are liable to service tax under the category of “Management Consultancy Services”. It is also on record that they had paid the service tax amount of Rs. 24,43,770/- by challan dated 28.2.2003 and the interest to the tune of Rs. 4,34,380/- by challan dated 24.2.2003. The Original authority after verifying the facts on records came to the conclusion that the above service tax paid relates to August 2001, September 2001 & February 2002. The show cause notice was dated 9.9.2003. As we can see clearly that the show cause notice was issued in September 2003 whereas the appellants paid the service tax along with interest even in February 2003 & April 2003. Therefore it is clear that even before the issue of show cause notice, the appellant had paid the service tax along with the interest. They have also stated that they could not pay the service tax in time on account of the following reasons. These reasons have been recorded in Para 3 of the Order-in-Original.
(i) The service tax has to be paid only on realization;
(ii) The service tax for the invoices raised in the following months 8/01, 9/01 and 2/02 for the management consulting services provided by Price Water House Coopers Development Associates has been submitted to the Department through challan, 04/2002-03;
(iii) Service tax was not charged in the bill initially because of the duties of levy of service involving foreign exchange.
(iv) Interest of Rs. 4,324,318/- accrued on the amount mentioned in reference 1 above was paid on the same date through challan No. 05/2002/2003 dated 23.4.2003, although the actual liability is to discharge service tax only on realization as per Finance Act read with Service Tax Rules.
(v) They have paid service tax of Rs. 10,11,805/- vide challan No. 06/2002/2003 dated 23.4.2003 in advance prior to realization.
(vi) As they have complied with the requirements indicated through their notice at reference 1 & 2, the penalty mentioned in the above cause notice should not be applied and
(vii) The provisions of the Section 78 should not be applied as the payment of the invoice was delayed by their client, the Govt. of Karnataka.
Therefore it is very clear that the appellants could not discharge the service tax liability on account of their misconception with regard to the liability and they were under mistaken impression that in case they receive the amount in foreign exchange for the service rendered, they would not liable to pay service tax. Further they have also made a point that they are liable to discharge the service tax only on realization. Another reason is that the Government of Karnataka who was their client did not pay the service tax in time. These facts have been recorded and the original authority had appreciated the circumstances under which the service tax was not paid in time by the appellants. Moreover, the show cause notice itself has been issued only after the appellants had filed the relevant service tax returns. It is not a case where they had not paid the service tax and the Department detected their lapse and issued the show cause notice. The original authority has recorded that the show cause notice itself has been issued due to the mistaken impression that the payment of Rs. 23,43,770/- relates to February 2003 and not to the invoices pertaining to August 2001, September 2001 and February 2002. These facts have been verified at the time of personal hearing and the original authority had given a very clear finding that there was no suppression of material as alleged in the show cause notice in as much as it is found that whatever service tax realized during the relevant period from August 2001 to July 2002, the appellants had discharged the same in full along with interest at the applicable rate. In this connection, we would like to reproduce the finding of the original authority in Para 7 of the order.
7. The issue involved in this case is that whether the payment of service tax on the service charges realized has been made by the due date and in the case of delayed payments, whether the interest at the applicable rate has been discharged. For this reason, I have verified the invoices raised for the service charges during the relevant period in question and the vouchers of money realization by the Company vis-a-vis the payment of service tax made through their TR 6 challans produced and found that in some cases, they have discharged the service tax in time and in some cases they have delayed the payments. In the case of delayed payments, they have paid the interest at the applicable rate. It is also observed that there was no suppression of the material fact as alleged in the show cause notice in as much as it is found correct that whatever service charge realized during the relevant period from August 2001 to July 2002, they have discharged the service tax in full along with the interest at the applicable rate. Hence the show cause notice for the recovery of short payment of service tax does not arise. However, there was lapse oh the part of the noticee in having delayed the payment of service tax and in filing the ST-3 return for the relevant period which has entailed to initiate penal proceedings as stipulated under Section 76 and 77 of the Finance Act.
10. On a careful consideration of the matter, we find that the order of the original authority is legal and proper. He has correctly appreciated the facts after verification and dropped the proceedings. It is very clear that there is actually no intention to evade payment of service tax. In our view, the Order-in-Revision cannot be sustained for the following reasons. The original authority has found that the service tax along with interest has already been paid by the appellants. Therefore he has rightly dropped the demand as the amount of service tax had already been paid.
11. When there is no demand of service tax, there cannot be any penalty. The case laws cited are very relevant as the appellants on their own discharged the tax liability well before the issue of show cause notice. The impugned order cannot be upheld. Hence we allow the appeal with consequential relief.
(Operative portion of the order has been pronounced in the open court on completion of hearing on 13.02.2008)