CESTAT: No Penalty If Pending Taxes Paid Earlier to the Issuance of Show Cause Notice

The CESTAT, Chennai in M/s. Susee Auto Sales & Service Pvt. Ltd. vs Commissioner of GST & Central Excise [Service Tax Appeal No.40764 of 2013 dated July 31, 2023] cancelled the penalty levied via the adjudicating authority and carried that penalty under sections 77 and 78 of the Finance Act, 1994 (“the Finance Act”) does not get charged in cases where duty and interest are paid voluntarily.

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

The Revenue Department (“the Respondent”) examined the Appellant’s financial records and came to the conclusion that its employees were handling tasks for the Appellant’s sister company, including processing purchase orders, logistics, accounting, and transaction processing. The aforementioned fees were deducted from the sister company’s accounts and added back to the Appellant’s accounts at the end of each financial period.

With effect from May 1, 2006, it was determined based on the aforementioned grounds that the appellant is required to pay service tax on the services given to their sister businesses.

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

The Respondent argued that because the services are considered business auxiliary services as defined in section 65(104)(c) of the Finance Act for the years 2006-2007 to 2007-2008, the Appellant was not discharging service tax on the amounts collected as “Administrative and Handling Charges from the sister concerns.”

The Respondent gave a Show Cause Notice on December 28, 2010 (“the SCN”) to the Appellant asking for the service tax including interest, and charged the penalty.

The Adjudicating Authority, who vide an Order (“the Impugned Order” approved the demand as well as the interest and set a penalty of Rs 6,76,675/- under section 78 of the Finance Act and levied the penalty under section 77 of the Finance Act.

The Appellant disagreed with the impugned order and furnished a petition to the CESTAT, Chennai.

The Appellant laid on the Judgement in Hospitech Management Consultants Pvt. Ltd. Vs. CST (2023) 7 CENTAX 134 (Tri. Del.) in which CESTAT New Delhi, ruled that extended limitation duration to ask for the demand under proviso to section 73(1) of Finance Act can not be invoked when the alleged suppression of points was not intended with a purpose to evade service tax payment. He consequently requested that the punishment imposed in accordance with sections 77 and 78 be overturned.

Problem- If the taxpayer voluntarily paid the service tax prior to the delivery of the show cause notice, a penalty still be imposed?

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

• Witnessed that the Appellant voluntarily filed the tax liability therefore judicious action of discretion on the respondent’s part was needed prior to charging the same penalty.
• Laid on the judgment in Hospitech Management Consultants Pvt. Ltd. Vs. CST (2023) 7 CENTAX 134 (Tri. Del.) in which the CESTAT, New Delhi ruled that the prolonged duration of limitation to ask for the demand under proviso to section 73(1) of Finance Act can not get invoked when the alleged suppression of the points does not intend with the purpose for service tax payment evasion.
• According to the opinion, “Support Services of Business or Commerce” are subject to a service tax as of May 2006. The type of services covered by the aforementioned proclaimed service was first unclear. The service tax amount paid was INR 6,41,376/- for the fiscal year 2006-07, and just INR 35,300/- for the fiscal year 2007-08.
• the case should have been resolved and left to rest in accordance with section 73 (3) of the Finance Act because the appellant had accepted and paid the service tax with interest prior to issuing the SCN.
• Altered the contested order and overturned the fine imposed in accordance with sections 77 and 78 of the Finance Act.