The service tax has been paid with the accrued interest even before the show cause notice reached the review applicant, the Karnataka High Court ruled.
The show cause notice specifies that there was a payment of service tax including interest by the review applicant, a bench of Justice P.S. Dinesh Kumar and Justice V. Srishananda observed. The court has diminished the penalty from 100 per cent to 25 per cent and directed the review applicant to pay Rs 2,50,000 to fulfil the end of justice.
The review applicant has a registered CA firm. The petitioner, serving as an internal auditor at the Karnataka State Financial Corporation (KSFC), enlisted 45 individuals through their firm to conduct an audit for KSFC. However, despite this obligation, KSFC faced delays in compensating the salaries of these 45 individuals engaged in the audit work.
Merely on the receipt of the service tax from KSFC the applicant firm was needed to file the service tax.
In concern of the late receipt of the payments from the KSFC, the applicant has made a late payment of the service tax accompanied by the interest. However, the council has issued a show cause notice which was obtained via the applicant with no information on the particular work drawing the service tax. The show cause notice was duly answered and despite the answer, the applicant was served with the summons.
The petitioner argued that, according to the show cause notice, the Department believed there had been intentional suppression of the taxable service value to evade paying service tax. Consequently, the assessee was deemed liable for penalties under Sections 76, 77, and 78.
The petitioner further argued that upon payment of the service tax along with interest, the extended period should not be applicable. The imposed penalty was justified on the basis that the assessee had neither filed an ST-3 return nor paid the service tax, deliberately concealing this fact from the Department.
Under the first proviso to Section 73, the penalty stood at 50%, while the second proviso dictated a penalty of 15%. The second proviso (ii) stipulated a penalty of 25%. The response to the show cause notice issued on August 8, 2007, and September 18, 2008, was duly provided on October 1, 2007. By August 20, 2007, service tax with interest, along with ST-3 returns for the 2005–06 and 2006–07 periods, had already been submitted.
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In essence, before the second show cause notice of September 18, 2008, there had been a prior payment of service tax with interest. Consequently, the second proviso should have been applied, precluding the imposition of a 100% penalty on the assessee. A detailed explanation of this section would clarify the intended meaning of “specified records.”
In the initial show cause notice, the petitioner admitted to having paid the service tax and its accompanying interest. Therefore, the Additional Commissioner of Service Taxes, who initially issued the order in its original state, should not have imposed a 100% penalty on the petitioner.
The review petitioner’s affidavit explicitly stated their intention to settle by paying 25% of the penalty.
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The court resolved the review petition, instructing the petitioner to remit Rs. 2,50,000 to the Department as stipulated in the affidavit. Upon payment of this sum, the proceedings concerning service tax, interest, and penalty will be considered resolved.
| Case Title | M/S. V.K. Niranjan And Co Vs Commissioner Of Service Tax |
| Citation | Review Petition No.384 of 2022 |
| Date | 14.12.2023 |
| Petitioner by | S.S. Naganand |
| Respondents by | Jeevan J. Neeralgi |
| Karnataka High Court | Read Order |
