If there was no malafide for the purpose of penalty, there cannot be any malafide for the purpose of limitation also

In the instant case, Internet Computer Centre (the Appellant) availed the benefit of Small Scale Exemption under erstwhile Notification No. 6/2005-ST dated March 1, 2005 (SSI Notification) which was denied by the Lower Authorities on the ground that the services rendered by the Appellant are branded services and the same is excluded from the applicability of the SSI Notification. Therefore, the Lower Authorities confirmed the demand of Service tax of Rs. 98,064/- and imposed penalty of Rs. 50,000/- under Section 76 of the Finance Act, 1994 (the Finance Act) on the Appellant by invoking extended period of limitation.

On appeal being filed to the Commissioner (Appeals), the Commissioner (Appeals) set aside the penalty imposed upon the Appellant on the ground that the Appellant was under the bonafide belief that they are entitled to the benefit of the SSI Notification and that on being pointed out by the Department, the Appellant paid the due tax and interest before issuance of Show Cause Notice. Thus, there was no malafide intent on the part of the Appellant and penal action is not justifiable. However, the demand of Service tax was confirmed against the Appellant.

Being aggrieved, the Appellant filed an appeal before the Hon’ble CESTAT, Delhi on the ground of limitation.

The Hon’ble CESTAT, Delhi held that if there was no malafide for the purpose of penalty, there cannot be any malafide for the purpose of limitation also. Accordingly, the matter was decided in favour of the Appellant and the demand being barred by limitation was set aside.