Case Law Details
SPI Technologies India Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, allowed the appeal to the extent of setting aside the penalty imposed under Section 78 of the Finance Act, 1994. The dispute before the Tribunal was limited to the imposition of penalty, as the appellant did not challenge the service tax demand on merits.
The appellant contended that when the Show Cause Notice (SCN) dated 27.08.2013 was issued, the service tax liability under the Reverse Charge Mechanism had already been discharged in 2010 after obtaining registration. The appellant argued that, in view of Section 73(3) of the Finance Act, 1994, read with Explanation 2 and Section 80, no SCN should have been issued once the service tax and applicable interest had been paid and the payment had been intimated to the department. Reliance was placed on the Karnataka High Court decision in Commissioner v. C. Ahead Info Technologies India Pvt. Ltd..
The Revenue relied on the Karnataka High Court decision in Madhav Kamath Brothers and Co. v. CCE, Hubli, contending that payment of service tax before issuance of an SCN does not automatically absolve an assessee from penalty liability under Section 78.
The Tribunal examined Section 73(3), which provides that where service tax and interest are paid before issuance of a notice and the payment is intimated to the authorities, no notice under Section 73(1) should be served in respect of the amount so paid. Explanation 2 to Section 73(3) further states that no penalty under any provision of the Act or the rules shall be imposed in respect of such payment of service tax and interest.
The Tribunal noted that the Karnataka High Court in C. Ahead Info Technologies India Pvt. Ltd. had interpreted Section 73(3) to mean that once tax and interest are paid and the authorities are informed, proceedings for recovery of penalty should not be initiated. It further observed that the judgment relied upon by the Revenue did not discuss or consider Section 73(3).
The Tribunal found that the Revenue did not dispute that the appellant had paid the service tax before issuance of the SCN and was otherwise eligible for the statutory benefit. Holding that the appellant was entitled to the benefit of Section 80 read with Section 73(3), the Tribunal concluded that the issuance of the SCN itself was erroneous to that extent. Accordingly, the penalty imposed under Section 78 was set aside, and the appeal was allowed with consequential benefits as per law.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This Appeal arises against the order of Commissioner (Appeals-II), Chennai whereby the Commissioner (Appeals) has inter alia upheld the imposition of penalty under Section 78 of the Act. From a perusal of the Grounds of Appeal and as contended by the learned Advocate, I find that the scope of this Appeal is limited to the imposition of penalty under Section 78 alone, Appellant has chosen not to challenge the Appeal on merits.
2. Shri G. Arunmozhi, ld. Advocate appeared for the Appellant and Smt. G. Krupa, ld. Departmental Representative defended the impugned order.
3. It is the case of the Appellant that when the Show Cause Notice was issued on 27.08.2013, they had already made payments of service tax under Reverse Charge Mechanism in 2010 itself when they obtained registration. In this regard, learned Advocate seriously contended that by virtue of Explanation 2 to proviso to Section 73 (3) read with Section 80 of the Finance Act, 1994, the Original Authority should not have issued the SCN itself. In this regard, he has invited my attention to a judgement of Hon’ble Karnataka High Court in the case of Commissioner Vs C. Ahead Info Technologies India P. Ltd 2012 (26) S.T.R. J25 (Kar.)]. He would thus pray for setting aside the imposition of penalty under Section 78 and allow the Appeal.
4. Per contra, Smt. G. Krupa, learned Departmental Representative relied on findings of the lower authorities. She would also rely on a judgement of Hon’ble Karnataka High Court in the case of Madhav Kamath Brothers And Co. Vs CCE Hubli [2015-TIOL-154-HC-KAR-ST] wherein, the Hon’ble High Court has held at para 6 as under:
“6. Merely because the service tax in question is paid prior to the issuance of show cause notice, the assessee cannot be exonerated from payment of penalty. As has been held by the Apex Court in the case of Union of India v. Rajasthan Spinning and Weaving Mills reported in (2009) 13 Supreme Court Cases 448, any payment of the duty amount in question, whether before or after the show-cause notice has been issued, could not alter the penal liability under Section 11-AC of the Act. Section 11-AC of the Act appears to be pari materia with Section 78 of the Finance Act, 1994.
In view of the same, no interference is called for. The appeal fails and the same stands dismissed.”
5. Heard both sides and perused the documents placed on record and also the judgements relied upon by the parties. I find that the only issue to be decided by me is, ‘whether the Appellant deserves the benefit of Section 80 of the Finance Act, 1994 ?’.
6. Section 73 (3) of the Finance Act, 1994 reads as under:
“SECTION 73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. — …. … ……
(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid :
Provided that the Central Excise Officer may determine the amount of short-payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of [thirty months] referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.
… … …
Explanation 2. — For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon.”
7. Further, the Karnataka High Court after analyzing Section 73 (3) ibid has held in the case of Commissioner Vs C. Ahead Info Technologies India P. Ltd. (supra) that once the duty and interest is paid and duly intimated to the authorities, sub-section (3) of the Section 73 comes into operation which mandates that the authorities shall not serve any notice under sub-section (1) in respect to the amount of paid and initiate proceedings to recover any penalty.
8. In the judgement relied upon by the learned Departmental Representative, I find that the Hon’ble High Court has not taken into consideration the provisions of Section 73 (3), which is also not discussed at all anywhere in the said judgement. It may be due to the fact that the aggrieved party in the said judgement did not rely on or refer to Section 73 (3). In any case, in the case on hand, the Appellant right from his Appeal before the First Appellate Authority has been contending to extend the benefit of Section 73 (3) read with Section 80, which, unfortunately has not been considered by the lower Appellate Authority. It is not the case of the Revenue that the Appellant did not pay the service tax much before the issuance of SCN as claimed and it is also not the case of the Revenue that the Appellant is not otherwise entitled to the benefit provided under the very statute itself. Hence, going by the statute as interpreted by the Hon’ble High Court of Karnataka in the case of C. Ahead Info Technologies India P. Ltd. (supra), I hold that the Appellant is entitled for the benefit of Section 80 and that the Original Authority fell in error in issuing the SCN, as held in the said judgement.
9. In view of the above discussion, I am of the view that the benefit of Section 80 ibid could be extended to the Appellant and hence, I set aside the impugned order to this extent of imposition of penalty under Section 78. Resultantly, the Appeal is allowed to this extent with consequential benefits if any as per law.
(Order pronounced in open court on 29.05.2026)
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