No Revenue Loss, CESTAT Chennai Declines To Enhance Service Tax Penalty In Wrong Classification Dispute

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has dismissed the Service Tax Department's appeal seeking enhancement of penalty against i-Grandee Software Technologies Pvt. Ltd.

It held that the dispute primarily arose from the adjustment of tax paid under different taxable categories and found no reason to interfere with the original order. 

A coram of Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao observed, "the adjudicating authority has correctly appreciated the factual and legal position in holding that the dispute substantially arose on account of adjustment of excess tax already paid under a different taxable category and that no revenue loss had occurred."

The department contended that once the extended limitation period had been invoked, penalty equal to the entire service tax demand had to follow. The appeal arose from an order that confirmed service tax and interest but restricted the penalty to the short-declared tax.

The record showed a short payment of service tax under Information Technology Software Services and excess payment under Management, Maintenance and Repair Services.

The tribunal agreed with the adjudicating authority that the dispute substantially arose from classification and adjustment of tax paid under different taxable heads rather than complete non-payment.

The tribunal observed, "before issuance of Show Cause Notice dated 14.10.2014, the respondent had already discharged the entire differential tax liability of Rs.29,18,126/- together with interest of Rs.1,80,316/- and penalty of Rs.1,31,186/- in terms of Section 73 of Finance Act, 1994. Thus, on the date of issuance of notice, no tax liability remained outstanding. Such conduct does not support an allegation of deliberate tax evasion."

The tribunal also agreed with the adjudicating authority's reliance on 2003 CBEC Circular which permits adjustment of excess service tax paid under one taxable category against liability under another.

It also relied on an earlier tribunal decision holding that service tax paid under an incorrect accounting code need not be paid again where the liability had otherwise been discharged.

It dismissed the department's appeal and upheld the initial order. 

For Appellant: G. Krupa, Authorised Representative

For Respondent: None