Penalties For Service Tax Default, Suppression Cannot Be Imposed Together: CESTAT Chandigarh

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, has held that penalties for failure to pay service tax and for suppressing facts with an intent to evade tax cannot be imposed at the same time.

The tribunal set aside the penalty for failure to pay service tax, holding that it could not be imposed alongside the penalty for suppression of facts with an intent to evade tax because the two were mutually exclusive.

“As regards the penalty under Section 76, we hold that once the penalty under Section 78 is imposed and penalty under Section 76 cannot imposed because both the penalties are mutually exclusive,” the tribunal observed.

A bench of Judicial Member S.S. Garg and Technical Member P. Anjani Kumar also set aside the other penalties imposed on Faridabad Communication Pvt. Ltd., while upholding the service tax and interest liability already paid by the company.

The case arose from services provided by Faridabad Communication as a distributor of Win Cable & Data Com Pvt. Ltd./Hathway Cable & Data Com Pvt. Ltd., a Multi System Operator. The Department alleged that the company received commission for providing services taxable as Business Auxiliary Service but had not paid the applicable service tax.

The company had already paid the service tax and interest in July 2006. Its challenge before the tribunal was against the penalties imposed in addition to the tax liability.

The tribunal found that the Department had not established any positive act of deliberate concealment with an intent to evade tax. Neither the show cause notice nor the subsequent order established such an act, apart from the fact that the tax was paid after the Department began its enquiry.

Relying on the Supreme Court's ruling in CCE v. Chemphar Drugs & Liniments, the tribunal observed that mere inaction or failure was not enough to establish suppression; something more had to be shown.

It also set aside the penalty under Section 76, holding that it could not be imposed along with the Section 78 penalty because the two were mutually exclusive.

The tribunal also set aside the penalty under Section 75A. It held that the penalty was without jurisdiction because the provision had been omitted from the statute with effect from September 10, 2004, and had not been saved under the new Finance Act.

The Section 77 penalty was set aside on a separate ground. The show cause notice proposed a penalty for failure to file service tax returns, while the adjudicating authority imposed it for failure to obtain service tax registration. The tribunal held that such a penalty could not legally be imposed when the offence alleged in the notice was different.

The tribunal also extended the benefit of Section 80, finding that the company genuinely believed its services to the MSO were not taxable. Once it became aware that tax was payable, it obtained registration and paid the tax. The tribunal found that this showed there was no deliberate intent to evade tax.

The appeal was partly allowed. The service tax and interest already paid were upheld, while all the penalties imposed on the company were set aside.

For Appellant: Advocate Tarun Sharma

For Respondent/Revenue: Varun Sharma, Authorized Representative