No penalty applicable if Service Tax was paid in cash immediately after the direction of Auditor

In Sud Chemie Pvt. Ltd. v. Commissioner of Central Excise, Vadodra [Service Tax Appeal No.10021 of 2019 dated September 02, 2021], Sud Chemie Pvt Ltd (“the Appellant”)\ filed an appeal against the Order No. OIA-VAD-EXCUS-001-APP-287-2018-19 dated August 20, 2018 (“the Impugned order”) which was passed by the Commissioner (Appeals) Central Excise, Customs and Service Tax, Vadodra (“the Respondent”). The Impugned order pertained to the demand of Service Tax and a subsequent imposition of penalties on the Appellant by the Respondent.

The Appellant, raised two issues before the Tribunal:

1. The first issue related to the payment of service on the reverse charge basis (“RCM”) on Goods Transport Agency (“GTA”) services received by the Appellant- when the Respondent pointed out that this amount should be paid in cash, the Appellant discharged the duty in cash on December 27, 2006 and therefore, were entitled to the benefit under Section 73(3) of the Finance Act, 1994.

2. The second issue related to the demand of service on a RCM in respect of commission paid by the Appellant to a foreign entity- The Appellant contended that during that period there was a lot of confusion in the trade regarding enforceability of the said duty on a reverse charge basis. Furthermore, it was claimed that the Appellant was not demanding any refund of duty but only setting aside penalties imposed under Sections 76 and 78 of the Finance Act, 1994. The Appellant also claimed that their specific claim under Section 80 of the Finance Act, 1994 was not considered.

As opposed to the Appellant’s contentions, the Respondent argued that Section 73(3) of the Finance Act, 1994 can have no retrospective applicability.

After taking cognizance of all the facts and evidences, the Central Excise Service Tax Appellate Tribunal (“CESTAT”), Ahmedabad adjudicated on both the issues of the case:

A. Issue 1. The Court opined that the Appellant had paid the Service Tax as soon as it was pointed by the Respondent and again in cash when it was pointed out that it has to be paid in cash. Therefore, no mal-intent on the part of the Appellant was to be found. The Court further opined that the benefit under Section 80 of the Finance Act, 1994 should be extended to the Appellant and penalty under Section 76 and 78 of the Finance Act, 1994 must be set aside.

B. Issue 2. The Court held that the period in question is prior to the introduction of 66A of the Finance Act, 1994 when the said duty was not leviable. Therefore, the Court adjudged that the penalty under Section 76, 77 and 78 of the Finance Act, 1994 was unjust. The Court also acknowledged that, the Appellant was not contesting payment of duty but rather contested the penalty imposed.

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