SCN can’t allege suppression when facts were known to department

By | July 26, 2016


Ishvarya Publicities (P.) Ltd.


Commissioner of Service Tax, Chennai-II


FINAL ORDER NO. 40864/2016
APPEAL NO. ST/42102/2015

MAY  31, 2016

M. Karthikeyan, Adv. for the Appellant. K. Veerabhadra Reddy, JC (AR) for the Respondent.


1. M/s. Ishvarya Publicities Pvt. Ltd. are engaged in the business relating to Display of Panels in bus terminus. The appellant is registered with service tax department under the category of ‘Advertisement Agency Service’. Proceedings were initiated for non-payment of service tax which, according to the appellant, was paid before issue of SCN No.73/2011, dt. 28.3.2011. On a perusal of the SCN, it is in fact correct that the appellant has discharged the tax amount along with interest before issuance of SCN. The present appeal pertains to imposition of penalty under Section 78, of the Finance Act. The contention of the appellant is that the penalty is not payable as the disputed tax amounts have been paid along with interest. This submission of the appellant did not find merit with the adjudicating and appellate authorities resulting in the filing of the present appeal.

2. Heard both sides in the matter. The appellant was represented by Shri M. Karthikeyan, Advocate and the Revenue was represented by Shri Veerabhadra Reddy, JC (A.R).

3. Ld. Counsel contended that the order of appellate authority attracting Section 78 of the Act is not sustainable; that the appellant’s unit was audited by the department during Jan 2009. During the scrutiny of the documents, it was observed that two show cause notices vide SCN No.39/2007 dt. 05.03.2007 and SCN No. 143/2007, dt. 23.08.2007 were issued for the periods July, 2003 to March 2006 and April, 2006 to March, 2007. The proposed demands were confirmed by the adjudicating authority and the same were duly paid by them and appropriated by the department that appellant subsequently paid an amount of Rs. 8,94,285/- as advance for payment of service tax on 24.3.2008, and after the above payment towards their service tax liability for the month of April 2007 and May 2007, the balance advance paid by them was Rs. 4,59,392/-; that for the period April 2008 to December 2008, the tax liability was worked out to Rs. 27,56,961/-; that after adjusting the above advance payment of Rs. 4,59,392/-, the balance amount payable has been determined as Rs. 22,97,569/-; it was also observed by the audit that appellant had availed irregular cenvat credit of Rs. 6,191/-[April 07 to March 08] in respect of service tax paid on telephone bills addressed to their Directors Residence and service tax paid on insurance to workers; that the above tax liability of Rs. 27,56,961/- and Rs. 6,191/- was also duly discharged by them [Rs. 10,13,544/- cenvat credit + 12,84,025/- cash payment] along with payment of interest payments as per their worksheet available on pages 53, 54 of the paper book; though they had paid the entire service tax demand or credit denied for the period from April, 2008 to December 2008 along with applicable interest on 22.01.2009 and 18.05.2009, they have been issued with SCN on 28.3.2011 invoking extended period. In view of the above facts, the counsel prayed that proceedings ought not to have been initiated and further stressed on the point that extended period is not invocable in their case.

4. Ld. A.R Shri Veerabhadra Reddy, JC (AR) would contend that under the self-assessment scheme, it is the onus of the tax payer to discharge the liability without any flaw and it is the responsibility to discharge tax and not take shelter under the same though blaming the department based on some procedural irregularities.

5. I find that the dispute in the instant case pertains to imposition of penalty under Section 78 of the Finance Act. It would be appropriate to reproduce relevant Section 73(3) as under :—

“Section 73(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 service 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 ‘one year’ referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

[Explanation 1] . For the removal of doubts, it is hereby declared that the interest under Section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise officer, but for this sub-section.

[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.'”

From the above, it is clear that if the tax payable stands paid based on assessee’s own ascertainment or on the basis of Central Excise Officer, before service of notice on an assessee, no notice shall be served in respect of the amount so paid. In this case, no notice ought to have been issued as the appellant is coming within the regress of Section 73(3). I find that this is a repetitive show cause notice and the Supreme Court has held in the case of Nizam Sugar Factory v. Collector of Central Excise 2006 (197) ELT 465, when relevant facts are in the knowledge of the authorities, when the first SCN was issued, the subsequent SCN cannot allege suppression of facts. This ratio appears to be applicable to the appellant’s case. The penalty under Section 78 can be imposed only when there is fraud or collusion or wilful misstatement or suppression of facts. In the instant case when the tax along with interest stands paid, the need for imposition of penalty is unsustainable. The appellant succeeds in so far as imposition of penalty under Section 78. The appeal is allowed in the above terms.

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