ST – Once it is held that there is no mis-statement while setting aside penalty imposed u/s 78 of FA, 1994, can interest liability be saddled for extended period- Difference of opinion: CESTAT

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THE appellant Punjab Cricket Association had provided taxable service in the category of “sale of space or time for advertisement” to M/s Gujarat Ambuja Ltd., which service is leviable to tax with effect from 01.05.06.

Agreement dated 05.03.05 was for the period 01.03.05 to 28.02.15 and total consideration was Rs 1 crore 20 lakhs. Under this agreement, no service tax was leviable for the period 05.03.05 to 30.04.06. The appellant had received Rs. 60 lakhs on 04.02.05 i.e. before the date on which service tax was levied.

Revenue was of the view that since the appellants had realised a part of the amount of service in advance before the date on which service tax was levied on the said service, the appellant were liable to pay service tax on that value of service tax, which was attributable to the service rendered in the period after the service tax was levied on the said service.

Accordingly, a SCN dated 05.03.2008 was issued demanding service tax of Rs. 8,33,340/-. The demand was confirmed along with interest and penalties were imposed. The Commissioner(A) set aside the penalty imposed u/s 76 but retained the rest of the order.

In appeal before the CESTAT, the assessee is only contesting the interest and the penalties retained u/s 77 & 78 of FA, 1994. Revenue is unhappy with the dropping of penalty imposed by the original authority u/s 76 of FA, 1994.

The Member (Technical) relied upon the Board Circular 65/14/2003 dated 05.11.03 which clarified thatwhere the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out on pro-rata basis and observed that the demand of service tax had been rightly confirmed by the Commissioner(A).

On the question of interest, it was held that since the payment of service tax was required to be done on a lump sum basis, the amount of interest demanded for the delayed payment of service tax is in accordance with Section 75 of the Act.

In the matter of penalty imposed u/s 78, it was observed by the Member (Technical) that the appellant was in regular correspondence with the department on the subject matter and had been following the advice given to them by the investigating officer to pay monthly instalments of service tax along with interest and, therefore, extending the benefit of section 80 of FA,. 1994, the penalty imposed was set aside. Consequently, the Revenue appeal seeking restoration of penalty u/s 76 of FA, 1994 was dismissed.

However, the Member (Judicial) had a differing view in the matter of leviability of interest.

It was observed that the SCN raising such demand of interest was issued on 05.03.2008 for the period beginning 05.06.2006 holding that the service tax should have been paid on lumpsum basis on 05.06.2006 itself.

Adverting to the decisions in Kwality Ice Cream Company – 2012-TIOL-252-HC-DEL-CX and Hindustan Ins ecticides – 2013-TIOL-631-HC-DEL-CX wherein it has been held that the period of limitation for demand of duty, as provided under Section 11A of the Central Excise Act, 1944, would equally apply to the demand of interest, except in exceptional circumstances of mis-statement, fraud etc., the Member (Judicial) observed that since the Member (Technical) had himself held that there was no mis-statement etc. on the part of the appellant while setting aside the penalty, it followed that the interest demand would also be barred by limitation.

And so, the following difference of opinion came to be referred to the President for a Majority decision-

“Whether the impugned order is required to be upheld for the purpose of confirmation of demand of interest as held by Ld. Member (Technical) or the interest demand has to be set aside as barred by limitation, as held by Member (Judicial).”

Citation: 2018-TIOL-1466-CESTAT-CHD