Undue Sympathy to Impose Adequate Penalty would Undermine Efficacy of Law: CESTAT Confirms Service Tax Demand [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) confirmed service tax demand and commented that undue sympathy to impose adequate penalty would undermine the efficacy of the law.

M/s. Nebula Computers Pvt Ltd, the appellant is rendering the services of Manpower Recruitment and Supply Services. The accounts/records of the assessee were taken up for audit by the Internal Audit of the Service Tax Commissionerate, Chennai, during which it was noticed that the assessee had rendered the services of a manpower recruitment agency and realized an amount of Rs.4 cores for the period from April 2009 to January 2010 but did not pay the service tax for the amount collected from their customers.

It was also noticed that the appellant did not file ST-3 Returns for the half-year ending and had also paid service tax belatedly for the year 2008 – 2009 with interest but there was a short-payment of Rs.twelve thousand. Hence Show Cause Notice was issued to the appellant and after due process, the amount was confirmed in the Order in Original.

The appellant is aggrieved that in spite of CBEC Circular F. No. 137/167/2006-CX dated 3.10.2007 wherein the Board had stated that once service tax along with interest is paid before the issue of Show Cause Notice, the entire proceedings is deemed to have been concluded. Hence no-show cause notice could have been issued to them.

Further, with regard to the suppression of facts with the intention to evade payment of tax liability, they submitted that they have filed statutory ST-3 Returns and had paid the entire service tax and interest and had intimated the fact through ST-3 Returns. Hence the impugned order passed confirming the demand is not sustainable and is bad in law.

The Tribunal of P Dinesha, Judicial Member and M Ajit Kumar, Technical Member observed that “undue sympathy to impose an adequate penalty would undermine the efficacy of law and encourage other taxpayers to avoid paying taxes on time while waiting for if and until they have been found to have evaded duty by the department to pay their taxes.”

“No substantive reasons have been demonstrated by the appellant to show that they were facing financial hardship. In the circumstances the subjective satisfaction of the original authority in coming to his conclusion is not found to be perverse” the Tribunal noted.

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