2026-VIL-945-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax – Penalty under Section 78 - Appellant paid service tax under reverse charge mechanism upon obtaining registration in 2010 – Issue of show cause notice in 2013 for alleged short-payment or non-payment of service tax - Whether appellant is entitled to benefit of Section 80 of the Finance Act, 1994 read with Explanation 2 to proviso to Section 73(3) and consequently whether penalty under Section 78 can be imposed – HELD - Section 73(3) of the Finance Act, 1994 provides that where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a person chargeable with service tax may pay the amount on the basis of his own ascertainment before service of notice. Explanation 2 to proviso to Section 73(3) mandates that no penalty under any provision of the Act or rules shall be imposed in respect of payment of service tax under that sub-section - The Karnataka High Court in C. Ahead Info Technologies India P. Ltd. case held that once duty and interest are paid and duly intimated to authorities, Section 73(3) comes into operation mandating that authorities shall not serve any notice under sub-section (1) in respect to the amount paid and shall not initiate proceedings to recover any penalty. The lower appellate authority erroneously did not consider the statutory benefit provided under Section 73(3) read with Section 80 - Since the appellant paid service tax before issuance of SCN, the original authority fell into error in issuing the show cause notice - The imposition of penalty under Section 78 is set aside and the appeal is allowed
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