Penalty u/s 77 & 78 Finance Act 1994, not to be levied if Taxpayer suo-motu deposited Service Tax before being prompted by Department

Hearing a plea against imposition of penalty on the Assessee, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at Chandigarh observed that penalty under Section 77 & 78 of Finance Act 1994, was not imposable where Assessee had suo motu deposited Service Tax before being prompted to do so by the Department.

A Division Bench of SS Garg, Member (Judicial) and P Anjani Kumar, Member (Technical) accepted the Assessee’s contention of being under bona fide belief of not being liable to pay Service Tax, but nevertheless, paid the tax promptly, on being pointed out by the Department.   

The Appellant-Assessee was represented by Ms Krati Singh, Advocate, whereas the Respondent-Revenue was represented by Ms Shivani, DR.

Briefly, the Assessee is a co-operative society registered under the Punjab Co-operative Societies Act, 1961 and is engaged in providing the canteen services to M/S GlaxoSmithKline Consumer Healthcare Pvt. Ltd. (‘GSKCH Ltd.’). The employees of GSKCH Ltd. formed the present co-operative society i.e., the Assessee for supply of meals and light refreshments to the employees of GSKCH Ltd. All the employees of GSKCH Ltd. are members of the Assessee-society.

The Assessee is registered as a ‘service provider’ under ‘outdoor catering services’ and also under VAT. For the purposes of operation of the Appellant’s canteen, GSKCH Ltd. provided space within the factory premises for running the canteen and also some materials and fixed assets to the Assessee.

Also, in cases of loses in any particular financial year, the Assessee often receives subsidy from GSKCH Ltd. The Assessee served the food items to the employees of GSKCH Ltd. in consideration of some money on which VAT was duly been discharged by the Assessee during the Relevant Period. Also, on the amount received as subsidy, no service tax was deposited by the Assessee in light of the settled law in sales tax regarding non-leviability of VAT on amounts received as subsidy.

On these allegations, a Show Cause Notice was issued to the Assessee proposing to recover service tax of Rs. 57,66,971/- for the applicable services of outdoor catering services along with applicable interest and penalty by invoking the extended period of limitation.

On hearing the contentions of both sides, the Bench noted that the Assessee already paid Service Tax with interest much before the Show Cause Notice came to be issued. The Bench further noted that Audit proceedings conducted with respect to the Assessee led to no objections being raised.

The Bench then referred to Section 73(3) of the Finance Act 1994 and observed that if a tax is paid along with interest before the issuance of show cause notice then in that case show cause notice shall not be issued and in the present case also, we find that the contention of the Assessee that they had bona-fide belief that they are not liable to pay service tax but when they realized on their own, they immediately paid the service tax along with interest which is admitted in the impugned order itself.

With these observations, the Bench concluded that the Assessee was not liable to pay penalty under Section 77 & 78, and the penalties imposed were set aside.

Cause Title: M/s GSKCH Employees Cooperative Canteen vs. CCE [Service Tax Appeal No. 1555 of 2011 / 2023-Enterslice-5-CESTAT-Chand]

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GSKCH-Employees-Cooperative-Canteen-vs.-CCE