1. This appeal by the Revenue has been admitted to consider following questions of law:

"i) Whether the CESTAT was right in holding that no suppression can be alleged merely on audit objections and accepting the Respondent's plea that the Cenvat credit was wrongly taken on account of clerical mistakes.

ii) Whether the CESTAT was right in holding that there is no suppression of facts in the instant case and they are eligible for benefit of Section 73(3) of the Finance Act, 1994 as they had paid Service Tax with interest before the issue of Show Cause Notice.

iii) Whether the CESTAT was right in setting aside the Order-in-Original and allowing Respondent appeal."

2. Brief facts of the case are, respondentassessee is registered under the Service tax. During the course of audit for the period October 2004 to 2009, it was observed that assessee was availing the benefit of Notification No.1/2006 dated 01.03.2006 in respect of Convention Centre Services. In terms of said Notification, 60% of gross amount charged from the clients is exempted from payment of service tax and education cess, provided such assessee does not avail of CENVAT credit on duty paid inputs or capital goods or CENVAT credit service tax on the services utilized for providing convention service under the provisions of CENVAT Credit Rules, 2004 (Cenvat Rules' for short) ; or assessee does not avail the benefits under Notification No.12/2003 dated 20.06.2003.

3. During the audit, it was observed that assessee was availing the CENVAT credit of service tax and not eligible to avail the benefit of abatement under Notification No.1/2006 and thus, it was noticed that assessee had short paid the service tax of Rs.51,65,268/-. After deducting the service tax paid, assessee was liable to pay total short paid service tax of Rs.41,13,018/- and the interest thereon. On being pointed out, assessee voluntarily paid the same with interest of Rs.17,42,623/-.

4. During the audit, it was also noticed that the assessee was providing room services to diplomats. Though it was exempted from service tax, no separate records were maintained. As per Rule 6(3)(A) of CENVAT Credit Rules, 2004 when the service provider has not opted to maintain separate accounts, the service provider shall utilize credit only to the extent of amount not exceeding 20% of the Service tax payable on taxable output services. The credit of Rs.85,85,898/- availed between April 2004 and September 2009 was found in contravention of Rule 6(3) of CENVAT Rules. On being pointed out assessee paid service tax of Rs.85,85,898/- with interest of Rs.33,57,964/-.

5. It was also observed during the audit that assessee had not paid service tax on rent received between April 2009 and March 2010. On being pointed out, assessee paid the said tax liability of Rs. 43,260/-with interest of Rs. 3,006/-.

6. Similarly, in respect of Service Tax payable under Banking and Financial Services, assessee was required to pay a sum of Rs. 23,002/-and an interest of Rs. 4,577/-. The assessee paid the said tax and the interest.

7. Thus, assessee paid service tax on various services pointed out by the Revenue with interest and requested that no show cause notice be issued. However, Revenue issued a show cause notice dated 24.10.2011 and confirmed the demand. In addition, Revenue imposed penalty of Rs. 1,27,80,168 equivalent to the amount of unpaid Service tax, under Section 78 of the Act, vide Order-in-original dated 30.11.2012 passed by the Commissioner (Adjudication).

8. Assessee challenged the Order-in-original before the CESTAT (Customs, Excise & Service Tax Appellate Tribunal), Bengaluru. By the impugned order, the CESTAT following a decision of Delhi High Court and a decision of this Court, set aside the penalty.

9. Shri. Deshpande for the Revenue, vehemently contended that assessee had evaded tax and justified imposition of penalty.

10. Shri. Prabhakar Rao learned Advocate for the assessee, submitted that assessee had not willfully evaded the tax. The short payment had occurred due to the clerical mistake committed by the Officer handling service tax matters and he had passed away. The Finance Manager incharge of the service tax matters had also resigned. Once the Revenue pointed out the short payments, assessee has promptly paid the taxes with interest. Therefore, imposition of penalty has been rightly set aside by the CESTAT. In support of his contention, he placed reliance on Commissioner of Central Excise & Service Tax, LTU, Bangalore Vs. Adecco Flexione WorkForce Solutions Ltd.(CEA No.101/2008 and CEA No.102/2008 decided on 08.09.2011)

11. In reply, Shri. Deshpande relied upon United Communication, Udupi Vs. Commissioner of Central Excise, Mangaluru (2012)281 ELT 168 [LQ/KarHC/2011/898] (Kar) and Union Of India Vs. Rajasthan Spinning and Weaving Mills (2009)238 ELT 3 [LQ/SC/2009/1249] (SC).

12. We have carefully considered rival contentions and perused the records.

13. Undisputed facts of the case are, short payments of service tax were found during the audit. Once the same was brought to the notice of the assessee, the assessee has promptly paid the taxes with interest there on without any demur and requested that no show cause notice be issued. The Revenue issued a show cause notice and adjudicated the matter and passed the Order-in-original. In addition to confirming the demands, the adjudicating authority also imposed penalty equivalent to the amount of service tax.

14. The CESTAT has relied upon a decision of Delhi High Court in assessee's own case in Bharat Hotels Ltd., Vs. Commissioner of C.Ex.(Adjudication) ((2018)TIOL 178 HC Del ST =(2018) 12 GSTL 368) wherein, it is held that the conduct of appellant therein, of making prompt payment of service tax during the enquiry after gaining the knowledge of its liability, is sufficient reason to believe that assessee did not have an intention to evade payment of tax and accordingly, penalty was set aside.

15. In United Communication, the facts are slightly different. The assessee therein, was a Cable operator and registered under Service tax. During the enquiry by the Revenue, he gave information about the number of subscribers, the amount charged, etc., and offered to pay the differential amount. A communication was sent to him stating that he was liable to pay Service tax and interest and the assessee paid the same promptly. Thereafter, a show cause notice was issued as to why penalty proceedings should not be imposed. Assessee replied that he had not received subscription on the Consumers. This Court held that assessee was aware of the liability to pay tax and when pointed out, he had paid the taxes with interest. It further held that assessee had not produced any material to demonstrate that subscription was not received by him and not maintaining the records cannot constitute sufficient cause.

16. In Rajasthan Spinning and Weaving Mills, it is recorded in para 4 of the judgment that the preventive party had visited assessee's Factory premises. On scrutiny of internal records, it took a view that there was short payment of duty on sales made from assessee's depot. Assessee was collecting handling and forwarding charges at the rate of Rs. 6/-per bag/carton, up to October 1996 and thereafter, at Rs. 8/-. Assessee, during the material time had collected Rs. 7,46,219/-as handling and forwarding charges on the sales from the Mill. The assessee had paid duty only on the difference between the amount collected and the actual expenditure. In the same way, a sum of Rs. 5,59,603/-was left out while computing the levy of excise duty which worked out to Rs. 1,09,682/-. In the same manner, there was short payment of duty of Rs. 69,900/-. Shri. Deshpande heavily relied upon paras 18 and 19 in Union of India Vs. Rajasthan Spinning & Weaving Mills 2009 (238) E.L.T. 3(S.C). In para 19, it is stated that 'penalty' under Section 11AC is punishment for an act of deliberate deception by the assessee with the intent to avoid duty by adopting any of the means mentioned in the Section. It is also relevant to note that the Apex Court has held thus:

"21. From the above, we fail to see how the decision in Dharmendra Textile can be said to hold that Section 11AC would apply to every case of non-payment or short payment of duty regardless of conditions expressly mentioned in the Section for its application."

17. A careful reading of the above shows that, as per UOI Vs. Dharmendra Textile Processors (2008)231 ELT 3 [LQ/SC/2008/1994] (SC), once the Section is applicable, the concerned authority would have no discretion in quantifying the amount and penalty equivalent to the duty determined must be imposed. In para 24 it is clarified by the Apex Court that what is stated in regard to the decision in Dharmendra Textile is applicable in respect of Section 11AC.

18. Under 11AC of Central Excise Act, 1944, penalty is payable where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty.

19. Thus the sine qua non to impose penalty under Section 11AC of Central Excise Act is, commission of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of the Act.

20. Under Section 78(1) of Finance Act 1994, penalty may be imposed if the service tax is not paid due to any reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act and the Rules made thereunder with the intent to evade payment of service tax.

21. Therefore, the question that falls for consideration is, whether payment of service tax, which was not made by the assessee falls within the conditions prescribed in the Act.

22. The assessee has given two reasons for non-payment. Firstly, that it had occurred due to clerical mistake committed by the employee, who was handling the service tax and he had passed away. Secondly, that the Finance Manager had also resigned. These reasons have been accepted by the CESTAT. It is relevant to note that upon being pointed out during the audit, the assessee has promptly made the payment of tax with interest and requested not to issue any show-cause notice.

23. In order to reverse the decision of the CESTAT, nothing is pointed out from the record to demonstrate that there was either fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of the Act and Rules.

24. Further, the CESTAT has followed the decision of Delhi High Court in assessee's own case and also the decision of this Court in Adecco Flexione Work Force Solutions Ltd.

25. In the absence of the conditions contained in Section 78 of the Finance Act, the imposition of penalty is not sustainable. Hence, no interference is called for with the impugned decision of the CESTAT.

26. In the result, the following:

ORDER

(a) Appeal is dismissed.

(b) Questions of law are answered against the Revenue and in favour of the assessee.

No costs.