2010 (7) TMI 423 - HC - Service Tax

Penalty suppression of value of taxable service - payment of service tax with interest and penalty in pursuance of the show-cause notice issued - assessee filed a NIL return and after service of show-cause notice, assessee realized mistake and paid tax with interest and penalty assessee not a bona fide omission on the part of a housewife - a lady who wilfully evaded service tax and suppression of fact - question of law answered in favour of the revenue and against the assessee When once she filed a NIL return and after service of show-cause notice, she realised her mistake and paid tax with interest and penalty, that by itself did not constitute sufficient reason to give her exemption from payment of penalty under section 78 of the Act. This aspect of the matter has been completely missed by the Tribunal which seems to have been unduly carried away by the fact that assessee is a lady. The Tribunal failed to notice that people who want to indulge in such malpractices, would purchase properties or carry on business in the names of housewives as their front and carry on the activities. Therefore, authorities need not unduly worry about the persons in whose names the vehicle stand, but they have to look at the substance of the case and find out if it is a case of wilful evasion or bona fide error.

Summary

Issues:
Challenge to order granting relief from penalty for non-payment of service tax.

Analysis:
The case involved the revenue appealing against a Tribunal order that relieved the respondent from penalty for non-payment of service tax. The respondent provided rent-a-cab services without obtaining Service Tax Registration and did not pay service tax on the rentals collected. After a survey, the respondent obtained registration and filed a NIL return, paying the due tax, interest, and penalty. The adjudicating authority imposed a penalty of 100% under section 78 of the Finance Act, 1994. The Commissioner of Central Excise (Appeals) affirmed the penalty. The Tribunal, considering the service tax exemption and the respondent's belief of no tax liability, set aside the penalty, which the revenue challenged.

The substantial question of law was whether the Tribunal had discretion to waive the penalty under section 76 of the Finance Act when no sufficient cause was shown by the assessee. The revenue contended that the respondent filed a false return after obtaining registration and only paid tax, interest, and penalty upon receiving a show-cause notice, indicating wilful evasion. The respondent argued that being a lady and housewife, her failure to pay tax was a bona fide act, and the Tribunal's lenient view should be upheld.

The High Court found that despite the respondent's belated payment after the survey, there was a three-year delay in paying service tax after its reintroduction. The Court noted that the respondent's registration should have prompted her to pay tax and that her subsequent payment upon notice did not justify waiving the penalty. The Court criticized the Tribunal for being unduly influenced by the respondent's gender and emphasized the need to assess wilful evasion versus bona fide error. The Court concluded that the respondent's actions did not constitute a bona fide omission, but rather wilful evasion, setting aside the Tribunal's order and upholding the penalty imposed by the lower authorities.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's order and upholding the penalty imposed under section 78 of the Act by the adjudicating authority and the first appellate authority.