2012 (5) TMI 377 - HC - Service Tax

Whether Tribunal has committed substantial error of law in setting aside penalty under section 78 of the Finance Act, 1994 imposed upon the respondent in ignorance of jurisdictional facts indicating intention of respondent to evade payment of service tax under provisions of the Finance Act, 1994 Held that - Under Section 78 of the Finance Act, 1994, penalty can be levied where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or the Rules with an intent to evade payment of service tax. In the present case, the Tribunal came to the definite finding that no such factors exist. that Section 80 provides that such penalty shall not be imposed if the assessee proves that there was reasonable cause for failure to pay such tax. Tax Appeal dismissed

Summary

Issues:
Deletion of penalty for non-payment of service tax under sections 76 and 78 of the Finance Act, 1994.

Analysis:

Issue A: Deletion of penalty under section 76
The High Court considered the appeal against the deletion of penalty by the Tribunal for non-payment of service tax. The Tribunal had observed that no service tax was required to be paid on staff salary and infrastructural expenses, and the assessee had paid the admitted service tax. The Tribunal concluded that the question of whether service tax was payable was a matter of legal interpretation, and no mala fides were found. The Court noted that under Section 78 of the Finance Act, 1994, penalty can be imposed for non-payment of service tax due to fraud or contravention of provisions with intent to evade tax. However, the Court found that no such factors were present in this case. Moreover, Section 80 provides that no penalty shall be imposed if the assessee proves a reasonable cause for failure to pay tax. Considering the insignificant amount involved (Rs. 70,000/-), the Court upheld the Tribunal's decision to delete the penalty under section 76.

Issue B: Deletion of penalty under section 78
The Court further analyzed the deletion of penalty under section 78 of the Finance Act, 1994. It reiterated that penalty under this section can be levied for non-payment of service tax due to fraud, collusion, wilful misstatement, or contravention of provisions with intent to evade tax. However, the Court agreed with the Tribunal's finding that none of these factors were present in the case. Additionally, the Court highlighted that Section 80 provides for non-imposition of penalty if the assessee proves a reasonable cause for failure to pay tax. Given the small amount involved and the absence of any fraudulent intent or contravention, the Court dismissed the Tax Appeal, affirming the Tribunal's decision to delete the penalty under section 78.

In conclusion, the High Court dismissed the appeal by the Revenue, upholding the Tribunal's decision to delete the penalties under sections 76 and 78 of the Finance Act, 1994 due to the absence of fraudulent intent, contravention of provisions, or significant amount involved in the non-payment of service tax.