2014 (5) TMI 66 - HC - Service Tax

Penalty u/s 78 - Invocation of section 80 - Held that - Respondent is engaged in providing security services. For the period under consideration, he had short paid the service tax. The proceedings were initiated for recovery as well as penalty. The Commissioner holding that the respondent had manoeuvering intention in not paying the service tax in full. The respondent approached in appeal. The Tribunal in facts of the case held that the assessee had bona fide belief that as his clients did not pay service tax as indicated in the invoice, his liability to pay the same to the Department did not arise. The Tribunal noted that such nonpayment was by the service requirement of the assessee, which included Vadodara Municipal Corporation, Surat Municipal Corporation and Gujarat Electricity Corporation /Board. It was also noted that as and when he had received the payments, he had promptly paid the same with the authority. The Tribunal relied on the decision of the Karnataka High Court in the case of Commissioner of Income-tax, Bangalore v. Motor World, reported in 2012 (6) TMI 69 - KARNATAKA HIGH COURT . When section 80 of the Act gives discretion not to impose penalty, if the assessee shows sufficient cause for not depositing the service tax and when the Tribunal has adverted to relevant facts to hold that there was sufficient cause on the part of the assessee - No substantial question of law arises - Decided against Revenue.

Summary

Issues:
- Challenge to the judgment of the Customs, Excise and Service Tax Appellate Tribunal by Revenue
- Interpretation of 'reasonable cause' under section 80 of the Finance Act, 1994
- Consideration of malafide conduct in not making payment of service tax
- Setting aside penalty under Section 78 and extending benefit of section 80 of the Finance Act, 1994

Analysis:
The High Court of Gujarat addressed the challenge brought by Revenue against the judgment of the Tribunal, focusing on the invocation of section 80 of the Finance Act, 1994 in the context of penalty for short payment of service tax by the respondent-assessee, engaged in providing security services. The Commissioner initially found that the respondent had a manoeuvering intention in not paying the service tax in full, leading to proceedings for recovery and penalty. However, the Tribunal, considering the facts, concluded that the respondent had a bona fide belief that his liability to pay service tax did not arise due to his clients not paying as indicated in the invoice. The Tribunal highlighted that the nonpayment was due to the service requirement of the assessee, involving various entities like Vadodara Municipal Corporation, Surat Municipal Corporation, and Gujarat Electricity Corporation/Board. Additionally, it was noted that the respondent promptly paid the service tax whenever he received payments. The Tribunal's decision was influenced by a precedent from the Karnataka High Court, emphasizing that if the assessee demonstrates sufficient cause for not depositing the service tax, section 80 allows for discretion in not imposing a penalty. Therefore, the High Court found that no question of law arose in this case, ultimately dismissing the Tax Appeal.

In conclusion, the judgment delved into the interpretation of 'reasonable cause' under section 80 of the Finance Act, 1994, the consideration of malafide conduct in not making service tax payments, and the application of penalties under Section 78. The Court's analysis centered on the Tribunal's assessment of the facts and the assessee's belief regarding service tax liabilities, ultimately leading to the dismissal of the Tax Appeal.