2014 (12) TMI 1090 - AT - Service Tax

Penalty u/s 77 & 78 - Payment of service tax as recipient of service - Held that - Appellants did not to pay service tax in cash as they were entitled to avail Cenvat credit and the same was utilised. In such a situation, there was no need for the appellant to evade tax. When there is no need to evade tax, extended period could not have been invoked. In these circumstances, the penalty under Section 78 of the Act which is to be imposed when there is an intention to evade duty or suppression, fraud or collusion, mis-declaration etc. could not have been imposed. Accordingly, penalty under Section 78 of the Act is set aside. Coming to the penalty under Section 77, this penalty has been imposed for non-filing of returns. It is quite clear that the appellant has failed to file returns. Therefore, the penalty imposed under Section 77 of the Act is sustainable and the same is sustained. - Appeal partly allowed.

Summary

Issues:
Imposition of penalty under Section 77 and Section 78 of the Finance Act, 1994 for non-payment and non-filing of service tax returns.

Analysis:
The appellant appealed against penalties of &8377; 5000 under Section 77 and &8377; 2,30,000 under Section 78 of the Finance Act, 1994 for not paying service tax as a recipient from April 2006 to October 2007. The appellant acknowledged the non-payment, paid the tax and interest, leading to penalty proceedings. The appellant argued that as they were eligible for Cenvat credit, there was no need to evade tax, and no finding indicated their ineligibility for the credit. The Revenue representative contended that since the appellant admitted the lapse and paid tax upon detection, penalties were justified.

The Tribunal considered both sides' arguments. It noted that the appellant, entitled to Cenvat credit, did not pay service tax in cash, eliminating the need for tax evasion. As there was no intention to evade tax, the Tribunal ruled that penalty under Section 78, applicable for evasion, suppression, fraud, or collusion, could not be imposed and set it aside. However, regarding the penalty under Section 77 for non-filing of returns, the Tribunal found the appellant failed to file returns, making the penalty sustainable. Consequently, the appeal was partly allowed, setting aside the Section 78 penalty and upholding the Section 77 penalty of &8377; 5,000.

This judgment clarifies that entitlement to Cenvat credit can impact the imposition of penalties for non-payment of service tax. It distinguishes between penalties for evasion and non-filing of returns, emphasizing the importance of compliance with return filing obligations. The ruling underscores the significance of intention to evade tax in determining the applicability of specific penalties under the Finance Act, 1994.