2015 (5) TMI 566 - HC - Service Tax

Penalty u/s 78 - Whether Section 78 of the Act stipulates imposition of penalty on any person liable to pay such service tax or erroneous refund as determined under Section 73A(2) of the Finance Act - Held that - Once the service tax was not leviable under Section 68 at that point of time and the liability was only to deposit the tax under Section 73A(2), which has been done on 15.11.2008, after delay, but due to the service being not taxable at the relevant time when the invoices were raised, we are of the opinion that the case would not fall under the provisions of Section 78 for invoking of the penalty, as has been held by the Tribunal. It was the categorical stand of the appellant before the First Appellate Authority that the service tax had been collected by mistake, on account of the new provision and the office of the appellant was not fully acquainted with the interpretation of the statute due to which the default had occurred and therefore, in view of the defence taken, the Tribunal was not justified, in the present facts and circumstances, to hold that there was a wilful suppression of facts, to bring it within the ambit of Section 78. - Decided in favour of assessee.

Issues:
1. Interpretation of Section 78 of the Central Excise Act, 1944 regarding imposition of penalty for service tax evasion.
2. Applicability of Section 73A(2) of the Finance Act, 1994 on service tax collection and deposit.
3. Consideration of penalty provisions under Sections 76 and 78 in the context of service tax liability.
4. Assessment of wilful suppression of facts and intent to evade tax under Section 78.

Analysis:
1. The case involved an appeal against an order imposing penalty under Section 78 of the Central Excise Act, 1944 for service tax evasion. The appellant, providing liaisoning and consultancy services, had raised invoices with service tax but deposited the tax late. The issue was whether penalty under Section 78 was justified for the delayed deposit of service tax.

2. The appellant contended that the service tax became taxable only from a later date and the tax was collected by mistake. The adjudicating authority confirmed the service tax demand and imposed penalties under Sections 76, 77, and 78. The First Appellate Authority modified the order, stating that the collected amount was not chargeable but should have been deposited promptly.

3. The Tribunal allowed the Revenue's appeal, emphasizing that the service tax collected should have been deposited immediately as per Section 73A(2). The Tribunal reinstated the penalties under Sections 78 and 75, citing wilful suppression of facts by the appellant to evade tax. The penalty provisions under Section 76 were also considered in this context.

4. The High Court analyzed the provisions of Section 68, 73A(2), 76, and 78 to determine the liability for penalty. It noted that since the appellant was not liable to pay service tax under Section 68 at the time of invoicing, the penalty under Section 78 was not applicable. The Court found that the appellant's mistake in collecting tax due to lack of understanding of new provisions did not constitute wilful suppression of facts warranting penalty under Section 78.

5. Consequently, the Court ruled in favor of the appellant, holding that the penalty was not justified due to the non-taxable nature of the service provided at the relevant time. The Tribunal's order imposing penalties was set aside, and the First Appellate Authority's decision was restored, leading to the allowance of the appellant's appeal.

6. In conclusion, the High Court's judgment clarified the interpretation of penalty provisions under the Central Excise Act in cases of service tax evasion, emphasizing the importance of considering the taxable status of services provided and the intent behind any delayed tax deposits in determining liability for penalties.

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