2015 (9) TMI 473 - AT - Service Tax

Penalty u/s 78 - manpower recruitment and supply agency service - Held that - Prior to 08/04/2011, Section 78 envisaged imposition of penalty equal to service tax short paid or not paid if such short/non-payment was on account of willful mis-statement, suppression of facts or contravention of any other provisions of the Act with an intent to evade service tax. In the present case, the appellant had collected the service tax amount from his customers but failed to remit the same to the exchequer. It is also on record that the appellant failed to file statutory returns required to be filed by him. This conduct of the appellant clearly falls within the mischief of willful misstatement/suppression of facts and therefore, the appellant does not deserve the benefit of Section 80 of the Act. Further, since Section 78 as its stood at the relevant time did not provide for any reduction in the mandatory penalty equal to the amount of service tax not paid/short paid, the benefit of amended provision which came into force with effect from 08/04/2011 could not have been extended to the appellant. Penal provisions are substantive in character and therefore, the provisions that shall apply are those existing at the time of commission of the offence. Therefore, there was no scope for the lower appellate authorities to reduce the penalty from the statutory stipulated penalty equal to amount of service tax short paid. - Decided against assessee.

Summary

Issues:
1. Imposition of penalty under Section 78 of the Finance Act, 1994 for non-payment of service tax.
2. Applicability of penalty provisions prior to and post 08/04/2011.
3. Invocation of Section 80 for waiver of penalty.
4. Interpretation of willful misstatement/suppression of facts under Section 78.

Analysis:

1. The case involved appeals by both the Revenue and M/s. S.A. Enterprises against an Order-in-Appeal imposing a penalty equivalent to 50% of the service tax amount not paid under Section 78 of the Finance Act, 1994. The appellant, a provider of taxable services, had failed to remit service tax collected during a specific period and also neglected to file service tax returns. The initial show-cause notice led to the confirmation of service tax demand, interest, and penalties under Sections 76, 77, and 78 of the Act. The penalties imposed were &8377; 5,000/- under Section 77 and &8377; 23,31,524/- under Section 78.

2. The Revenue challenged the order, arguing that the reduced penalty under Section 78 post 08/04/2011 should not apply retrospectively. The lower appellate authority upheld the original order, rejecting the Revenue's contention. The appellant's counsel cited financial difficulties and sickness of the firm's proprietor as reasons for the delayed tax payment, seeking penalty waiver under Section 80 or a reduced penalty amount based on the order-in-original.

3. The appellant's plea for invoking Section 80 for penalty waiver due to financial constraints and sickness was dismissed. The Tribunal emphasized that prior to 08/04/2011, Section 78 mandated a penalty equal to the service tax not paid in cases of willful misstatement or suppression of facts. As the appellant had collected but not remitted the service tax, and failed to file returns, the penalty was upheld.

4. The Tribunal held that the appellant's conduct constituted willful misstatement/suppression of facts, justifying the penalty under Section 78. The amended penalty provisions effective post 08/04/2011 could not be retroactively applied. Citing relevant Supreme Court decisions, the Tribunal concluded that penalties are substantive and must align with the provisions at the time of the offense. Therefore, the appeal by the Revenue was allowed, and the appeal by M/s. S.A. Enterprises was dismissed.