2005 (5) TMI 6 - AT - Service Tax

Penalty Delay in deposit due to fraud committed upon by employee Personal penalty set aside.

Summary

Issues:
- Imposition of penalty for non-deposit of service tax
- Applicability of Section 80 of the Finance Act, 1994

Imposition of Penalty for Non-Deposit of Service Tax:
The appellants, engaged in providing security services, failed to deposit service tax amounting to Rs. 5,03,554/- for the period April 2001 to March 2002. They claimed that their accountant, responsible for the deposits, misappropriated the funds for personal gain instead of depositing them. The appellants detected this fraud internally and filed an F.I.R. against the employee. Subsequently, they deposited the entire service tax amount along with interest in October 2002. Penalty proceedings were initiated against the appellants based on these events, leading to the impugned orders.

Applicability of Section 80 of the Finance Act, 1994:
The appellants sought relief under Section 80 of the Finance Act, 1994, which states that no penalty shall be imposed if the assessee proves a reasonable cause for the failure. The appellants argued that the fraud committed by their employee without their knowledge, subsequent detection by them, and voluntary deposit of the service tax amount with interest constituted a reasonable cause for setting aside the penalty. Reference was made to a Tribunal decision in a similar case where the assessee's bona fides and cooperation were considered for extending the benefit of Section 80. The Tribunal found that the appellants had released funds to the employee on time for depositing the tax, but the employee fraudulently diverted the funds, leading to the registration of an F.I.R. by the appellants. Since the service tax amount was later deposited by the appellants voluntarily and without detection by the authorities, the Tribunal concluded that there was a reasonable cause for the failure to deposit the tax on time. Consequently, the Tribunal set aside the personal penalty imposed on the appellants under Sections 76 and 77 of the Finance Act, disposing of the appeal and stay petition accordingly.