2018 (2) TMI 2026 - HC - Service Tax

Levy of penalty - Section 73 of the Finance Act of 1994 - service of Practicing Chartered Accountant provided - appellant had paid the arrears of tax and interest prior to the issuance of show cause notice - suppression of facts or not - Whether the proceedings under Section 73(3) of the Finance Act, 1994 in this matter could be said to be justified by any of the reasons stated in sub-section(4) of Section 73 of the Act? HELD THAT - It is true that in various cases like COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S ADECCO FLEXIONE WORKFORCE SOLUTIONS LTD 2011 (9) TMI 114 - KARNATAKA HIGH COURT , that the levy of penalty imposed on the ground of delayed payment of Service Tax was set aside as the tax was paid prior to issuance of show cause notice. However, the present case has a distinguishable feature. In the present case, the undisputed fact reveals as reflected from the Order of the Assessing Officer that the assessee came up with a plea before the Assessing Officer that he has rendered services to Karnataka State Financial Corporation (KSFC) and it is the KSFC which has not cleared the bills of the assessee and in those circumstances, the assesee was not able to pay service tax - it is also established that non-payment of Service Tax was not due to delay but on the contrary it was willful non payment of service tax with an intention to evade payment of Service tax. Thus, the assessee suppressed the facts and made willful mis-statement before the Assessing Officer and in those circumstances, the benefit of Section 74, 78 was not extended to him. In the light of the categorical finding of fact arrived at by the Assessing Officer keeping in view Section 73(4) of the Finance Act of 1994, merely because tax was paid before the issuance of show cause notice, it can never be said that the penalty cannot be imposed upon the appellant - appeal dismissed.

Summary

Issues:
1. Interpretation of Section 73 of the Finance Act, 1994 regarding the imposition of penalty and interest.
2. Application of Section 73(4) of the Finance Act, 1994 in cases of non-payment of service tax due to suppression of facts or willful misstatement.

Analysis:

Issue 1: Interpretation of Section 73 of the Finance Act, 1994
The case involved an appeal under Section 35G of the Central Excise Act, 1944 against an order passed by the Customs, Excise & Service Tax Appellate Tribunal. The appellant, a Chartered Accountant Firm, was registered under Section 65(83) of the Finance Act of 1994. The Department discovered non-payment of Service Tax by the appellant from April 2005 to September 2007. The appellant contended that the tax amount had been deposited before the issuance of the show cause notice, hence penalty and interest should not be imposed. However, successive authorities rejected this contention, leading to the appeal before the High Court.

Issue 2: Application of Section 73(4) of the Finance Act, 1994
The High Court framed substantial questions of law regarding the justification of the Tribunal's approval of proceedings under Section 73(3) of the Finance Act, 1994 despite tax payment before the notice. The appellant argued that based on previous judgments, penalty and interest should not be levied. However, the Court distinguished the present case due to Section 73(4) which specifies conditions where penalty can be imposed even if tax is paid before the notice. The Court noted that willful non-payment due to suppression of facts or misstatement by the assessee could lead to penalty imposition, as evidenced by the appellant's deliberate non-payment despite receiving the tax amount from the client.

In conclusion, the High Court upheld the penalty under Sections 77 and 78 of the Finance Act, 1994 against the appellant. The Court emphasized that the appellant's willful non-payment of Service Tax, despite having collected it from the client, constituted suppression of facts and willful misstatement. Therefore, the benefit of Section 74 and 78 was not extended to the appellant. Consequently, the appeal was dismissed, and the substantial questions of law were answered in favor of the Department and against the assessee.