2008 (9) TMI 75 - AT - Service Tax

In survey conducted, it was noticed that respondents have not paid Service tax even though the same was collected by them from their customers - Revenue contended that once the respondents were aware of their liability, the penalties were liable to be imposed as their plea ignorance of procedure etc. cannot be considered, once the amount was recovered from the customers revenue s plea is acceptable penalty imposable

Summary

Issues:
1. Imposition of penalties under Sections 75A, 77, and 78 of the Finance Act, 1994 on a health club and fitness service provider for non-payment of Service tax.
2. Whether ignorance regarding the procedure for registration can be a valid defense against the imposition of penalties once the amount was collected from customers.

Analysis:
Issue 1: The case involved the imposition of penalties under Sections 75A, 77, and 78 of the Finance Act, 1994 on a health club and fitness service provider for not paying Service tax despite collecting it from customers. The Assistant Commissioner had confirmed the demand of Service Tax along with interest and imposed penalties. However, on appeal, these penalties were set aside by the Commissioner (Appeals) based on the argument that the service provider had paid the Service tax along with interest immediately upon demand and due to ignorance regarding the procedure for registration. The Revenue contended that penalties should have been imposed since the service provider was aware of their liability to pay Service tax, which they were recovering from customers. The Tribunal held that the service provider was not only aware of the Service tax but was also collecting it from customers without remitting it to the department. The Tribunal found no grounds for leniency and set aside the Commissioner (Appeals) order, restoring the original order and allowing the Revenue's appeal.

Issue 2: The Tribunal considered whether ignorance regarding the procedure for registration could be a valid defense against the imposition of penalties once the amount was collected from customers. The Tribunal noted that in this case, the service provider was not only aware of the Service tax but was also collecting it from customers and retaining the amount without paying it to the department. The Tribunal emphasized that the service provider could have inquired about the procedure from the department and paid the Service tax accordingly. Therefore, the Tribunal concluded that the plea of ignorance was not acceptable in this scenario, as the service provider had the means to seek clarification and fulfill their tax obligations. Consequently, the Tribunal upheld the imposition of penalties and dismissed the defense of ignorance put forth by the service provider.

In summary, the Tribunal upheld the imposition of penalties under Sections 75A, 77, and 78 of the Finance Act, 1994 on the health club and fitness service provider for failing to pay Service tax despite collecting it from customers. The Tribunal rejected the defense of ignorance regarding the registration procedure, emphasizing that the service provider was aware of their tax liability and had the means to clarify any doubts with the department.