2008 (11) TMI 96 - AT - Service Tax

Penalty - Security Agency - appellant did not discharge the service tax liability for the reason that they did not collect the service tax from their clients - even though the appellant discharged the service tax liability only after the issue of show cause notice. It is seen that they had not collected any service tax from their clients - penalty imposed u/s 76 is set aside - penalty u/s 77 is upheld - As regards the penalty under Section 78, it is reduced from Rs. 93,846/- to Rs 9300/- only

Summary

Issues:
1. Liability for service tax payment and penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:
The case involved a dispute regarding the liability of an appellant, a security agency, for service tax payment and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellant had registered in November 2003 but failed to collect service tax from clients, leading to a show cause notice issued on 09.11.2005. The appellant paid the service tax amount of Rs. 91,795/- and education cess of Rs. 2,051/- on 04.05.2006, before the adjudication proceedings. The Original Authority refrained from imposing penalties under Sections 76, 77, and 78, but the Commissioner initiated revisionary proceedings and imposed penalties, including daily penalties under Section 76, Rs. 1,000 under Section 77, and Rs. 94,000 under Section 78.

The appellant argued that since they paid the tax only after the show cause notice, a sympathetic consideration was warranted. They cited the Majestic Mobikes Pvt. Ltd. case and emphasized that the tax was paid from their own funds, not collected from clients. The Departmental Representative contended that the appellant was still liable for penalties as tax was paid post-show cause notice. After considering the circumstances, the Member (Technical) modified the order. The penalty under Section 76 was set aside, while the penalty under Section 77 was upheld. The penalty under Section 78 was reduced from Rs. 93,846 to Rs. 9,300, considering that the appellant had not collected any service tax from clients. Consequently, the stay and appeal were allowed in the modified manner.

In conclusion, the judgment provided a nuanced analysis of the appellant's liability for service tax payment and penalties under the Finance Act, 1994. It considered the timing of tax payment, absence of collection from clients, and relevant legal precedents to arrive at a decision that balanced the imposition of penalties with the unique circumstances of the case.