2016 (8) TMI 1123 - AT - Service Tax

Non fulfilling the obligation to deposit the collected tax to the Government of India - penalty imposed - Held that - The provisions of Finance Act 1994 and the rules framed therein require deposit of tax by the 5th of the following month. There is no requirement to deposit tax on the date of collection but can be held within the business enterprise till the stipulated date. It would appear that the appellant-assessee had discharged the tax liability belatedly and without waiting for a show cause notice by borrowing from a bank. The sole ground for imposing penalty against the service provider has been their breach of obligation to deposit the tax collected. No reason to disbelieve their claim of inability to pay tax owing to lack of funds. Such possibilities can and do occur in the world of business. That, however, does not confer immunity from being proceeded against for failure to comply with tax obligations. There is also no doubt that there is an obligation cast upon every service provider to collect the tax due through the service recipient and deposit the amount with the exchequer. However, the law does contemplate and is not averse to use of the tax so collected within the business till the stipulated date for payment. That this period was unilaterally extended by the assessee is not in dispute. Yet, the contention of the assessee that delay is not evidence of intention to evade tax is not one that can be dismissed out of hand. A delay is, without doubt, a delay but, in the absence of any other convincing evidence, is more reflective of lack of promptitude than deliberate evasion. Tax and interest were paid without waiting for a show cause notice by recourse to loan from a bank. The need to issue notice is, therefore, questionable and taxability before May 2006 is a matter of doubt. Thus we are of the opinion that this is a fit case for invoking of the provisions of section 80 to set aside the penalties imposed.

Summary

Issues:
Tax demand confirmation, interest imposition, penalty under sections 76 and 78 of Finance Act, 1994, delay in tax payments, applicability of penalty provisions, nature of services provided, tax collection obligations, invocation of section 80 of Finance Act, 1994.

Analysis:
The appeal was filed against an order confirming tax demand, interest, and penalties under the Finance Act, 1994, due to alleged non-payment of taxes by the assessee for a specific period despite collecting taxes from customers. The assessee claimed regular tax payments until a financial crisis hindered their obligations. The Revenue appealed against the penalty imposed, citing non-compliance with penalty provisions. The appellant argued that their services were misinterpreted, referencing relevant case laws to support their stance.

The Revenue contended that mandatory penalties in tax statutes cannot be diluted, as per a Supreme Court decision. The appellant claimed they were not liable for tax before a specific date due to the nature of services provided. Despite distinctions in services, the appellant had voluntarily paid taxes under a different category. The Revenue alleged tax collection without depositing it to the government promptly, emphasizing the obligation to deposit taxes by a specified date.

The Tribunal acknowledged the financial challenges faced by the appellant but emphasized the obligation to fulfill tax responsibilities. The delay in tax payments was attributed to financial constraints, leading to the use of borrowed funds to pay taxes. The Tribunal considered the delay as lack of promptitude rather than deliberate evasion, leading to doubts about taxability before a certain date. Ultimately, the Tribunal invoked section 80 to set aside the penalties imposed, ruling against the Revenue's appeal for penalty enhancement.

In conclusion, the Tribunal dismissed the Revenue's appeal for penalty enhancement and disposed of the cross-objection filed by the Revenue, highlighting the invocation of section 80 to nullify the penalties. The judgment was pronounced on 01/08/2016 by the Tribunal.