2016 (12) TMI 396 - AT - Service Tax

Imposition of penalty u/s 78 of the Finance Act, 1994 - the amount of service tax collected wrongly but not deposited with the government - after being pointed out by the department, same was deposited with interest - Held that - The said amount collected by appellant does not fall under any of the category of the services that are taxed as at the most the said collection of amount by appellant for permitting to use the road can be under rent/lease of open space which is not taxable for the reason, during the relevant period hence tax liability on the amounts received on leasing of open spaces is itself in question. The provisions of Section 78 of the Finance Act, 1994 does not envisage any penalty on the amount collected as service tax and not paid to the Government treasury covered under Section 73A of the Finance Act, 1994 - In the case in hand none of the provisions of the Section 73A of the Finance Act, 1994 are applicable, as appellant has collected an amount which is representing service tax. In view of this, the provision of Section 78 would not apply in the case in hand. Similar issue fell for consideration by the Hon ble High Court of Punjab & Haryana in the case of Ajay Kumar Gupta 2015 (5) TMI 566 - PUNJAB & HARYANA HIGH COURT wherein the Lordships held that Once the service tax was not leviable under Section 68 at that point of time and the liability was only to deposit the tax under Section 73A(2), which has been done on 15.11.2008, after delay, but due to the service being not taxable at the relevant time when the invoices were raised, we are of the opinion that the case would not fall under the provisions of Section 78 for invoking of the penalty, as has been held by the Tribunal. It was the categorical stand of the appellant before the First Appellate Authority that the service tax had been collected by mistake, on account of the new provision and the office of the appellant was not fully acquainted with the interpretation of the statute due to which the default had occurred and therefore, in view of the defence taken, the Tribunal was not justified, in the present facts and circumstances, to hold that there was a wilful suppression of facts, to bring it within the ambit of Section 78. Penalty u/s 78 set aside - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Penalty imposition under Section 78 of the Finance Act, 1994 for failure to pay service tax collected but not deposited.

Analysis:
The case involved an appeal against the imposition of a penalty under Section 78 of the Finance Act, 1994 on the appellant for collecting service tax but failing to pay it to the Central Government. The appellant had collected an amount for providing infrastructure facility to a company but failed to remit the service tax to the government. The adjudicating authority confirmed the penalty under Section 78 after the appellant paid the service tax along with interest. The appellant contended that the penalty was not justified as per Section 73A, which only allows for the demand of service tax and interest, not penalties. The appellant argued that the amount collected was not taxable under the relevant provisions and cited a similar case from the Punjab & Haryana High Court where penalties under Section 78 were set aside.

The tribunal considered the submissions and found that the penalty imposed under Section 78 was unsustainable for several reasons. Firstly, the services provided by the appellant did not fall under taxable categories, and the amount collected could be considered as rent/lease of open space, which was not taxable during the relevant period. Secondly, Section 78 does not apply to amounts collected as service tax but not paid to the government under Section 73A, as in this case. The tribunal also referenced the Punjab & Haryana High Court case to support the argument that penalties under Section 78 should not apply when the service was not taxable at the time of collection. The tribunal concluded that the penalty was not justified, set aside the impugned order, and allowed the appeal on the question of penalty under Section 78 of the Finance Act, 1994.

In summary, the tribunal ruled in favor of the appellant, holding that the penalty imposed under Section 78 for failure to pay service tax collected but not deposited was unsustainable in this case. The tribunal found that the services provided were not taxable, and the penalty provisions of Section 78 did not apply to the situation where the service tax had been collected but not paid due to a misunderstanding of the taxability of the services provided. The tribunal's decision was based on the interpretation of relevant provisions and judicial precedents, ultimately setting aside the penalty and allowing the appeal on the penalty issue.