2016 (12) TMI 543 - AT - Service Tax

Imposition of penalty u/s 78 - invocation of section 80 - evasion of tax - Held that - the adjudicating authority has reached to conclusion that there is no deliberate intention to evade payment of duty on the part of the appellant. It needs to be mentioned that the appellant was disclosing the liability of service tax in the Income Tax returns and the balance sheets. It is also submitted that the appellant was under much financial difficulties due to ill health and therefore defaulted the payment and there was no intention to evade payment of tax. Penalty is imposed as a punishment for an act of suppression, fraud or wilfull misstatement with intent to evade payment of duty. In the present case, the appellant having disclosed the liability of service tax in returns filed before the Income Tax authorities, no suppression can be alleged against the appellant - I hold that the imposition of penalty is unsustainable - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Challenge to imposition of equal penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appellant challenged the penalty imposed by the Commissioner(Appeals) under Section 78 of the Finance Act, 1994, which was equal to the service tax liability. The appellant had paid part of the demand before the show-cause notice was issued, arguing that the notice should have been for the balance amount only. The appellant also contended that since the adjudicating authority invoked Section 80 of the Finance Act, penalties should not have been imposed. The Department argued that the appellant collected service tax but did not remit it to the Central Government.

The Order-in-Original highlighted that the appellant faced financial difficulties and health issues, leading to delayed payments of service tax. The appellant paid the entire service tax liability and interest, requesting waiver of penalties under Section 80 of the Finance Act. The adjudicating authority found no deliberate intention to evade payment of duty and noted the appellant's disclosure of liabilities in tax returns. The Tribunal's precedent in Vista Infotech Vs. CST was cited, emphasizing that non-payment due to financial constraints may not attract penalties. The Tribunal's decision in Vee Aar Secure case underscored that penalty waivers under Section 80 should not be overturned without valid reasons. The adjudicating authority concluded that the penalties imposed were unwarranted, as there was no evidence of malafide intent or suppression. The appellant had made significant payments before the show-cause notice, rendering the penalty amount disproportionate. Consequently, the imposition of the penalty was deemed unsustainable, and the appeal was allowed with appropriate reliefs.

This judgment delves into the intricacies of penalty imposition under Section 78 of the Finance Act, 1994, examining factors like financial constraints, intent to evade tax, and precedents guiding penalty waivers. The analysis underscores the importance of considering circumstances leading to delayed payments and the necessity of proportionate penalties in tax-related matters.