2016 (12) TMI 1279 - HC - Service Tax

Suppression of facts - Penalty u/s 78 of the Finance Act, 1994 - failure to discharge liability of tax - intention to evade duty present or not - extended period of limitation - Held that - in any event there is no material pointing to deliberate inaction - where the appellant claims not to have been aware of its liability before its registration, in 2009. However, at the same time, having regard to the phraseology of Sections 76 and 77 of the Finance Act, this court is unable to disturb the findings of the authorities below on this aspect. Although the non compliance with Section 78 of the Act does not per se invalidate the penalty, at the same time, given that the option was not granted, and also that the appellant had deposited a substantial amount at the stage of adjudication and did not contend that it was not liable, we are of the opinion that limited relief in terms of that provision is justified in the peculiar circumstances of the case - The assessee/appellant has the option to deposit the balance service tax together with accumulated interest and penalty of 25% of the entire tax due, within the period indicated in the third proviso to Section 78(1). Appeal allowed - decided partly in favor of appellant-assessee.

Issues Involved:
1. Justification of penalty under Section 78 of the Finance Act, 1994.
2. Invocation of the extended period for assessment.
3. Evaluation of the appellant's defense regarding ignorance of tax liability.
4. Applicability of reduced penalty provisions under the Finance Act.

Detailed Analysis:

1. Justification of Penalty under Section 78 of the Finance Act, 1994:
The primary issue was whether the penalty imposed under Section 78 of the Finance Act, 1994, was justified. The appellant was penalized for not filing service tax returns and not paying the due tax from 2004 until 2009, despite being liable. The authorities, including the Commissioner (Service Tax) and the CESTAT, upheld the penalty, finding that the appellant's failure to comply was not due to mere ignorance but amounted to suppression of facts with intent to evade tax. The court noted that Section 78 mandates a penalty equal to the tax amount not paid, which can be reduced to 25% if the tax and interest are paid within 30 days of the order.

2. Invocation of the Extended Period for Assessment:
The court examined whether the authorities correctly invoked the extended period of five years for assessing the tax liability. The appellant argued that terms like "fraud," "collusion," and "willful misstatement" were not applicable in their case, citing precedents where mere omission did not justify the extended period. However, the adjudicating authority and the court found that the appellant's non-disclosure and failure to register for service tax constituted suppression of facts, justifying the extended period.

3. Evaluation of the Appellant's Defense Regarding Ignorance of Tax Liability:
The appellant claimed ignorance of the tax liability, stating that they were unaware that their business activities fell under taxable services and that they were not informed by ICICI Bank, their principal. The adjudicating authority rejected this defense, emphasizing the appellant's obligation to understand and comply with tax laws. The court acknowledged the appellant's argument but ultimately upheld the authorities' findings, noting the appellant's failure to disclose taxable activities and the absence of evidence supporting a bona fide mistake.

4. Applicability of Reduced Penalty Provisions under the Finance Act:
The court considered whether the appellant could benefit from the reduced penalty provisions under the fourth proviso to Section 78(1) of the Finance Act. The adjudicating authority had not explicitly granted the appellant the option to pay the reduced penalty within 90 days, as required for service providers with taxable services not exceeding ?60 lakhs. The court found that the appellant, who had already paid a substantial amount of the tax due, should be given the opportunity to pay the balance tax, interest, and a reduced penalty of 25% within the specified period. This relief was granted despite the initial non-compliance with the procedural requirement, recognizing the appellant's partial payment and lack of dispute over liability.

Conclusion:
The court modified the CESTAT's order, allowing the appellant to pay the remaining tax, interest, and a reduced penalty of 25% within the period specified in the third proviso to Section 78(1). This decision provided limited relief to the appellant, balancing the need for compliance with recognition of the appellant's partial fulfillment of their tax obligations. The appeal was allowed to this extent, modifying the impugned order accordingly.

← Previous Next →