2017 (7) TMI 899 - AT - Service Tax

Family clubbing activities - appellants had received huge consideration in the form of membership fees and charges, however, they did not deposit the service tax payable on such consideration and also did not file service tax returns - penalty - Held that - Appellants have clearly suppressed the fact of the huge considerations received by them on account of Membership Fees and the like and evaded service tax liability on that count. It is also not the case that the department was well aware of these omissions for the reason that appellants had not filed any returns during the period. At the same time, I find that the erstwhile section 78, while mandating equal penalty in situations of fraud, suppression of facts etc., did provide for reduction of penalty to 50% where complete transactions are available in specified records - it cannot be denied that complete details of the transactions were available in the records of the appellant, whether in documents or computerized form. Another mitigating factor that has to be noted is that appellant definitely did pay up the tax liability of ₹ 7,50,882/- in March, 2014 itself, although, the show-cause notice was issued much later in October, 2014. The penalty requires to be reduced to 50% of the service tax demand of ₹ 7,50,882/- - appeal allowed - decided partly in favor of appellant.

Summary

Issues:
- Appellants appealing against penalties imposed for non-payment of service tax.
- Interpretation of section 78 of the Finance Act, 1994 regarding penalties.
- Consideration of mitigating factors for reducing penalties.

Analysis:

1. The case involved appellants operating clubs in India, receiving membership fees without paying service tax or filing returns. A show-cause notice was issued for a differential service tax liability. The original authority confirmed the demand and imposed penalties under sections 78 and 77(2) of the Finance Act, 1994. The Commissioner (Appeals) upheld the decision, leading the appellants to appeal against the penalties.

2. During the hearing, the appellant's consultant argued that the tax liability had been paid before the notice, citing financial stress as the reason for non-payment of taxes. The appellant sought the setting aside of the penalties imposed.

3. The Authorized Representative supported the penalties, referring to section 78 of the Finance Act, 1994, which mandated penalties for non-discharged service tax in cases involving fraud or misstatement. The representative argued that the transitory provisions would not apply in this case as the notice and order were issued before the relevant amendment.

4. After hearing both sides and reviewing the facts, the judge noted that the appellants had a history of not paying service tax, even after opting for a scheme to settle previous liabilities. The judge found that the appellants had suppressed information about membership fees, leading to tax evasion. However, the judge also observed that the appellants had paid the tax liability before the notice was issued.

5. The judge referred to the proviso of the erstwhile section 78, which allowed for a reduction in penalties to 50% if complete transaction details were available in specified records. The judge noted that in this case, all transaction details were available in the appellant's records, justifying a reduction in penalties. Considering this and other mitigating factors, the judge ordered the penalty to be reduced to 50% of the service tax demand.

6. The judge partially allowed the appeal, reducing the penalty while not interfering with other aspects of the impugned order. The decision was dictated and pronounced in open court, providing relief to the appellants by reducing the penalty imposed on them.