2017 (9) TMI 1320 - AT - Service Tax

Penalty u/s 78 - reverse charge mechanism - works contract service - non-payment of tax - Held that - Both the authorities below observed that the appellant paid the tax upon detection by the Central Excise officers and therefore, it would be treated as suppression of facts with intent to evade payment of tax etc. Section 78 of Finance Act, 1994 provides imposition of penalty for failure to pay Service Tax for reasons of fraud or collusion or suppression of facts with intent to evade payment of Service Tax etc. - The ingredients namely fraud or collusion etc., as mentioned in Section 78 are positive act - In the present case, there is no materials on record and therefore, the imposition of penalty u/s 78 is not warranted. Penalty set aside - appeal allowed.

Summary

Issues:
- Dispute over payment of Service Tax
- Imposition of penalty under Section 78 of the Finance Act, 1994

Analysis:
1. The appellant, engaged in providing services like 'Works Contract Service', 'Manpower Recruitment Agency Service', and 'Construction Services', initially did not collect Service Tax from recipients due to a belief of non-liability. Upon realizing the obligation, the appellant paid the due Service Tax of ?8,75,922 along with interest before adjudication. The Adjudicating Authority accepted this payment but imposed a penalty of ?10,000 under Section 77 due to delayed filing of ST-3 Returns. The appellant contested the penalty under Section 78.

2. The Revenue argued that the appellant's initial non-payment was intentional to evade tax, justifying the penalty under Section 78. However, the appellant had rectified the non-payment upon detection by Central Excise officers. The dispute primarily revolved around the demand for Service Tax related to 'works contract service'. The lower authorities considered the payment post-detection as suppression of facts to evade tax.

3. Section 78 of the Finance Act, 1994 allows penalties for failure to pay Service Tax due to fraud, collusion, or suppression of facts. The Tribunal noted that for penalties under Section 78, specific ingredients like fraud or collusion must be evident. In this case, no such evidence was found on record. As a result, the Tribunal concluded that the penalty under Section 78 was not justified and set it aside.

4. The Tribunal partially allowed the appeal, emphasizing that the appellant had paid the due tax upon detection without evidence of intentional evasion. The imposition of penalty under Section 78 was deemed unwarranted due to the lack of materials supporting fraud or collusion. Thus, the penalty under Section 78 was set aside, and the appeal was partly allowed.