2017 (10) TMI 706 - AT - Service Tax

Penalty u/s 77 and 78 - It was alleged that neither any return was filed during the period in question nor any service tax was deposited no intimation was given to the Revenue as regards the assessee s liability and obligation to pay the said amount to service tax - Held that - there is no dispute on the facts that the assessee is under a legal obligation to file the requisite returns provided under the statute and to discharge its service tax liability accordingly. The appellant in the present case was duly aware of its legal obligations as they were registered with the serviced tax department and were following due procedure prior to the period in question. The appellant s stand that service tax was not being paid on account of financial crunch cannot be appreciated in as much as they were collecting service tax from their customers and instead of depositing the same it was being pocketed. It is evident that they retained the amount and enjoyed the financial accommodation till such time the department initiated action. Even if it is assumed that tax was not being deposited on account of financial difficulties nothing stopped the appellant to file the statutory returns disclosing their liability to pay service tax in which case it would have been a case of delayed payment and not of non-payment. The fact of non-disclosure and non-filing of returns leads to the inevitable conclusion that the appellant was doing so with malafide intention in which case there is clear mandate of law contained in the provisions of Section 78 for imposition of penalties - there is a clear mandate of law provided under Section 78 of the Finance Act 1994 that any person who has not paid or short-paid the tax on account of any fraud; collusion; willful mis-statement; or suppression of facts or has evaded any tax provisions with an intent to evade payment of duty would be liable to equal amount of penalty. The appellant s claim of invocation of Section 80 of the Finance Act 1994 can also not be appreciated in as much as the said section applies only if the assessee proves that there was reasonable cause for the failure to deposit and that reasonable cause has to be bonafide. The appellant in the present case is a registered service provider and is paying service tax on the value of the service. It is only that such value was not being fully disclosed with a malafide intention to evade payment of service tax on the same. As such there was no reasonable cause on the part of the appellant to believe that the service tax was not required to be paid - the said section is also not applicable to them. The appellant s claim to reduce the penalty to 25% in terms of the proviso to Section 78 can also not to be appreciated in as much as the benefit of reduced penalty can be extended only if the entire service tax along with interest and along with 25% penalty is deposited within 30 days of the passing of the order of determination of service tax. Appeal dismissed - decided against appellant.

Summary

Issues:
Imposition of penalty under sections 77 and 78 of the Finance Act, 1994 for non-filing of returns and non-payment of service tax.

Analysis:
1. The appellant, engaged in C&F Services and GTA Services, failed to file returns and pay service tax amounting to ?49,74,211. They later deposited the entire service tax with interest after summons were issued. The proceedings initiated included a penalty under sections 77 and 78 of the Finance Act, 1994.

2. The main challenge in the appeal was the imposition of penalty. The appellant's advocate argued that since the tax was paid with interest after facing financial difficulties, the penalty should be set aside. However, the departmental representative contended that penalty imposition is mandatory under section 78 in cases of non-payment or non-filing, especially when malafide intentions are evident.

3. The tribunal found that the appellant had a legal obligation to file returns and pay service tax, which they failed to do despite collecting the tax from customers. The non-disclosure and non-filing of returns indicated malafide intentions, justifying the penalty under section 78 of the Finance Act, 1994.

4. Referring to precedents, the tribunal emphasized that penalty imposition under section 78 is mandatory in cases of suppression of facts. The appellant's argument of paying tax before the notice was issued was rejected, as the non-payment was due to malafide intentions, not financial constraints.

5. The tribunal also dismissed the appellant's claim under section 80 of the Finance Act, 1994, stating that the failure to fully disclose the service value with an intent to evade tax does not constitute a reasonable cause. The appellant's failure to deposit the penalty within the specified time further negated any reduction in penalty.

6. Ultimately, the tribunal upheld the imposition of penalty, stating that the appellant's actions demonstrated malafide intentions and non-compliance with legal obligations, justifying the penalty under section 78. The appeal was rejected based on these findings.