2017 (10) TMI 899 - AT - Service Tax

Penalty u/s 78 - malafide intent or not? - Held that - the said non-payment was detected by the department on investigations made against them. It cannot be held that such non-payment of service tax or even non-disclosure of the value of the same in the return was on account of the non-receipt of compensation from the clients. The appellant has not placed any evidence on record to show that they had not received the value of the said services from their customers for such a long period - the payment of service tax is the legal obligation of the service provider, irrespective of the fact of receipt of value of the service from service recipient. All these factors lead to an inevitable conclusion that there was malafide on the part of the appellant to suppress the value of the services and not to pay service tax on the same - penalty u/s 78 upheld. Service tax alongwith interest paid before issuance of SCN - 73(3) of the Finance Act, 1994 - Held that - sub-section 4 of section 73 is to the effect that sub-section 3 shall not apply in a case where service tax has not been levied or paid on account of fraud; willful mis-statement; or suppression of facts. As already held that non-payment in the present case was on account of suppression and with malafide, the provisions of section 73 (3) would not get attracted. Invocation of section 80 - Held that - there was no reasonable cause on the part of the appellant to believe that the service tax was not required to be paid. Accordingly, the said section is also not applicable to them. Reduction of penalty to 25% in terms of the proviso to section 78 - Held that - 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. Such being not the case, penalty cannot be reduced. Penalty upheld - appeal dismissed - decided against appellant.

Summary

Issues:
1. Imposition of penalty under section 78 of the Finance Act, 1994.
2. Applicability of section 73(3) of the Finance Act, 1994 regarding issuance of show-cause notice.
3. Invocation of section 80 of the Finance Act, 1994.
4. Reduction of penalty to 25% under the proviso to section 78.

Imposition of Penalty under Section 78:
The appellant, engaged in providing Security Agency Services, faced allegations of misdeclaration of taxable value in their ST-3 returns, resulting in a short-payment of service tax. The original adjudicating authority confirmed the demand and imposed a penalty under section 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld the penalty, emphasizing that the non-disclosure of service value was deliberate, as evidenced by the investigation findings. The Tribunal concurred, citing section 78 which mandates penalty for suppression of taxable service value, irrespective of payment receipt from customers. The appellant's failure to provide a valid reason for non-disclosure led to the penalty imposition.

Applicability of Section 73(3) regarding Show-Cause Notice:
The appellant contended that no proceedings should have been initiated against them as they had paid the service tax before the show-cause notice issuance, citing a Board's letter. However, the Commissioner (Appeals) and the Tribunal disagreed, stating that section 73(3) does not apply when non-payment is due to suppression and malafide intent. As the appellant failed to disclose the service value for almost five years, the provision for show-cause notice exemption did not apply, leading to the dismissal of the appeal.

Invocation of Section 80:
The appellant's claim for invoking section 80 of the Finance Act, 1994 was rejected as the section applies only if there is a "reasonable cause" for the failure to deposit service tax. Since the non-disclosure was intentional to evade tax payment, the Tribunal ruled that no reasonable cause existed, making section 80 inapplicable to the appellant's case.

Reduction of Penalty to 25% under the Proviso to Section 78:
The appellant's request to reduce the penalty to 25% as per the proviso to section 78 was dismissed as they had not deposited the required 25% penalty within 30 days of the order. The Tribunal held that the benefit of reduced penalty could only be availed if the entire service tax, interest, and 25% penalty were paid within the stipulated period, which the appellant failed to comply with. Consequently, the Tribunal upheld the penalty imposed under section 78 and rejected the appeal, emphasizing the legal obligations of service tax payment and the absence of justifiable reasons for non-disclosure.

This detailed analysis of the judgment highlights the key legal aspects and reasoning behind the Tribunal's decision regarding the issues raised in the case.