2018 (5) TMI 1518 - AT - Service Tax

Penalty u/s 78 - the service tax along with interest has been paid by the appellant before the issue of SCN - non-filing of ST-3 returns within due date - Held that - It is a fact that the appellant has collected the service tax but not paid the same into the Government account and the same has been done when Audit pointed out, which clearly shows that they have suppressed the facts - though the appellant had shown the service tax liability in their balance sheet for the relevant period which is placed on record also but they have not shown the service tax liability in their returns filed with the Department. In fact, the appellant during those two years have not filed returns, which clearly shows that they are liable to penalty. The penalty imposed u/s 78 but giving an option of penalty of 25% to the appellant if the same is paid within one month from the date of receipt of this order - appeal allowed in part.

Summary

Issues:
1. Reduction of late fee under Rule 7C of Service Tax Rules, 1994
2. Upholding penalty under Section 78 of the Finance Act

Analysis:
1. The appeal was against an order reducing the late fee but upholding the penalty under Section 78 of the Finance Act. The appellant, a works contract service provider, failed to pay service tax amounting to ?34,45,121 for the period 2008-2009 and 2009-2010. The appellant paid the tax and interest before the show-cause notice was issued. The appellant argued financial difficulties led to the non-payment, with no intention to evade tax, as shown in their balance sheet. The consultant cited cases to support setting aside penalties under Section 78 due to the early payment of tax and lack of mala fide intent.

2. The Department argued that non-payment despite tax collection showed intent to evade tax, justifying the penalty under Section 78. Citing precedents, the Department contended that collecting tax but not remitting it demonstrated suppression of facts warranting the penalty. The Tribunal noted the tax payment before the notice and the failure to disclose the liability in returns. The appellant sought the option of reduced penalty, citing a Division Bench decision mandating the adjudicating authority to provide such an option.

3. After reviewing submissions and precedents, the Tribunal upheld the penalty under Section 78 but granted the appellant the option of a 25% penalty if paid within one month. Following the precedent requiring the adjudicating authority to offer the reduced penalty option, the Tribunal reduced the penalty to 25% of the original amount. The appeal was partly allowed, with the penalty reduced under the specified conditions.

In conclusion, the Tribunal's judgment balanced the appellant's early tax payment and lack of mala fide intent with the need to uphold penalties for non-disclosure and tax evasion. The decision provided relief by offering the appellant the option of a reduced penalty, aligning with legal precedents and ensuring compliance with the law.