2018 (7) TMI 433 - AT - Service Tax

Non-payment of Service Tax within due date - invocation of Section 73(1) of the Finance Act, 1994 - intent to evade present or not? - Whether the appellants can be extended the beneficial provision of Section 80 of the Act so as to waive the penalties imposed on them under Section 76 and 77 ibid? - Held that - Once it has been held that service tax has not been paid on account of fraud or collusion or wilful misstatement or suppression of facts, etc., with intention to evade payment of service tax, the provisions of Section 73(3) of the Act would hold sway - in the case of the appellant and, in fact, as per the provisions of that Section, on the basis of tax ascertained by the Department Officer, if the amount is paid up by the appellant before service of a notice on him, there shall not be served any notice under Sub-section 1 of Section 73 ibid. The appellant has paid up the service tax belatedly before issuance of SCN. The interest which is in the nature of compensation for the delay in payment, was also paid after issuance of SCN and much before issuing the Order-in-Original - The conduct of the appellant in paying up service tax and interest, and the categoric finding of the Commissioner that there is no intention to evade tax, persuades us to hold that appellant has established reasonable cause for invoking Section 80 of the Act ibid - penalty u/s 76 set aside. Appeal allowed in part.

Issues Involved:
1. Imposition of penalties under Section 76 and 77 of the Finance Act, 1994.
2. Applicability of Section 80 of the Finance Act, 1994 for waiver of penalties.

Issue-wise Detailed Analysis:

1. Imposition of Penalties under Section 76 and 77 of the Finance Act, 1994:

The appellants, engaged in providing specialized professional cleaning services, collected service tax from their clients for the period August 2008 to December 2009 but failed to remit the same to the exchequer within the due date. Additionally, they did not file ST-3 returns on time. A Show Cause Notice dated 12.05.2010 was issued, proposing a demand for service tax liability of ?4,51,28,399/- under the proviso to Section 73(1) of the Finance Act, 1994, along with interest and penalties under Sections 76, 77, and 78. The adjudicating authority confirmed the service tax demand and imposed penalties under Sections 76 and 77 but refrained from imposing a penalty under Section 78, citing no mala fide intention on the appellant's part.

2. Applicability of Section 80 of the Finance Act, 1994 for Waiver of Penalties:

The appellants argued that the delay in discharging service tax liability was due to delayed payments from service receivers and financial constraints caused by prior tax dues and interest payments. They contended that since the tax was paid before the issuance of the present Show Cause Notice, there was no mala fide intention, and the Department should not have issued the Show Cause Notice under Section 73(3) of the Finance Act, 1994. They relied on various judicial precedents to support their claim for waiver of penalties under Section 80.

The Department countered that the appellants had collected the service tax from their clients but utilized the amounts for business operations, which does not constitute a reasonable cause for failure to discharge tax liability. They argued that financial hardship cannot be a ground for waiving penalties under Section 80.

Tribunal's Analysis and Decision:

The Tribunal noted that the appellants had been making earnest efforts to pay their dues and had cleared the entire demand before the issuance of the Show Cause Notice. The adjudicating authority found no mala fide intention on the appellant's part and dropped the proposal to impose a penalty under Section 78. The Tribunal emphasized that Section 80 allows for waiver of penalties if the assessee proves a reasonable cause for failure to discharge service tax liability.

The Tribunal observed that the appellants had faced a severe financial crunch and had borrowed funds at high interest rates to clear their dues. The adjudicating authority's finding that there was no intention to evade payment of service tax was crucial. Since the Department did not appeal against this finding, it was presumed to have accepted it.

The Tribunal concluded that the appellants had established a reasonable cause for their failure to discharge service tax liability, invoking the provisions of Section 80 for waiver of penalties. The Tribunal held that once it was determined that there was no intention to evade tax, the Show Cause Notice should not have been issued, and consequently, no penalties should be imposed.

Conclusion:

The Tribunal set aside the penalty imposed under Section 76, citing the appellant's reasonable cause for delayed payment and the lack of mala fide intention. The appeal was allowed partly, with consequential reliefs, if any.

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