2018 (7) TMI 1219 - AT - Service Tax

Penalty u/s 78 of the Finance Act, 1994 - case of appellant is that non-payment was due to the financial crisis and for the delay in payment of service tax there was no willful intention to evade tax - Held that - The facts put forward as well as the records would show that other than delay in payment of service tax, there is no evidence to show that appellant has suppressed facts with intention to evade payment of tax - The figures required for quantification of the demand of service tax has been taken from the accounts maintained by the appellant and there is nothing unearthed by the department to show that there was any positive act of suppression on the part of the assessee. This is a fit case for invoking Section 80 of the Finance Act, 1994 as the appellant has put forward reasonable cause for non-payment of service tax during the disputed period - penalty set aside, without disturbing the demand confirmed as well as the interest thereon - appeal allowed in part.

Summary

Issues: Non-payment of service tax, imposition of penalty under Section 78 of the Finance Act, 1994, financial hardship as a reason for non-payment, suppression of facts, applicability of Section 80 of the Finance Act, 1994.

Analysis:

The case involved the appellants providing "Erection, Commissioning or Installation Services" but failing to discharge service tax on labor charges realized during a specific period. The original authority confirmed a demand for the unpaid service tax, interest, and imposed a penalty under Section 78. The appellants appealed, arguing that the non-payment was due to financial hardship during a global recession, and they had made efforts to pay once funds were received. They contended that they paid the service tax and interest before the show cause notice, with only a differential amount remaining due after a change in the tax rate. The appellant claimed that there was no intention to evade tax, and the delay was due to payment delays, not suppression of facts.

The respondent, on the other hand, supported the findings of the impugned order, stating that the appellants had collected but not paid the service tax, and the penalties imposed were justified due to the apparent suppression of facts. The appellants contested only the penalty under Section 78, arguing that the non-payment was due to financial crisis, not willful tax evasion. The appellants cited a precedent and asserted that penalties for mere delay in payment of service tax were unwarranted. The Tribunal found that apart from the delay in payment, there was no evidence of intentional suppression of facts by the appellants. The records indicated no positive act of suppression, and the demand was quantified based on the appellant's maintained accounts. Consequently, the Tribunal held that the penalty under Section 78 was unwarranted, invoking Section 80 of the Finance Act, 1994, as the appellants provided a reasonable cause for the non-payment during the disputed period. The penalty under Section 78 was set aside, while the confirmed demand and interest remained unchanged. The appeal was partly allowed, with the modification of setting aside the penalty under Section 78.

This judgment highlights the importance of establishing intent in tax cases, considering financial hardships as a valid reason for delays, and the necessity of evidence to support allegations of suppression of facts in tax matters.