2018 (8) TMI 1681 - AT - Service Tax

Penalty - delay/default in making payment of Service Tax - Business Auxiliary Services - Held that - The facts reveal that the default was only for a short period. The appellant had filed the service tax returns disclosing their liability. Further demand has been computed by the department basing on the documents furnished by the appellants like invoices balance sheet etc. maintained by them in the ordinary course of their business. All this would go to show that the failure to pay the service tax was only due to the financial stringencies. It is very much clear that the non-payment of service tax was not by fraud collusion or suppression of facts with intention to evade payment of service tax. There was only a default/delay in making the payment that too only to financial stringency. A substantial amount is paid much before the visit of the officers. Even then Show Cause Notice has been issued raising demand for the entire period and the adjudicating authority has confirmed equal penalty on the demand for the entire period - Even then Show Cause Notice has been issued raising demand for the entire period and the adjudicating authority has confirmed equal penalty on the demand for the entire period. When the demand or the service tax liability for the disputed period is paid by the appellant alongwith interest and ST-3 returns having been filed accompanied by late fee the department ought not to have issued show cause notice as provided in Section 73 (3) of Act ibid since as found above the ingredients of sub-section (4) of the same section 73 cannot be alleged. Penalty u/s 78 is unjustified - the penalty imposed u/s 78 of the Finance Act 1994 set aside without disturbing the demand of service tax or the interest thereon or the penalty imposed u/s 77 of the Act ibid - appeal allowed in part.

Summary

Issues:
1. Appellant's liability for service tax payment and penalties.
2. Contesting the penalty imposed due to financial crisis and delayed payment.
3. Applicability of Section 73(3) regarding issuance of Show Cause Notice.
4. Justification of penalty imposition by the department.
5. Analysis of the order and decision on penalty imposition.

Analysis:
1. The appellants were engaged in providing taxable services but failed to discharge the service tax liability, leading to the issuance of a Show Cause Notice proposing demand for service tax, interest, and penalties. The original authority confirmed the demand and imposed penalties under relevant sections of the Finance Act, 1994. The appellants contested the penalty imposition, citing financial crisis as the reason for the short payment of service tax.

2. The appellant's counsel argued that the delay in payment was due to financial constraints caused by various factors like wrong advice from consultants, lack of returns from imported equipment, and sudden contract termination. The appellant had paid the service tax along with interest before the Show Cause Notice was issued, demonstrating their willingness to comply. The appellant had also filed returns and declared the liability, showing no intention to evade payment.

3. Section 73(3) was invoked by the appellant to argue against the issuance of the Show Cause Notice since they had voluntarily paid the service tax and interest. The Tribunal found that the failure to pay service tax was due to financial difficulties and not fraudulent intent. The department had computed the demand based on documents provided by the appellants, indicating no suppression of facts. The penalty imposed under Section 78 was deemed unjustified and set aside by the Tribunal.

4. The department contended that the appellant did not pay the service tax until officers visited their premises, suggesting an intention to evade payment. However, the Tribunal noted that the appellant had paid a substantial amount before the visit and had disclosed their liability through returns and balance sheets. The non-payment was attributed to financial constraints rather than deliberate evasion.

5. The Tribunal modified the impugned order by setting aside the penalty imposed under Section 78 while upholding the demand for service tax, interest, and penalty under Section 77. The decision was based on the appellant's genuine financial difficulties and the timely payment of service tax, as well as the provisions of Section 73(3) preventing unnecessary litigation when the tax liability is discharged voluntarily or upon department notification.