2018 (9) TMI 825 - AT - Service Tax

Penalties - payment of service tax with interest before issuance of SCN - whether in the given facts of the case 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 - In the impugned order a clear chit has been given to the appellant that there was no mala fide intention on their part and that proviso to Section 73(1) of the Act has been invoked without any evidence. As the Department has not come in appeal against this finding of the Commissioner and subsequent decision not to impose penalty under Section 78 ibid. it would only be presumed that the Department has accepted the impugned order in toto including the said findings - 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. Once no notice was required to be issued there would be no question of imposition of any penalties on the appellant. 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 - the penalty imposed under Section 76 requires to be set aside - demand of tax with interest upheld. Appeal allowed in part.

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

Detailed Analysis:

1. Imposition of Penalty under Section 76 of the Finance Act, 1994:

The appellants were engaged in providing specialized professional cleaning services and had 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 within the due date. A Show Cause Notice dated 12.05.2010 was issued, proposing a demand of service tax liability of ?4,51,28,399/- under the proviso to Section 73(1) of the Finance Act, 1994, along with interest and imposition of penalties under Sections 76 and 77. The Commissioner confirmed the service tax and imposed penalties under Sections 76 and 77 but refrained from imposing a penalty under Section 78. The appellants contested the imposition of penalties under Sections 76 and 77.

2. Imposition of Penalty under Section 77 of the Finance Act, 1994:

The appellants argued that the delay in paying service tax was due to a cash crunch caused by delayed payments from service receivers and the need to pay older arrears first. They contended that they had paid the entire demand of ?4,48,35,145/- towards service tax before the issuance of the Show Cause Notice and had also paid interest of ?37,27,677/- after the issuance of the Show Cause Notice. They claimed that there was no mala fide intention on their part and that the Department should not have issued a Show Cause Notice in terms of Section 73(3) of the Finance Act, 1994. They relied on various judicial decisions to support their claim for waiver of penalties.

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

The Tribunal noted that the only issue for appellate decision was whether the appellants could be extended the beneficial provision of Section 80 of the Act to waive the penalties imposed under Sections 76 and 77. Section 80 provides that no penalty shall be imposable if the assessee proves that there was reasonable cause for the failure to discharge service tax liability. The Tribunal observed that the appellants had consistently argued that the delayed payment of service tax was due to a chain reaction caused by delays in the prior period, starting from September 2006. The appellants had a labor force of around 3,500 to whom salaries were due monthly, causing financial strain. They had borrowed funds externally at high interest rates to discharge their liabilities, including service tax payable up to March 2010, along with interest.

The Tribunal found that the adjudicating authority had already determined that there was no mala fide intention on the part of the appellants to evade payment of service tax and had therefore not imposed a penalty under Section 78. The Tribunal held that once it was established that the service tax had not been paid due to reasonable cause and not due to fraud or suppression of facts, the provisions of Section 73(3) would apply, and no notice was required to be issued. Consequently, there would be no question of imposing penalties.

The Tribunal also noted that the appellants had paid the service tax and interest, albeit belatedly, and had filed all ST-3 returns before the issuance of the Show Cause Notice. The Tribunal held that the appellants had established reasonable cause for invoking Section 80 for waiver of penalties. The Tribunal referred to various judicial decisions supporting the waiver of penalties under similar circumstances.

Conclusion:

The Tribunal concluded that the penalty imposed under Section 76 should be set aside, and the impugned order was modified to the extent of setting aside the penalty imposed under Section 76. The appeal was allowed partly, with consequential reliefs, if any. The judgment emphasized the importance of reasonable cause and the absence of mala fide intention in determining the applicability of penalties under the Finance Act, 1994.

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