2018 (10) TMI 268 - AT - Service Tax

Failure to deposit the service tax collected from clients though reflected in the ST-3 return - Security Agency Services - Commercial Training and Coaching services - it was alleged that service tax paid by the appellant was not commensurate with the amounts received during the corresponding periods - Demand of Service Tax alongwith Interest and Penalty - Extended period of limitation - Simultaneous penalty u/s 76 and 78 - Financial hardship Held that - The plea advanced by the appellants for not depositing the tax is on account of financial hardship. If such plea is entertained, then not only the scheme of indirect taxation will be impacted but the entire mechanism of fair trade and commerce will collapse. Can really financial hardship, be the reason for holding on the money collected from the customer/ client be valid reason for nonpayment of tax due to the government. In the scheme of indirect taxation the tax depositor is only a conduit for depositing the tax collected from the recipient of taxable service to the government - the amounts collected as tax from the customer/ client are not the money in the hand of tax payer but only held in trust by the said taxable person for the period and to be deposited with revenue in manner as prescribed by the taxing statue. By not depositing the said amounts in the manner as have been provided by law, Appellants have misappropriate the funds held by them in trust for their personal gain and should not be allowed the plea of financial hardship. Financial hardship cannot be reason to justify such misappropriation of the money which was never held as the money by the appellant - demand upheld. Extended period of limitation - Penalty - Held that - It is quite evident that appellants have been collecting the service tax from their customers/ clients but were not depositing the same with the exchequer. They were rotating the amounts collected as tax for their personal gains. They were also guilty of not filing the returns on due date to declare their tax liabilities and hence they have definitely suppressed the details of tax collected and payable to the exchequer. Thus demands made invoking extended period as provided by proviso to section 73(1) is justifiable and for the same reasons appellants liable to penalty under Section 78 of the Finance Act, 1994 - Further for various contraventions such as not payment of tax by the due date and delay in filing the returns for the period prior to 2008, simultaneous penalties under Section 76 also justified - penalty u/s 77 also upheld. Benefit of reduced penalty - Held that - The option to pay penalty to extent of 25% at the Appellate stage cannot be allowed. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Whether the penalty under Section 76 or Section 78 of the Finance Act, 1994 is sustainable.
2. Whether the impugned orders are correct and justified considering the deposits made towards service tax.
3. Whether the demands were time-barred.
4. Whether the quantification of the demand was erroneous.
5. Whether financial hardship can be a valid reason for non-payment of service tax.

Detailed Analysis:

1. Penalty Under Section 76 or Section 78 of the Finance Act, 1994:
The appellants argued that the penalty under Sections 76 and 78 should not be imposed as they had reflected the service tax liability in their ST-3 returns and deposited substantial amounts, albeit with delays due to financial hardship. However, the tribunal held that the appellants were collecting service tax from their customers but not depositing it with the government, which constitutes misappropriation. The plea of financial hardship was rejected, citing that it cannot justify non-payment of tax collected. The tribunal upheld the penalties under Sections 76 and 78, referencing similar decisions in the appellants' own case and other cases like International Security Academy Pvt. Ltd. and United Udyog.

2. Justification of Impugned Orders Considering Deposits:
The appellants contended that the deposits made towards service tax, even if after the issuance of show cause notices or passing of impugned orders, should nullify the demand. The tribunal, however, noted that despite the deposits, substantial amounts were still outstanding. The reconciliation exercise conducted by the jurisdictional officers revealed significant short payments. The tribunal concluded that the impugned orders were justified as the appellants had not fully complied with their tax obligations.

3. Time-Barred Demands:
The appellants claimed that certain portions of the demands were time-barred as they had been declaring their service tax liabilities in their ST-3 returns. The tribunal dismissed this argument, stating that the appellants had suppressed facts by not filing returns on time and not depositing the collected tax. The extended period for demand invocation under Section 73(1) was deemed justifiable due to the appellants' deliberate non-compliance.

4. Erroneous Quantification of Demand:
The appellants argued that the demands were based on billed amounts rather than amounts received, leading to erroneous quantification. The tribunal found that the reconciliation exercise accounted for all payments made by the appellants, and the demands were correctly quantified based on the amounts received. The tribunal upheld the quantification as accurate and justified.

5. Financial Hardship as a Reason for Non-Payment:
The appellants cited financial hardship as the reason for delayed payments. The tribunal firmly rejected this plea, emphasizing that financial hardship cannot be a valid reason for not depositing collected service tax. The tribunal referenced multiple decisions, including those in International Security Academy Pvt. Ltd. and Shayna Construction, to support this stance. The tribunal held that the appellants' actions constituted misappropriation of funds held in trust for the government.

Conclusion:
The tribunal dismissed all appeals, upholding the orders of the adjudicating authority. The penalties under Sections 76, 77, and 78 were confirmed, and the plea for financial hardship was rejected. The tribunal emphasized the importance of timely tax deposits and the appellants' failure to comply with statutory requirements, thus justifying the imposition of penalties and demands.