2018 (10) TMI 1374 - AT - Service Tax

Penalty u/s 76 and 78 - service tax alongwith interest paid on being pointed out - invocation of Section 73 (1) of FA - Held that - The appellants were paying service tax regularly upto August 2010 except for few days delay; that from September 2010 to December 2010, the delay ranges from 30 to 40 days for each month; that however they paid appropriate amount of interest for such delayed payment - even in respect of December 2010 covered in the SCN, the due date for payment of SCN was on 06.01.2011, the audit was conducted on 01.02.2011 and the assessee paid entire amount of service tax of ₹ 1,05,84,653/- on 07.02.2011 after a delay of 32 days. There appears to no malafide intention on the part of assessee to evade payment of service tax and that ST-3 returns had also been filed without delay - ingredients of proviso to Section 73 (1) are not present in this case and in consequence there is no scope for imposition of penalty under Section 78 ibid. Penalty u/s 76 - Held that - The reason of financial crunch given by the appellant should be given some credence, particularly in view of the mitigating factor that it is not a case of absolute non-discharge of tax liability but delayed payment of tax, that too with interest paid thereon - There is reasonable cause for failure to discharge the tax liability and hence we hold that imposition of penalty under Section 76 ibid also is not justified and requires to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Imposition of penalty under Section 76 of the Finance Act, 1994.

Analysis:
The appellants, engaged in providing manpower supply and payroll processing, were found to have not paid service tax of ?1,05,84,653 within the due date, as discovered during an audit. Subsequently, they paid the tax along with interest. A show-cause notice was issued proposing appropriation of the amounts paid towards tax and interest, along with penalties under Sections 76 & 78 of the Act. The Commissioner confirmed the tax liabilities and imposed a penalty under Section 76, excluding Section 78. The appeal was filed against the penalty under Section 76.

During the hearing, the appellant argued that there was no failure to discharge the tax liability but only a delay in payment, citing a Karnataka High Court decision to support their stance. The respondent contended that the habitual delay in payment cannot be condoned. The adjudicating authority noted the regular payment of service tax by the appellants with occasional delays, including the delayed payment in question, attributing it to financial constraints. The authority found no malafide intention to evade tax, leading to the conclusion that the penalty under Section 78 was not applicable. However, the penalty under Section 76 was confirmed due to the delay in payment.

The appellate tribunal observed that there was no appeal against the conclusion that fraud or suppression was absent. Considering the financial crunch as a mitigating factor and the payment of tax with interest, the tribunal found a reasonable cause for the delay in discharging the tax liability. Consequently, the imposition of penalty under Section 76 was deemed unjustified and set aside. The appeal was allowed to the extent of nullifying the penalty under Section 76 of the Finance Act, 1994.