2019 (1) TMI 1121 - HC - Service Tax

Quantum of penalty u/s 78 of FA - failure to pay service tax within the due dates - the entire service tax along with interest were paid before filing of reply to the SCN - suppression of facts or not? - Whether the Tribunal was right in not waiving the entire penalty imposed on the appellant vide the Order-in-Original dated 19.12.2008, but granting only partial relief of reducing penalty to 25% of the amount as imposed in the said Order-in-Original dated 19.12.2008. Held that - The crucial words in Section 78(1) of the Finance Act, 1994 are 'by reason of fraud or collusion' or 'willful misstatement' or 'suppression of facts'. These words should be read in conjunction with 'the intent to evade payment of service tax'. However, there is no finding rendered by the Adjudicating Authority stating that there was either fraud or collusion or willful misstatement or suppression of facts or contravention of the provisions of Chapter V with an intent to evade payment of service tax. Therefore, in the strict sense of the matter, without a finding rendered by the Adjudicating Authority that there was an intention to evade payment of service tax, under normal circumstances, penalty could not be imposed. However, the facts of the case have not fully convinced us to waive the entire penalty, as there has been chronic default committed by the assessee in regular intervals by failing to pay the service tax within the time permitted under the Statute. Hence, this can be taken as a mitigating factor to reduce penalty, but not to waive the entire penalty. The order passed by the Tribunal is modified to the extent of reducing penalty to 10% of the penalty imposed under Section 78 of the Finance Act, 1994 vide the Order-in-Original dated 19.12.2008 - appeal allowed in part.

Summary

Issues Involved:
1. Penalty under Section 78 of the Finance Act, 1994 for failure to pay service tax within due dates.
2. Imposition of penalty under Section 78 for evasion or suppression with intent to evade service tax liability.
3. Justification of the Tribunal's decision regarding the reduced penalty at 25%.

Issue 1: Penalty under Section 78 for late payment of service tax

The appeal raised concerns about the imposition of a penalty under Section 78 of the Finance Act, 1994 due to the failure to pay service tax within the stipulated time. The Adjudicating Authority's order highlighted the delay in payment by the assessee and their use of collected amounts for business purposes instead of remitting them to the government account. However, the court noted that the Authority's conclusion lacked supporting material and failed to consider the assessee's explanation regarding delayed payments from clients, which were used for operational needs in a labor-intensive business. The Tribunal, acknowledging these facts, reduced the penalty to 25%, but the assessee sought further relief.

Issue 2: Imposition of penalty for evasion or suppression

Section 78 of the Finance Act, 1994 addresses penalties for failure to pay service tax due to fraud, collusion, willful misstatement, suppression of facts, or contravention with intent to evade payment. The court emphasized the necessity of a finding by the Adjudicating Authority regarding intent to evade service tax, which was absent in this case. While acknowledging the chronic default in timely tax payments by the assessee, the court did not find sufficient grounds to completely waive the penalty. Consequently, the penalty was reduced to 10% of the original amount imposed under Section 78, considering the mitigating factor of the assessee's repeated delays in tax payments.

Issue 3: Tribunal's decision on reduced penalty at 25%

The Tribunal's decision to reduce the penalty to 25% was based on the facts and circumstances of the case. However, the court, after thorough consideration, modified this reduction further to 10% of the original penalty amount. The court directed the assessee to comply with this decision within a week, lifting the attachment of their bank account. The judgment emphasized that this modification was specific to the case's unique circumstances, including the nature of the assessee's business and the fact that the managing director was an Ex-serviceman. The appeal was partly allowed, leaving the substantial questions of law open and bearing no costs.

This detailed analysis of the judgment showcases the court's considerations regarding the imposition and reduction of penalties under Section 78 of the Finance Act, 1994, highlighting the importance of findings related to intent and specific circumstances in such cases.