2019 (3) TMI 1432 - AT - Service Tax

Imposition of penalties - service tax collected but failure to remit the same to the Government - suppression of facts or not - Held that - Other than the allegation that the appellants collected service tax and failed to remit the same to the Government, there is no positive act of suppression alleged in the Show Cause Notice and established by the Department - Various courts have held that the word suppression is qualified by the word wilful and therefore, there should be some positive act of suppression with an intention to evade payment of service tax. Mere collection and delay to remit to the Government cannot be considered as an act of suppression. The Hon ble jurisdictional High Court in the case of C.S.T., Chennai Vs. M/s. Lawson Travel and Tours (I) Pvt. Ltd. 2015 (1) TMI 232 - MADRAS HIGH COURT held that when the assessee faced financial crisis due to criminal breach of trust committed by their sub-agent and thereafter paid the service tax voluntarily, the penalties imposed should have been rightly set aside by invoking Section 80 of the Act. The penalty imposed under Section 78 ibid is unwarranted and requires to be set aside - impugned Order is modified to the extent of setting aside the penalty imposed under Section 78 ibid only without disturbing the demand of service tax, interest or the penalty imposed under Section 77 ibid - appeal allowed in part.

Summary

Issues:
Non-payment of service tax within prescribed time leading to penalties.

Analysis:
The case involved the appellants holding Service Tax Registration under the category of "Manpower Recruitment or Supply Agency Service" during October 2010 to September 2011. The appellants collected service charges along with service tax from their service recipients but failed to pay the same to the Government within the prescribed time and did not file the required ST-3 returns. A Show Cause Notice was issued, proposing to demand the short-paid service tax along with interest and penalties. The Original Authority confirmed a demand of ?4,79,080/- along with interest and imposed equal penalty under Section 78 of the Act, which was upheld by the Commissioner (Appeals), leading to the appeal.

In the appeal, the appellant did not contest the appeal on merits but focused on the penalties imposed. The appellant cited financial constraints due to delayed payments from customers, lack of expertise in accounts and taxation matters by the proprietor, and difficulties caused by TDS deductions. The appellant argued that there was no intention to avoid payment but constraints led to the non-payment of service tax. The Department contended that non-payment was a clear case of suppression of facts and financial constraints were not a reasonable cause for non-payment.

After hearing both sides, the Tribunal noted that there was no positive act of suppression with intent to evade payment of service tax, other than delay in remittance. The Tribunal referenced previous decisions where penalties were set aside in similar situations. Citing a case involving financial crisis due to criminal breach of trust, the Tribunal held that penalties should be set aside in such cases. Consequently, the penalty under Section 78 was deemed unwarranted and set aside, while the penalty under Section 77 was upheld. The demand of service tax, interest, and penalty under Section 77 remained undisturbed.

In conclusion, the appeal was partly allowed, setting aside the penalty under Section 78 while maintaining the rest of the impugned Order. The judgment was pronounced in open court on 25.03.2019.