2019 (6) TMI 19 - AT - Service Tax

Penalty u/s 76 of FA - delay in payment of service tax - no intent to evade - HELD THAT - Appellant were under much financial hardships and were not getting the payments from the clients within proper time. Further, they were also to get huge refunds from the Income Tax Department. It can be understood that the appellant, during the relevant period, was undergoing much financial stress and therefore, could not deposit the service tax to the Government. In fact, they have filed proper ST-3 returns reflecting their service tax liability. This would show that the appellants had no intention to evade payment of service tax and that it was only a case of mere delay in paying up the tax on account of delay in receiving the payments from their clients. In the present case also, the appellant has been reflecting the tax liability in their ST-3 returns. They could not pay up the tax only because they did not receive the payments from their clients within proper time. We find that the appellant has put forward reasonable cause for the delay in paying the service tax and hence, this is a fit case for invoking Section 80 of the Finance Act, 1994. The penalty under Section 76 ibid is unwarranted - the impugned Order is modified to the extent of setting aside the penalty imposed under Section 76 only, without disturbing the duty demand or interest thereon - appeal allowed in part.

Summary

Issues:
Penalty imposed under Section 76 of the Finance Act, 1994 for delayed payment of service tax.

Analysis:
The appellants were engaged in providing services related to site formation, clearance, excavation, earth-moving, demolition, and supply of tangible goods. A Show Cause Notice was issued for non-payment of service tax amounting to ?76,71,546. The Original Authority confirmed the demand, interest, and penalty under Section 76 of the Finance Act, 1994. The appeal challenged only the penalty imposed under Section 76.

The appellant argued that the delayed payment of service tax was due to severe financial constraints, not wilful evasion. They highlighted pending payments from clients and a substantial refund due from the Income Tax Department, causing financial burden. The appellant had filed regular ST-3 returns, disclosing the service tax liability. They requested the penalty be set aside invoking Section 80 of the Finance Act, 1994, citing precedents where penalties were waived in similar circumstances.

The Department contended that the penalty was justified, citing a case where penalty imposition for delayed service tax payment was upheld by the Hon'ble Apex Court. However, the Tribunal noted that the appellant had disclosed their service tax liability in ST-3 returns, distinguishing their case from the precedent cited by the Department.

After hearing both sides, the Tribunal found that the appellant's financial hardships and delayed client payments were reasonable causes for the delayed service tax payment. Relying on precedents where similar circumstances led to penalty waivers, the Tribunal held that the penalty under Section 76 was unwarranted. The impugned order was modified to set aside the penalty while upholding the duty demand and interest.

In conclusion, the appeal was partly allowed by setting aside the penalty under Section 76, with consequential reliefs as per law. The Tribunal found the appellant's reasons for delayed payment justified and invoked Section 80 of the Finance Act, 1994, to waive the penalty, emphasizing the importance of financial constraints in such cases.