2019 (6) TMI 689 - HC - Service Tax

Penalty u/s 78 of the Finance Act, 1994 - Invocation of Extended period of Limitation - proviso to Section 78(1) of the Finance Act, 1994 - suppression of facts or not - HELD THAT - The parameters/conditions for purpose of invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994 are similar/identical to the conditions for imposing equivalent penalty under Section 78 of the Finance Act, 1994. In the facts of the case, the appellant had advisedly and correctly not challenged the invocation of the extended period of limitation for recovery of service tax. The challenge is only to the imposition of penalty and is based on the fact that there is no willful suppression on the part of the appellant as all the due liabilities had been declared in ST-3 Returns, though not paid over to the Revenue. Section 78 of the Finance Act, 1994, equivalent penalty can be imposed in cases of willful misstatement or suppression of facts or for contravention of any of the Act or Rules made thereunder with an intent to evade payment of service tax. In this case, it cannot be disputed that the appellant after having recovered the service tax from its customer had not paid over the amount to the State. Thus, undeniably they have contravened the Finance Act, 1994 and Rules made thereunder, which obliges the assessee to make over the payment to the Government before the specified date - The financial difficulties faced by the appellant can never justify the non-payment of tax to the Government. The above fact coupled with misrepresentation to its customers that the amount collected from them will be paid over to the Government, would clearly point to mala fide conduct on the part of the appellant. Therefore, we see no reason to interfere with the impugned order of the Tribunal. Appeal dismissed - decided against appellant.

Summary

Issues:
Challenge to order imposing penalty under Section 78 of the Finance Act, 1994.

Analysis:
1. The appellant, engaged in providing taxable services, was found to have not paid service tax from December 2011 onwards during a surprise visit by Revenue Officers in 2012.
2. A Show Cause Notice was issued demanding service tax, interest, and imposing penalty, which the appellant contested citing financial difficulties as the reason for non-payment.
3. The Commissioner confirmed the service tax demand and penalty under Section 78(1) of the Finance Act, 1994.
4. The appellant appealed to the Tribunal solely contesting the penalty imposition, claiming no willful suppression or misstatement and citing full disclosure in ST-3 Returns.
5. The Tribunal upheld the penalty order, noting the appellant's awareness of the tax liability and deliberate non-payment due to financial difficulties, not ignorance or bona fide belief.
6. The appellant argued no penalty was warranted as there was no suppression, relying on a Tribunal decision in a similar case.
7. The Revenue supported the Tribunal's decision, stating no interference was required.
8. The appellant accepted the service tax liability but failed to deposit collected amounts due to financial constraints, noticed only during the 2012 visit.
9. The conditions for invoking extended limitation for service tax recovery under Section 73(1) are akin to those for penalty under Section 78, with the challenge focused on lack of willful suppression.
10. Section 78 allows penalty for willful misstatement, suppression, or contravention to evade service tax payment, and the appellant's failure to remit collected tax demonstrated contravention with intent to evade payment.
11. A relied-upon case was distinguished as non-payment was voluntary, not due to a surprise visit like in the present case, hence not assisting the appellant's argument against penalty imposition.
12. The Court found no substantial question of law in the proposed issue and dismissed the appeal, upholding the Tribunal's penalty order under Section 78 of the Finance Act, 1994.