2019 (7) TMI 115 - AT - Service Tax

Security Agency Service - appellant were receiving the payments inclusive of the service tax amount but were not depositing the same - demand of short paid service tax alongwith interest and penalty - HELD THAT - Undisputed fact is that Appellants are registered providers of taxable service under the category of Security Agency Services. During the period under dispute, appellant were raising the invoices on their customers/ clients for the services rendered along with the applicable taxes. They were receiving the payments inclusive of the service tax amount but were not depositing the same. They were also not filing the ST-3 returns regularly as required by the Finance Act, 1994 read along with the Service Tax Rules, 1994. The plea advanced by the appellants for not depositing the tax is on account of financial hardship. If such plea is entertained, then not only the scheme of indirect taxation will be impacted but the entire mechanism of fair trade and commerce will collapse. Can really financial hardship, be the reason for holding on the money collected from the customer/ client be valid reason for nonpayment of tax due to the government. In the scheme of indirect taxation the tax depositor is only a conduit for depositing the tax collected from the recipient of taxable service to the government. Financial hardship cannot be reason to justify such misappropriation of the money which was never held as the money by the appellant. Penalty u/s 78 of FA - HELD THAT - In the case of Jamshedpur Branch, the penalty imposed under Section 78 is higher than the demand of tax. Such an approach is contrary to the provisions of Section itself. However since the matter in respect of Jamshedpur Branch is remitted back to the original authority for re-computation of tax payable, the authority shall reconsider the quantum of penalty and make it equal to the tax demand - In respect of Jamshedpur Branch is on all grounds except for grounds re-computation of tax payable and quantum of penalty under Section 78 is rejected. Original Authority to recompute the demand and penalties under Section 78 of Finance Act, 1994 after affording them a chance of hearing. Appeal dismissed.

Issues Involved:
1. Demand of service tax and interest.
2. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Computational errors in the demand.
4. Financial hardship as a defense for non-payment of service tax.
5. Invocation of extended period of limitation.
6. Applicability of Section 80 for waiver of penalties.

Issue-wise Detailed Analysis:

1. Demand of Service Tax and Interest:
The appellants, registered providers of "Security Agency Services," were found to have raised invoices including service tax but failed to deposit the collected tax with the government. Investigations revealed substantial amounts of unpaid service tax for both the Jamshedpur and Bhubaneswar branches. The Commissioner of Jamshedpur demanded ?90,35,823 in service tax for the period 2004-05 to 2008-09, while the Commissioner of Bhubaneswar confirmed a demand of ?58,03,816 for a similar period. The appellants admitted the liability and paid portions of the tax and interest during the investigation.

2. Imposition of Penalties:
Penalties were imposed under Sections 76, 77, and 78 of the Finance Act, 1994. The Jamshedpur branch faced a penalty of ?1 crore under Section 76 and ?200 per day under Section 77. The Bhubaneswar branch was penalized ?58,03,816 under Section 78, with a provision to reduce it to 25% if paid within 30 days, and ?5000 under Section 77. The tribunal upheld the imposition of penalties, emphasizing that non-payment of collected tax amounts to misappropriation of funds held in trust for the government.

3. Computational Errors:
The appellants argued computational errors in the service tax demand for the Jamshedpur branch, claiming an excess demand of ?11,21,563. The tribunal directed the adjudicating authority to recompute the demand, considering the appellant's submissions and additional payment documents.

4. Financial Hardship as a Defense:
The tribunal rejected financial hardship as a valid defense for non-payment of service tax. It emphasized that collected tax amounts are held in trust for the government, and financial difficulties cannot justify misappropriation. The tribunal cited previous decisions, including the Delhi Bench's ruling in the appellant's own case, which held that financial crunch cannot justify non-deposit of collected service tax.

5. Invocation of Extended Period of Limitation:
The appellants argued against the invocation of the extended period of limitation, claiming they had no intention to evade tax and had paid substantial amounts before the issuance of the show cause notice. The tribunal rejected this argument, noting that the appellants had not filed ST-3 returns regularly and had collected but not deposited the tax, justifying the extended period.

6. Applicability of Section 80 for Waiver of Penalties:
The appellants sought waiver of penalties under Section 80, citing financial hardships. The tribunal rejected this plea, referencing several decisions that financial hardship does not constitute "reasonable cause" under Section 80. It upheld the penalties, noting that the appellants' actions amounted to deliberate evasion of tax.

Conclusion:
The tribunal upheld the demand of service tax, interest, and penalties for both branches, with a directive to recompute the demand for the Jamshedpur branch. The appellants' arguments on computational errors and financial hardship were addressed, but the tribunal maintained that penalties were justified due to the deliberate non-payment of collected tax. The appeals were largely dismissed, with specific directions for recalculating the tax and penalties for the Jamshedpur branch.

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