2019 (7) TMI 336 - AT - Service Tax

Imposition of penalty - requirement of mens rea to impose penalty - Commissioner (Appeals) had confirmed the penalty through a different logic by borrowing Hon'ble Supreme Court observations made in UNION OF INDIA AND OTHERS VERSUS DHARMENDRA TEXTILE PROCESSORS AND OTHERS 2008 (9) TMI 52 - SUPREME COURT - HELD THAT - Considering the fact that appellant had placed his reliance on the statement of its own manager recorded by the respondent-department where the only plea taken by the appellant was financial difficulty in not registering the firm despite the fact that show-cause notice revealed huge turnover of ₹ 2,46,97,756/- for providing temporary accommodation service to the customers, paucity of funds cannot be a ground for non-registration of the firm. Further, as per Section 58 of the Indian Evidence Act, admission needs no further proof and when appellant admits through the statement of its manager that Service Tax was not paid and Service Tax registration was not obtained with its full knowledge, the same would establish a clear case of suppression against the appellant. The duty on room service charges at a reduce calculated rate along with interest under Section 75 of the Finance Act, 1994 and penalty imposed under Section 78 of the Finance Act, 1994 was rightly involved - having regard to the first proviso which was effective from 04.04.2011 till the effective date of implementation of Finance Bill of 2015 which is admittedly effective after April 2015, appellant is liable to pay 50% of the duty demand as penalty since the duty assessment was done only on the basis of records maintained by it. Appeal allowed in part.

Summary

Issues:
Confirmation of duty demand on room service charges at a reduced rate, interest under Section 75 of the Finance Act, 1994, and penalty imposed under Section 78 of the Finance Act, 1994 reduced by the Commissioner of Central Tax (Appeals-I), Pune is challenged.

Analysis:

1. Duty Demand and Penalty Reduction:
The appellant, engaged in lodging, restaurant, and bar business, faced a duty demand for non-payment of Service Tax between May 2011 to March 2015. The Adjudicating Authority confirmed duty demand, interest, and penalty. The Commissioner (Appeals) reduced the duty demand on room service charges but upheld the penalty. The appellant contested the penalty before the Appellate Tribunal, arguing financial hardship as the reason for non-registration and non-payment of Service Tax. The appellant relied on legal precedents to challenge the penalty, emphasizing that non-payment of duty does not equate to fraud or suppression of facts. Moreover, the appellant invoked the proviso to Section 78(1) of the Finance Act 1994, claiming that penalty should be 50% of the duty demand based on the records maintained.

2. Arguments and Counter-Arguments:
The appellant's counsel contended that the penalty was unwarranted due to financial constraints and lack of evidence supporting fraud or suppression. The respondent-department countered, highlighting the appellant's non-payment of interest and substantial income from taxable services. The Tribunal noted that the penalty issue was the focal point of contention. The Commissioner (Appeals) justified the penalty based on the appellant's conduct of collecting duty but not remitting it to the Government. However, both parties agreed that this justification was factually incorrect.

3. Tribunal's Decision:
After thorough consideration, the Tribunal found that the appellant's financial difficulty did not justify non-registration and non-payment of Service Tax. Referring to the manager's statement as evidence, the Tribunal concluded that the appellant's actions amounted to suppression of facts. The Tribunal upheld the duty demand on room service charges, interest under Section 75 of the Finance Act, 1994, and the penalty under Section 78 of the Finance Act, 1994. The Tribunal also enforced the proviso to Section 78(1), holding the appellant liable to pay 50% of the duty demand as penalty.

4. Final Order:
The Tribunal partially allowed the appeal, modifying the Commissioner (Appeals)'s order by reducing the penalty to 50% of the total duty liability discharged and payable by the appellant, along with confirmed interest.

In conclusion, the Tribunal upheld the duty demand, interest, and penalty, emphasizing the appellant's suppression of facts and the applicability of the proviso to Section 78(1) for determining the penalty amount.