2023 (2) TMI 8 - AT - Service Tax

Penalty under Section 78 of FA - appellant was aware about the tax liability on POP charges when they raised the original invoice for the service, or not - wilful suppression of facts or not - HELD THAT - Although there is default on the part of the appellant in depositing the tax as service tax was payable during the relevant period, on receipt basis and the appellant have received the payment for service in September, 2007. There is no deliberate default as the appellant, on being advised had raised supplementary invoice for the tax amount, they could collect the service tax payment only on 26th September, 2009 and after receiving the payment, they immediately deposited the tax amount on 19.09.2009. All the transactions are recorded in the books of accounts maintained in the ordinary course of business. Thus, the issue is more of correct interpretation of the Statute, and no case of deliberate default is made out. The penalty under Section 78 imposed on the appellant is set aside - appeal allowed.

Summary

Issues:
1. Imposition of penalty under Section 78.

Analysis:
The case involved the question of whether the penalty under Section 78 was rightly imposed on the appellant, a Public Sector Enterprise providing services. The appellant had introduced a new service in June 2007 and failed to charge service tax initially due to lack of knowledge. Upon realizing the tax liability, they issued a supplementary invoice to collect the service tax amount. The audit conducted later led to a show cause notice with a demand for service tax and penalties. The Adjudicating Authority upheld the tax liability and imposed penalties under Sections 78 and 77. The appellant contended that the default was not deliberate but due to lack of awareness, and they promptly rectified the situation by depositing the tax amount upon receiving payment. The appellant argued that there was no intent to evade tax and cited Section 80 of the Finance Act, which exempts penalties if there is a reasonable cause for the failure.

The appellant's counsel emphasized that the appellant had acted in good faith, promptly rectifying the tax issue upon becoming aware of it. They pointed out that all transactions were duly recorded in the books of accounts, indicating transparency and no intention to evade tax. The counsel argued that Section 78 penalties are applicable only in cases of deliberate default, fraud, or misrepresentation, none of which were present in this situation. Additionally, they invoked Section 80 of the Finance Act to support their claim that penalties should not be imposed if there was a reasonable cause for the failure. The appellant's proactive steps to rectify the tax issue upon discovery were highlighted as evidence of their compliance and good faith.

The Authorized Representative for the respondent, however, contended that the appellant, being a Public Sector Enterprise with competent officials, should have been aware of their tax liabilities and promptly deposited the tax amount upon receiving payment for services rendered. The respondent argued that the appellant should have considered the tax liability on a receipt basis and deposited the tax accordingly. The respondent's position implied that the appellant had the necessary resources and knowledge to comply with tax regulations and should have done so correctly from the outset.

The judgment ultimately found that while there was a default in depositing the tax amount during the relevant period, it was not deliberate. The appellant's actions upon becoming aware of the tax liability, including issuing a supplementary invoice and promptly depositing the tax amount upon receiving payment, demonstrated a lack of intent to evade tax. The court noted that all transactions were properly recorded, indicating transparency and compliance. As a result, the penalty under Section 78 was set aside, emphasizing that the issue was more about the correct interpretation of the statute rather than deliberate default.