2023 (3) TMI 442 - AT - Service Tax

Levy of penalties u/s 77 and 78 of the Finance Act, 1994 - delayed payment of Service Tax as well as non-payment of service tax - delay in filing returns - suppression of facts or not - HELD THAT - The provision of Sub-section (3) of Section 73 of the Finance Act, 1994 provides that no Show Cause Notice is to be issued when the assessee has paid the Service Tax along with interest. The Learned Counsel for the appellant has submitted that the delay in paying the Service Tax was due to financial hardships. On being pointed out by the internal audit group, the appellant has immediately paid the Service Tax along with interest. It is also to be stated that the appellant has accounted the amounts received by them as well as the details of transactions. To such extent, there has been no suppression of facts on their part. The words suppression of facts are preceded by the word fraud and therefore, there should be some positive act on the part of the appellant so as to evade payment of Service Tax, to saddle the burden of intention to evade payment of Service Tax. In the present case, there are no suppression of facts on the part of the appellant. Delay in payment of Service Tax due to financial hardships cannot always be considered to be suppression of facts. - An assessee who has suppressed figures in their account or issued parallel invoices so as to evade the payment of tax will not be covered under sub-section (3) of Section 73 of the Finance Act, 1994. Here, apart from a vague allegation, there is no evidence that the appellant has suppressed facts with the intent to evade payment of tax. In the case of COMMISSIONER OF SERVICE TAX, SERVICE TAX COMMISSIONERATE VERSUS VEE AAR SECURE 2011 (1) TMI 716 - KARNATAKA HIGH COURT , it was held that when upon being pointed out, the assessee got themselves registered with the Service Tax Department and paid the entire Service Tax with interest, the penalty imposed was unwarranted. The Learned Authorized Representative for the Department has relied upon the decision in the case of M/S. NEBULA COMPUTERS PVT. LTD. VERSUS COMMISSIONER OF GST CENTRAL EXCISE, CHENNAI 2023 (2) TMI 897 - CESTAT CHENNAI . In the said case, the Tribunal has refused to take note of the plea raised by the appellant therein that the tax was not paid due to financial hardship, which is a view taken on the facts and circumstances of the said case that undue sympathy is not required. The said decision is therefore distinguishable on facts. The penalties imposed are unwarranted and require to be set aside - The impugned order is modified to the extent of setting aside the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 - Appeal allowed in part.

Summary

Issues Involved:
1. Legality and propriety of penalties imposed under Sections 77 and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Legality and Propriety of Penalties under Sections 77 and 78 of the Finance Act, 1994:

The appellants, engaged in manpower recruitment and supply, were audited by the Department, which found delayed payments of Service Tax and late filing of returns. Despite raising bills indicating service charges and Service Tax separately, the appellants failed to pay the Service Tax within the due dates prescribed by Rule 6 of the Service Tax Rules, 1994. The Department issued a Show Cause Notice (SCN) demanding Rs. 50,11,790/- for the period from August 2010 to October 2010, along with interest and penalties. The Original Authority confirmed the demand and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. The appellant contested only the penalties.

The appellant's counsel argued that the SCN should not have been issued as the Service Tax along with interest was paid upon being pointed out by the audit party, citing sub-Section (3) of Section 73 of the Finance Act, 1994. This provision states that no SCN should be issued if the Service Tax and interest are paid. The counsel contended that the delay was due to financial hardships and not mala fide intention, and that mere failure to pay or file returns does not constitute suppression of facts with intent to evade tax. The appellant relied on the Circular dated 03.10.2007 and various judicial precedents to argue against the imposition of penalties.

The Department's representative argued that the penalties were justified as the appellant paid the Service Tax only after the audit inspection and had a history of delayed payments and filings. The representative cited the decision in M/s. Nebula Computers Pvt. Ltd. to support the imposition of penalties.

The Tribunal analyzed whether the penalties were legal and proper. It referred to sub-Section (3) of Section 73, which provides that no SCN is to be issued when the Service Tax along with interest is paid. The Tribunal noted the appellant's financial hardships and immediate payment upon audit pointing out, and found no suppression of facts or intent to evade tax. The Tribunal cited the decision in M/s. Vista Infotech, which held that once an assessee pays the Service Tax along with interest, no SCN should be issued. The Tribunal also referred to the Karnataka High Court's rulings in M/s. Adecco Flexione Workforce Solutions Ltd. and M/s. Vee Aar Secure, which supported the non-issuance of SCNs and non-imposition of penalties when taxes were paid upon being pointed out.

The Tribunal distinguished the decision in M/s. Nebula Computers Pvt. Ltd. based on its specific facts and circumstances. It emphasized that financial hardships and other plausible reasons should be considered differently from deliberate suppression or fraud. The Tribunal concluded that the penalties imposed were unwarranted and set them aside.

Conclusion:

The Tribunal held that the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 were unwarranted and set them aside. The appeal was partly allowed, providing consequential reliefs to the appellant.