2024 (10) TMI 1465 - HC - Service Tax

Wilfull failure to pay tax and suppressed the value of service in the returns filed in ST-3 - Suppression for mere non-declaration of details - Invocation of extended period of limitation in terms of proviso to Section 73 of the Finance Act, 1994 - whether the appellant can be fastened with a liability to pay service tax and penalty? HELD THAT - The service tax of banking and financial service was altered with effect from Finance (No.2) Act, 2004 dated 10.09.2004 by Substituting the definition of banking and other financial services . Prior to the aforesaid period, the definition read differently. The petitioner has paid the Service Tax on 03.07.2008 i.e. within 115 days from the date of receipt of Show Cause Notice. We are of the view that the appellant was entitled to take a bonafide stand that no service tax was payable in the context of collection of penal charges although it could be concluded that it was liable to pay service tax. There is no record to show that failure to pay service tax was wilful and deliberate as held in Pushpam Pharmaceuticals Co. 1995 (3) TMI 100 - SUPREME COURT Hon'ble Supreme Court in Uniworth Textiles Ltd., 2013 (1) TMI 616 - SUPREME COURT has held that if non-disclosure of certain items assessable to will not invite the wrath of the proviso for the non-payment of duty on disclosed items, after inquiry from the department concerned and does not attract the proviso. Thus, we are inclined to hold no penalty is payable by the appellant under any of the provisions of the Act. Since tax payable has been accepted by the appellant, appellant shall also pay interest on belated payment of tax under Section 75 of the Finance Act, 1994. We therefore, partly allow the appeal and answer the substantial questions of law partly in favour of the appellant by holding no penalty is imposable on the appellant. The appellant shall pay interest under Section 75 of the Finance Act, 1994 within a period of thirty days from the date of receipt of a copy of this order, if same has not been already paid.

Issues Involved:

1. Invocation of extended period of limitation under Section 73 of the Finance Act, 1994.
2. Confirmation of suppression for non-declaration of details.
3. Non-disclosure of disputed receipts in returns.
4. Imposition of penalties without a positive finding of suppression.
5. Simultaneous imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
6. Denial of benefit under Section 80 of the Finance Act, 1994.

Detailed Analysis:

1. Invocation of Extended Period of Limitation:

The appellant challenged the Tribunal's decision to uphold the invocation of the extended period of limitation under the proviso to Section 73 of the Finance Act, 1994. The court examined whether the necessary ingredients for invoking the extended period, such as fraud, collusion, or wilful misstatement, were satisfied. It was noted that the appellant had a bona fide belief, based on RBI guidelines, that service tax was not payable on certain charges. The court referenced the Supreme Court's decision in Uniworth Textiles Ltd. v. Commissioner of Central Excise, which clarified that mere non-payment of duties does not equate to suppression or wilful misstatement. The court concluded that there was no deliberate intention to evade tax, and thus, the extended period of limitation was not applicable.

2. Confirmation of Suppression for Non-Declaration:

The court addressed whether the Tribunal was correct in confirming suppression due to non-declaration of details not required by law. The appellant argued that the penal charges collected were not service charges and thus not taxable. The court found no evidence of wilful suppression, as the appellant had sought clarification from the authorities and acted on a bona fide belief. The court reiterated the principle that mere non-declaration does not constitute suppression unless there is a deliberate intent to evade tax.

3. Non-Disclosure of Disputed Receipts:

The issue of non-disclosure of disputed receipts in returns was examined. The court noted that the appellant had communicated with the authorities and relied on professional advice, believing no service tax was due. The court emphasized that non-disclosure, in this case, was not wilful or deliberate, aligning with the Supreme Court's interpretation that suppression requires a deliberate act to withhold information.

4. Imposition of Penalties Without Positive Finding of Suppression:

The court analyzed the imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994. It was highlighted that penalties require a positive finding of suppression or intent to evade tax. The court found no evidence of such intent, as the appellant had acted on a genuine belief and had engaged with the authorities. Consequently, the court held that no penalties were imposable under these sections.

5. Simultaneous Imposition of Penalties:

The appellant contested the simultaneous imposition of penalties under multiple sections. The court noted that penalties under Sections 76, 77, and 78 serve different purposes and are not meant to be applied concurrently without distinct findings of non-compliance. Given the absence of deliberate suppression, the court ruled that the simultaneous imposition of penalties was unwarranted.

6. Denial of Benefit Under Section 80:

The appellant argued for the benefit under Section 80 of the Finance Act, 1994, which allows waiver of penalties for reasonable cause. The court recognized the appellant's bona fide belief and efforts to clarify tax liability as reasonable cause. Therefore, the court extended the benefit of Section 80, negating the penalties imposed.

Conclusion:

The appeal was partly allowed, with the court holding that no penalties were payable by the appellant under the provisions of the Finance Act, 1994. The appellant was directed to pay interest on the belated payment of tax under Section 75 within thirty days, if not already paid. The court's decision emphasized the importance of distinguishing between genuine non-compliance and deliberate evasion in tax matters.

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