2025 (4) TMI 1325 - AT - Service Tax

Failure to pay Service Tax - contravention of provisions of Section 88(1) of the Finance Act 1994 - Commercial Training of Coaching service - levy of penalty u/s 78 of FA - invocation of Extended period of limitation - HELD THAT - If the assessee can show that the service tax could not be paid due to their bonafide mistake in time by invoking Section 80 of the Finance Act, 1994 the penalty can be waived. In this case the respondent has showed their bonafide that they did not receive the payment from the clients for providing services and that is why they could not pay the service tax in time. In that circumstances it is observed from the audited balance sheet as well as in the books of accounts that income figures under sales of M/s Royal for amounting to Rs.1, 38, 67, 081/- has been included while calculating the taxable value of service tax if investigated properly it should not have been included. Further the report from Hyderabad Service Tax Division confirmed payment of service tax by the Sub-contractor and the respondent discharged the said duty against their bills raised by M/s Tera Software Limited. It was also found that M/s Swathy Smart Cards Hi-Tech (P) Limited also paid service tax of Rs.6, 07, 939/- on work order received directly from the respondent and the respondent has also discharged the service tax. The adjudicating authority has rightly invoked the provisions of Section 80 of the Finance Act 1994 and refrained from imposing any penalty under Section 78 of the Act. There are no infirmity in the impugned order by dropping penalty under Section 78 of the Finance Act 1994. There are no merit in the appeal filed by the Revenue the same is dismissed.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal are:

1. Whether the assessee (M/s India Computer Technology) was liable to pay service tax on the taxable services rendered during the financial years 2009-10 to 2013-14, including the quantification of such liability.

2. Whether the assessee was entitled to claim credit for service tax paid by sub-contractors against their service tax liability.

3. Whether the assessee was eligible for relief under the Voluntary Compliance Encouragement Scheme (VCES), 2013, given the timing and nature of their application.

4. Whether penalty under Section 78 of the Finance Act, 1994 for evasion of service tax was leviable against the assessee, considering the facts and circumstances of the case.

5. Whether the provisions of Section 80 of the Finance Act, 1994 (providing for waiver of penalty in case of bona fide mistakes) were applicable to the assessee.

6. Whether the extended period of limitation could be invoked for demand of service tax and imposition of penalty.

Issue-wise Detailed Analysis

Issue 1: Liability to pay service tax and quantification

Legal Framework and Precedents: Service tax liability arises under the Finance Act, 1994, specifically Sections 73(1) and 75 for demand and interest respectively. The taxable category here is 'Business Auxiliary Service' as per the relevant notifications. The assessee's failure to pay service tax and file ST-3 returns constitutes contravention under Section 88(1).

Court's Interpretation and Reasoning: The Tribunal examined the nature of services rendered by the assessee, which included biometric data capture, execution of National Population Register, demographic data digitization, and related services to government-authorized entities. These services fall within the taxable category of Business Auxiliary Services. The Tribunal accepted the Adjudicating Authority's finding that the assessee failed to pay service tax amounting to Rs.8,24,21,927/- (including cess) for the period 2009-10 to 2013-14.

Key Evidence and Findings: The assessee's annual financial statements showed income under 'Professional Charges' but no corresponding payment of service tax or filing of returns. The assessee admitted non-payment and non-filing before investigation. The Adjudicating Authority adjusted the demand by excluding Rs.1,38,67,081/- relating to trading transactions not involving taxable services, reducing the demand to Rs.8,09,16,507/-.

Application of Law to Facts: The Tribunal upheld the adjusted service tax demand after excluding non-taxable trading income. It accepted the methodology of excluding the sales figure that did not relate to taxable services.

Treatment of Competing Arguments: The assessee contended that the income figure from M/s Royal should not be included in taxable value and that Rs.58,92,327/- already paid should be adjusted. The Tribunal agreed with these contentions, reducing the demand accordingly.

Conclusion: The Tribunal confirmed the service tax demand at Rs.8,09,16,507/- after appropriate adjustments.

Issue 2: Entitlement to credit for service tax paid by sub-contractors

Legal Framework: Cenvat Credit Rules allow assessees to claim credit for service tax paid on inputs and input services used in providing taxable services.

Court's Interpretation and Reasoning: The Adjudicating Authority found that sub-contractors M/s Tera Software Ltd. and M/s Swathy Smart Cards Hi-Tech (P) Ltd. had paid service tax aggregating Rs.6,40,62,417/- on services rendered to the assessee. The assessee had paid these amounts against bills raised by the sub-contractors. The Tribunal accepted that the assessee was entitled to claim this amount as credit and adjust it against their service tax liability.

Key Evidence: Documentary evidence of payments and bills from sub-contractors, along with confirmation from the Hyderabad Service Tax Division.

Application of Law to Facts: The Tribunal applied the principle that service tax paid by sub-contractors on services provided to the assessee can be credited by the assessee if properly documented.

Conclusion: The Tribunal allowed the credit of Rs.6,40,62,417/- against the assessee's service tax liability.

Issue 3: Eligibility under Voluntary Compliance Encouragement Scheme (VCES), 2013

Legal Framework: Notification No. 10/2013-ST dated 13 May 2013 prescribed conditions for VCES, including filing of returns and payment of declared liability by 31 December 2013.

Court's Interpretation and Reasoning: The assessee filed the VCES application on 6 January 2014, after the stipulated deadline. The Adjudicating Authority rejected the application on this ground and because the assessee availed Cenvat Credit while arriving at liability, which was not permissible under the scheme.

Key Evidence: Date of filing VCES application, admissions by the assessee's advocate during hearing.

Application of Law to Facts: The Tribunal concurred with the Adjudicating Authority that the application was beyond the prescribed period and thus not eligible for VCES benefits.

Conclusion: The VCES application was disallowed.

Issue 4: Imposition of penalty under Section 78 of the Finance Act, 1994

Legal Framework: Section 78 prescribes penalty for evasion of service tax involving intent to evade, fraud, suppression, or collusion. Section 80 allows waiver of penalty if the assessee proves bona fide mistake.

Court's Interpretation and Reasoning: The Adjudicating Authority found no evidence of willful suppression or intent to evade tax. The assessee's failure to pay was attributed to a bona fide mistake by their auditor. The Tribunal affirmed this view, noting that the assessee had disclosed income and liability in audited accounts and books of accounts.

Key Evidence: Admission of liability in audited financial statements, absence of fraudulent conduct, and the assessee's cooperation during investigation.

Application of Law to Facts: The Tribunal applied Section 80 to waive penalty under Section 78, finding the assessee's mistake to be bona fide and unintentional.

Treatment of Competing Arguments: The Revenue argued that penalty should be imposed due to non-payment of service tax recovered from clients and invocation of VCES after summons. The Tribunal rejected this, emphasizing bona fide nature of mistake and absence of intent.

Conclusion: Penalty under Section 78 was rightly dropped.

Issue 5: Applicability of Section 80 of the Finance Act, 1994

Legal Framework: Section 80 provides for waiver of penalty if the assessee proves that failure to pay tax was due to bona fide mistake and there was no intent to evade.

Court's Interpretation and Reasoning: The Tribunal found that the assessee demonstrated bona fide mistake by showing that non-payment was due to auditor's error and that income was disclosed in accounts. The Tribunal held that the provisions of Section 80 were properly invoked by the Adjudicating Authority.

Conclusion: Section 80 relief was rightly granted, leading to waiver of penalty under Section 78.

Issue 6: Invocation of extended period of limitation and penalty

Legal Framework: Extended period of limitation under Section 73(2) allows demand beyond normal limitation period if there is suppression of facts or fraud. Penalty under Section 77(2) is leviable for failure to file returns as required.

Court's Interpretation and Reasoning: The Tribunal confirmed the invocation of extended period of limitation for demand of service tax. It imposed a nominal penalty of Rs.10,000/- under Section 77(2) for failure to file half-yearly returns, but refrained from imposing penalty under Section 78.

Conclusion: Extended limitation period was validly invoked; penalty under Section 77(2) imposed; penalty under Section 78 waived.

Significant Holdings

"Penalty under Section 78 of Finance Act, 1994 is leviable where there is intent to evade payment of tax coupled with some negative action on our part like fraud, suppression, collusion etc.. He found in this case that there was no intent whatsoever to evade the payment of tax, the reason was unintentional."

"If the assessee can show that the service tax could not be paid due to their bonafide mistake in time by invoking Section 80 of the Finance Act,1994, the penalty can be waived."

"The Adjudicating Authority found that the net taxable liability for the material period is Rs.1,09,61,763/- after adjusting the credit of service tax paid by sub-contractors and amounts already paid by the assessee."

"The assessee is entitled to avail credit of service tax paid by sub-contractors on the same service."

"The application filed under the Voluntary Compliance Encouragement Scheme, 2013 was rightly disallowed as it was filed beyond the prescribed time and involved availing Cenvat Credit, which was not permissible."

"The extended period of limitation under proviso to Section 73(2) of the Finance Act, 1994 was validly invoked for demand of service tax."

"A nominal penalty under Section 77(2) was imposed for failure to file half-yearly returns, but penalty under Section 78 was refrained due to absence of willful evasion."