2010 (11) TMI 18 - HC - Service Tax

Penalty - section 78 - monetary limit - Held that assessee was well aware of the provisions of the Finance Act, 1994 during the period of dispute. That is why they could challenge the constitutional validity of the provisions before the High Court. It appears from the record that in the writ petition filed by the assessee before the High Court the challenge is against service tax on components other than services charges - minimum penalty equal to demand of service tax u/s 78 to be levied

Summary

Issues:
Interpretation of Section 78 of the Finance Act, 1994 regarding the penalty imposed for service tax evasion.

Analysis:
The case involved an appeal to determine whether the penalty imposed, equivalent to the service tax short paid by the party, under Section 78 of the Finance Act, 1994, represented the maximum statutory limit or the minimum mandatory limit. The assessee, a Security Agency, had filed returns for specific periods without paying service tax on the gross amount charged from customers, instead paying only on the service charges received. A show cause notice was issued, and eventually, a penalty was imposed along with the demand for service tax. The Tribunal later reduced the penalty amount from around Rs. 6.5 lakhs to Rs. 1.5 lakhs.

The revenue's counsel argued that the penalty equal to the service tax amount was the minimum prescribed under Section 78, and the Tribunal's reduction was erroneous. The assessee's counsel did not contest this position, acknowledging the clear language of Section 78. The provision stated that the penalty could be a sum not less than, but not exceeding twice, the amount of service tax sought to be evaded due to suppression or concealment of taxable service value or furnishing inaccurate value.

The assessee contended that there was no intent to evade tax, citing a genuine dispute over the computation of service tax. They claimed all facts were disclosed in the return, and therefore, the penalty should not be interfered with. However, the original order and subsequent findings by the appellate authority and Tribunal indicated that the party had deliberately withheld the true value of taxable services, justifying the penalty under Section 78.

The Tribunal found that the assessee was aware of the Finance Act provisions during the dispute period, as evidenced by their challenge to the constitutional validity of the provisions before the High Court. Despite this, the assessee initially only furnished service charges figures in their returns, later providing the gross values of services for tax levy purposes. The Tribunal concluded that the non-payment of service tax on components other than service charges was deliberate concealment, justifying the penalty.

The High Court upheld the findings, emphasizing that the liability to pay service tax on the turnover value of services was clear, and there was no confusion regarding tax liability. Therefore, the authorities were justified in imposing the penalty under Section 78. The Court ruled in favor of the revenue, holding that the penalty equivalent to the service tax amount was the minimum prescribed, setting aside the reduced penalty imposed by the Tribunal.