2013 (10) TMI 1273 - AT - Service Tax

Penalty - option to pay reduced penalty of 25% - Service of consulting engineer - Service tax collected from clients but not deposited to the exchequer - ST-3 Returns not filed - Held that - appellant had paid tax amount along with interest before issue of show cause notice, the adjudicating authority should have brought to the notice of the appellant the option available for payment of 25% of tax demand as penalty under section 78 of Finance Act 1994 for final closure of the matter. Since this was not done by the lower authorities I follow the decision of the Hon ble Delhi High Court in the case of KP Pouches (P) Ltd. Vs UOI- 2008 (1) TMI 296 - HIGH COURT OF DELHI - option given to the assessee to deposit 25% of penalty within 30 days from the date of order to avail the benefit of reduced penalty u/s 78. - Decided in favor of assessee partly.

Summary

Issues:
Non-payment of service tax, non-filing of ST-3 Returns, imposition of penalties under sections 77 and 78 of the Finance Act, 1994.

Analysis:
The appellant, a consulting engineer, was registered under the Service Tax Rules for payment of service tax from 2000 to April 2005 but failed to pay service tax from May 2005 to September 2009 despite collecting it from clients. The Revenue Department discovered the non-payment, leading to the appellant paying the outstanding service tax and interest. A show cause notice was issued, demanding the unpaid tax, interest, and penalties under sections 77 and 78. The Commissioner (Appeals) upheld the duty demand, interest, and penalties, prompting the appellant to appeal to the Tribunal.

The appellant's counsel acknowledged the tax liability and interest but contested the penalties, attributing the non-payment to lack of secretarial assistance and financial constraints. The appellant, having spent significant time abroad before starting consultancy work in India, admitted a lapse in complying with service tax laws but argued that prompt payment upon detection should have precluded the show cause notice issuance under section 73(3) of the Finance Act, 1994. The appellant sought to set aside the penalties.

The Revenue's representative opposed the appellant's plea, emphasizing that the appellant retained collected tax without remitting it to the treasury, dismissing claims of ignorance or financial difficulties. The Revenue highlighted that the tax payment only followed the initiation of investigation and statements by officers.

Upon review, the Tribunal found the appellant culpable for retaining collected service tax and not filing returns, justifying the penalties. However, recognizing the appellant's timely tax payment post-detection, the Tribunal noted the failure of lower authorities to inform the appellant about the option to pay 25% of the tax demand as penalty under section 78 for final resolution. Citing a precedent, the Tribunal directed the appellant to pay the 25% penalty within 30 days to discharge the penalty; otherwise, the full penalty amount stands. The penalty under section 77 was upheld, partially allowing the appeal.