2015 (12) TMI 219 - AT - Service Tax

Waiver of pre deposit - levy of penalty - they were collecting the service tax from their customers but instead of depositing the same with the Revenue, were retaining it with them. - Mining and Site Formation Services - Recovery u/s Section 73 - Held that - Appellant is not disputing that they were collecting the service tax from their customers but instead of depositing the same with the Revenue, were retaining it with them. We really fail to appreciate the appellant s contention that the amount was being retained on account of financial difficulties to deposit the same. The service tax was not required to be deposited from the appellant s own pocket but the amount collected by him was to be only deposited with the Revenue, in which case there can be no question of any financial difficulty. As rightly submitted by the learned DR, an assessee, when directed by the Revenue, has no choice but to deposit the amounts in question. As such the deposit of the same before the issuance of the show-cause notice along with deposit of the interest, at the intervention of the department, shall not get covered by the provisions of sub-section (3) of Section 73. Sub-section (4) of the said Section clearly mandates that the provision of sub-section (3) shall not be applicable in case there is a malafide on the part of the assessee. - it is not a fit case for dispensing with the condition of pre-deposit of the entire penalty amount - Partial stay granted.

Summary

Issues: Application to dispense with pre-deposit of penalty under Section 78 of Finance Act 1994. Examination of undue hardship criteria involving prima facie merits of the case and financial hardship.

Analysis:

Issue 1: Application to dispense with pre-deposit of penalty under Section 78 of Finance Act 1994.

The appellant sought dispensation of the condition to pre-deposit a penalty of Rs. 63,55,242 imposed under Section 78 of the Finance Act 1994. Initially directed to deposit Rs. 63,00,000, the High Court remanded the matter to consider undue hardship. The advocate argued that undue hardship entails examining both prima facie merits and financial difficulties.

Issue 2: Examination of undue hardship criteria involving prima facie merits of the case and financial hardship.

The appellant, registered under Mining and Site Formation Services, collected but did not deposit service tax, citing financial difficulties. The advocate contended that after depositing the service tax with interest, Section 73(3) would apply, precluding show-cause notices. The Department argued malafide intent due to non-deposit despite collecting tax. The Tribunal found the appellant's claim of financial difficulty unconvincing, as the tax was to be deposited with Revenue, not from personal funds. The presence of malafide intent was not ruled out. Financially, the appellant showed a net profit and assets, indicating no severe financial distress.

In conclusion, the Tribunal directed the appellant to deposit 50% of the penalty amount within 12 weeks, with the remaining balance waived and recovery stayed during the appeal period.