2016 (5) TMI 944 - AT - Service Tax

Imposition of penalty - Section 78 of the Finance Act, 1994 - Construction of Complex Services - Appellant prayed that financial difficulty is a reasonable cause for non-deposit of the tax with the Revenue and as such Section 80 should be invoked - Held that - We really fail to understand that how the collected amount, which was required to be deposited, can lead to any financial hardship on the part of the assessee inasmuch as it was collected amount only which was required to be deposited. Instead of depositing the same, the appellant have retained it for their own financial gains. We can appreciate financial difficulty to some extent if the said service tax was required to be deposited by the appellant from their own pocket. Even in that case, the appellant was under obligation to reflect their liability to the Revenue, by taking a registration and filing ST-3 returns. The use of the amount collected by the appellant from their customers in the name of the service tax, instead of depositing the same with the Service Tax Department, clearly reflects upon the malafide intention of the assessee. In such a scenario, the provisions of Section 80 cannot be invoked, in as much as the said section speaks of a reasonable cause, which is bound to be bonafide cause. The fact that service tax was being collected by the appellant from their Customers reflects upon their knowledge that the services being provided by them attract service tax. Pocketing of the said collected amount is indicative of the appellant s malafide to divert the exchequer s legitimate amount for their own financial gains, thus making them liable to penalty. - Decided against the appellant

Summary

Issues:
Imposition of penalty under Section 78 of the Finance Act, 1994 for non-depositing service tax collected from customers due to financial difficulty.

Detailed Analysis:

1. Imposition of Penalty: The appellant, engaged in providing Commercial and Industrial Construction Services, faced a penalty of ?1,36,83,810 under Section 78 of the Finance Act, 1994. The penalty was imposed due to the appellant's failure to deposit service tax collected from customers, despite not being registered with the Service Tax Department initially.

2. Appellant's Submission: The appellant did not contest the demand for service tax and had paid it along with interest before the show cause notice was issued. The challenge was solely against the penalty imposition. The appellant argued that financial difficulties led to non-deposit of collected service tax, invoking Section 80 of the Finance Act, which states that no penalty should be imposed if there is a reasonable cause.

3. Revenue's Argument: The Revenue contended that the appellant's act of collecting service tax from customers but not depositing it with the Revenue indicated malafide intentions, making Section 80 inapplicable. Section 78 was cited as the provision for penalty imposition in such cases, supporting the Original Adjudicating Authority's decision.

4. Judgment: The Tribunal acknowledged that the appellant did not dispute the service tax liability and had paid a significant portion of it along with interest. However, the Tribunal found the appellant's reasoning of financial difficulty for non-depositing the collected amount unconvincing. The Tribunal noted that the appellant's retention of the collected amount for personal gains reflected malafide intentions, making them liable for penalty under Section 78.

5. Precedents: The Tribunal referenced previous cases where non-payment of service tax despite collecting from customers was deemed as malafide, leading to penalty imposition under Section 78. The judgments highlighted the importance of depositing collected service tax with the Revenue to avoid penalties.

6. Decision: Considering the facts and arguments presented, the Tribunal upheld the penalty imposed by the Adjudicating Authority, stating that there were no justifiable reasons to set it aside. The appeal was consequently rejected, affirming the penalty under Section 78 of the Finance Act, 1994.

This detailed analysis encapsulates the key aspects of the judgment, focusing on the imposition of penalty for non-depositing service tax collected from customers and the Tribunal's decision based on the arguments presented by both parties.