2017 (4) TMI 858 - AT - Service Tax

Imposition of penalty u/s 78 of FA, 1994 - It was noticed by the department that appellants did not file ST-3 returns and did not discharge their service tax liability for the period from April 2010 to March 2011 - case of appellant is that they had provided the services to Government Departments and they did not receive the service tax component. They could not discharge their tax liability only because of financial hardships - Held that - total demand raised is arrived from the financial statements and such other documents furnished to the department by the appellant. Nothing hidden was unearthed by the department. Mere non-payment of service tax and mere non-filing of returns does not attract the provisions of Section 78 as it contains the words fraud, wilful mis-statement and suppression of facts - The impugned order is modified to the extent of setting aside the penalty imposed under Section 78 only without disturbing the confirmation of demand, interest thereon or the late fee imposed u/s 77 of FA, 1994 - appeal allowed - decided partly in favor of assessee.

Summary

Issues: Penalty imposed under Section 78 of the Finance Act, 1994

Analysis:
1. Issue: Appellant's failure to file ST-3 returns and discharge service tax liability.
- The appellant, registered for Survey and Map Making Services and ITSS, did not file ST-3 returns or pay service tax for April 2010 to March 2011.
- Department found a service tax liability of ?41,14,067, of which the appellant paid ?27,78,816 with interest.
- Show cause notice issued, demanding the outstanding amount and imposing a penalty under Section 78.

2. Issue: Appellant's defense against the penalty.
- Appellant argued financial hardships prevented tax payment, not willful misstatement.
- Cited judgments to support the claim that non-filing of returns does not imply suppression of facts.
- Contended that the demand was based on financial statements, with no hidden information discovered.

3. Issue: Department's stance on the penalty.
- Department maintained that the penalty was justified due to non-filing of returns and delayed tax payment.
- Argued that the appellant failed to provide a reasonable cause to reduce the penalty under Section 80.

4. Judgment:
- Tribunal noted that the appellant paid over half the tax before the show cause notice.
- Emphasized that non-payment and non-filing alone do not constitute fraud or suppression of facts under Section 78.
- Acknowledged the appellant's financial difficulties and the lack of receipt of service tax from government departments.
- Ruled in favor of the appellant based on precedents, stating that penalties under Section 78 were unwarranted.
- Modified the order to set aside the penalty under Section 78 while upholding the demand, interest, and late fee.

This judgment highlights the importance of considering financial circumstances and intent when imposing penalties under tax laws, emphasizing that mere non-payment or non-filing may not always imply fraudulent behavior or suppression of facts.