2017 (10) TMI 662 - AT - Service Tax

Penalty u/s 78 - non-payment of service tax - whether such non-payment of service tax by the appellant was on account any one of the ingredients mentioned in the said Section 78? - Held that - there is a clear mandate of law provided under Section 78 of the Finance Act, 1994 that any person, who has not paid or short-paid the tax on account of any fraud; collusion; willful mis-statement; or suppression of facts or has evaded any tax provisions with an intent to evade payment of duty would be liable to equal amount of penalty. The appellant was registered and was paying service tax but for the period involved in the present appeal. The said non-payment was detected by the department on investigations made against them. It cannot be held that such non-payment of service tax or even non-disclosure of the value of the same in the return was on account of the non-receipt of compensation from the clients as they were collecting service tax from their customers, Even otherwise, the payment of service tax is the legal obligation of the service provider, irrespective of the fact of receipt of value of the service from service recipient All these factors lead to an inevitable conclusion that there was malafide on the part of the appellant to suppress the value of the services and not to pay service tax on the same - penalty u/s 78 upheld. Appeal dismissed - decided against appellant.

Summary

Issues:
- Imposition of penalty under Section 78 of the Finance Act, 1994 for non-payment of service tax.
- Applicability of Section 73(3) of the Finance Act, 1994 in the case.
- Invocation of Section 80 of the Finance Act, 1994 for failure to deposit service tax.
- Claim for reduction of penalty to 25% under the proviso to Section 78.

Analysis:
1. Imposition of Penalty under Section 78:
The appellant, a service provider, failed to reconcile service tax paid with P & L accounts, leading to a short payment of service tax. The authorities confirmed the demand, interest, and imposed a penalty under Section 78 for contravention of Finance Act provisions. The appellant argued financial difficulties as the reason for non-payment but collected service tax from customers. The tribunal held that non-disclosure and non-filing of returns indicated malafide intent, justifying penalty imposition.

2. Applicability of Section 73(3):
The appellant contended that depositing service tax before the show-cause notice should negate penalty imposition under Section 73(3). However, as non-payment was due to suppression and malafide, Section 73(3) did not apply. Citing a Supreme Court decision, the tribunal emphasized that payment post-notice issuance does not alter penalty liability when non-payment is intentional.

3. Invocation of Section 80:
The appellant's claim under Section 80, citing financial crisis as a reasonable cause for delayed payment, was dismissed. Financial difficulties were deemed insufficient to qualify as a reasonable cause under Section 80, as observed in a previous tribunal decision.

4. Reduction of Penalty to 25% under Section 78 Proviso:
The tribunal noted that the appellant did not deposit the entire service tax, interest, and 25% penalty within the stipulated period, thus denying the benefit of reduced penalty. The original authority had allowed reduced penalty if conditions were met within 30 days, but the appellant did not comply, leading to the rejection of the claim for reduced penalty at the appellate stage.

In conclusion, the tribunal upheld the imposition of penalty under Section 78, dismissed the applicability of Section 73(3) due to malafide intent, rejected the invocation of Section 80 for financial crisis, and denied the reduction of penalty to 25% as the appellant did not fulfill the necessary conditions within the prescribed timeline. The appeal was consequently rejected on 10/08/2017.