2017 (10) TMI 800 - AT - Service Tax

Penalty u/s 76 and 77 - service tax collected but not deposited - Held that - the appellant knowingly, was regularly collecting the service tax from their clients and were not depositing to the Govt. Account. Moreover, they were also not declaring the said service tax liability in the ST-3 returns, which clearly shows their malafide - penalty u/s 76 upheld. Penalty u/s 77 upheld - Held that - in the SCN the said penalty was not even proposed - This is a settled law that adjudication order can not travel beyond the scope of SCN - penalty set aside. Appeal allowed in part.

Summary

Issues:
Challenge to imposition of penalties under section 76 and 77 of the Finance Act, 1994.

Analysis:

Issue 1: Penalty under Section 76
The appellant contested the imposition of penalty under section 76, arguing that the adjudicating authority did not provide proper reasoning for the penalty. The appellant pointed out that they had paid the service tax along with interest upon being notified of non-payment. Additionally, the appellant had a cenvat credit available at the relevant time, which they believed should have been considered before imposing a penalty equal to that amount. The appellant also cited their location in Ratnagiri as a factor affecting compliance due to lack of educated employees. However, the tribunal found that the appellant had knowingly collected service tax but failed to deposit it to the government account or declare it in the ST-3 returns. As such, the tribunal upheld the penalty under section 76, stating that the appellant's ignorance plea was not valid in light of their actions.

Issue 2: Penalty under Section 77
Regarding the penalty under section 77, the appellant argued that it was not proposed in the show cause notice and therefore should not have been imposed. The tribunal agreed with this argument, emphasizing that the adjudication order cannot exceed the scope of the show cause notice. Since the penalty under section 77 was not mentioned in the notice, it could not be imposed later. Thus, the tribunal set aside the penalty under section 77, modifying the impugned order accordingly. The appeal was partly allowed based on these findings.

In conclusion, the tribunal upheld the service tax liability along with interest but upheld the penalty under section 76 while setting aside the penalty under section 77 due to it not being proposed in the show cause notice. The judgment was pronounced on 21/08/2017 by the tribunal comprising Mr. Ramesh Nair, Member (Judicial) and Mr. Raju, Member (Technical).