2017 (11) TMI 713 - AT - Service Tax

Non-payment of service tax - architect services - construction of complex service - time limitation - penalty - Held that - the appellant were collecting the service tax and were not depositing to the Government account. They have also not declared the receipt of the service charges in their ST.3 Return. They have also not declared the correct receipt of the service charges in their Income Tax Return, therefore the malafide intention of the appellant is clearly established, accordingly the demand cannot be set aside on the ground of time bar. Penalties u/s 76, 77 & 78 - Held that - penalties u/s 76 set aside - penalties u/s 77 and 78 upheld. Appeal allowed in part.

Summary

Issues: Time bar for demand of service tax, penalties under Section 76, 77 & 78.

Analysis:
1. Time Bar for Demand of Service Tax:
The case involved the appellant contesting the demand on the grounds of time bar. The appellant argued that since the issue related to the classification and was a question of law, no malafide intention could be attributed to them, making the demand not sustainable on limitation. However, the Revenue contended that the appellant had collected service tax but failed to deposit it to the Government account, did not show it in their Income Tax Returns, and thus exhibited malafide intention for tax evasion. The Tribunal found that the appellant's actions clearly established malafide intention, as they did not deposit the collected service tax, nor correctly declared the service charges in their returns. Consequently, the demand of service tax was upheld, rejecting the appellant's argument on time bar.

2. Penalties under Section 76, 77 & 78:
The appellant also contested the penalties imposed under Section 76, 77 & 78 of the Finance Act. The appellant's counsel argued that since there was no malafide intention, the penalties were not legal and proper. The Tribunal, after considering the submissions from both sides, set aside the penalty imposed under Section 76 of the Finance Act. However, the penalties under Section 77 & 78 were upheld, taking into account the overall facts and circumstances of the case. The Tribunal's decision reflected a nuanced approach, recognizing the lack of malafide intention in certain aspects while upholding penalties in others.

In conclusion, the Tribunal partially allowed the appeal, upholding the demand of service tax along with interest and penalties under Sections 77 & 78 of the Act, while setting aside the penalty imposed under Section 76. The judgment highlighted the importance of timely tax compliance and the consequences of failing to deposit collected taxes, even in the absence of malafide intention.