2018 (8) TMI 423 - AT - Service Tax

Penalty u/s 78 of FA - payment of substantial amount prior to issuance of SCN, on being pointed out - appellant s case is that in the Manpower Supply Recruitment Services, there is much problem of receiving the payments in due time and therefore, the appellants could not discharge the service tax within time - Held that - apart from a mere sentence that there is prima facie case of suppression of facts and intention to evade payment of service tax, there is no evidence discussed in the impugned order as to what is the suppression on the part of the appellant. Similar set of facts decided in the case of SHRIDHAR CASTINGS PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE & CUSTOMS, NAGPUR 2015 (7) TMI 33 - CESTAT MUMBAI , where it was held that penalty in such cases should be set aside by referring Section 73(3) of the Finance Act, 1994, which provides for closure of all proceedings in a case where service tax liability along with interest is discharged by the appellant on his own or on being pointed out by the department - penalty is not warranted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Contesting penalty imposed under Section 78 of the Finance Act, 1994.

Analysis:
The appellants, engaged in recruitment services, faced a demand for service tax for non-payment from February 2009 to December 2009. They admitted the liability, paid part of the tax, and faced a Show Cause Notice for the outstanding amount. The Original Authority confirmed the demand, interest, and imposed penalties under Sections 77 and 78. The appellants contested only the penalty under Section 78, arguing financial difficulties led to delayed payments. They cited cases to support their stance, emphasizing lack of intention to evade tax.

The Department argued that non-payment before the Show Cause Notice disqualifies the appellants from relief under the Act. They claimed the appellants collected tax but failed to deposit it, indicating suppression of facts. Additionally, the non-filing of ST-3 returns invoked penalties under Section 78.

The Tribunal considered the payments made by the appellants before and after the Show Cause Notice, highlighting financial constraints and administrative challenges. Citing legal precedents, they noted that penalties under Section 78 should apply only in cases of deliberate suppression, fraud, or collusion. Lack of evidence of intentional evasion led the Tribunal to set aside the penalty under Section 78. The impugned order was modified accordingly, without affecting the rest of the decision.

A miscellaneous application was filed by the Department for a change in the respondent's name due to the introduction of GST. The Tribunal allowed the application, directing the registry to update the cause title. Consequently, the appeal was partly allowed with the mentioned changes, along with any consequential reliefs.

In conclusion, the Tribunal ruled in favor of the appellants, setting aside the penalty under Section 78. The decision was based on the lack of evidence of intentional evasion and the appellants' efforts to pay the outstanding tax liabilities despite financial constraints. The case serves as a reminder that penalties should be imposed judiciously, considering the circumstances and intent of the parties involved.